Here we go - a reversal of tone in the fiscal cliff negotiations. The spirit of compromise can last only so long in Washington before shifting into another political stalemate that holds the short term economic balance of the country at stake. After encouraging face to face meetings and talk of cooperation between U.S. President Barack Obama and House Speaker John Boehner earlier this week, the tide has quickly turned and comments made by the President on Wednesday indicated that Republicans were not playing nice and making the negotiations personal, without taking into account what's best for the country. It was only a matter of time before the talks headed south and now - with only a handful of working days left before the end of the year - it gets interesting.
Fitch Ratings warned on Wednesday that if a deal is not reached by year-end, the agency was prepared to downgrade the U.S. credit rating from its current "AAA" standing. Should such an eventuality take place, it would likely add to any downward pressure created by the combination of swift tax increases and spending cuts that would result from the lack of a cliff deal anyway and potentially bring some pain to the portfolios of investors large and small. With those thoughts in mind the markets, which had been trading green for the better part of the day, slipped into red territory as investors digested the latest headlines.
The pressure is on to get a deal done and the politicians know this, so the end game is likely to be a deal, or at the very least an agreement to extend the deadline for a short time while the final touches are put on an agreement. This time there's too much at stake to let it go on for too long.
In addition to developments surrounding the cliff negotiations, Wednesday was a pretty big news day for some popular stocks and stories. There are also a few more heating up for the remainder of the week - Here are just a few of them ...
UBS To Pay $1.5 Billion Settlement
Shares of UBS AG (UBS) traded relatively flat this week, but reports were circulating on Wednesday stating that the Swiss bank had agreed to pay a settlement in the amount of $1.5 billion to multiple governments, including the United States, after admitting to rigging the Libor rate for years. Two traders will also face charges in connection with the case. With a market cap of well over sixty billion, the fine is not likely to hurt the banking giant much, hence the lack of reaction from UBS trading shares in response to the news, but the event is additional proof that governments are no longer playing nice when it comes to white-collar crimes. UBS was not the first to have such fines levied against it, and it's likely not the last, either, as roughly a dozen big banks are still under scrutiny.
In other major banking news from last week, HSBC (HBC) agreed to pay nearly two billion dollars to the U.S. authorities in regards to a money laundering suit. You wonder if this is all included in the "new revenue" being raised in conjunction with fiscal cliff deal.
Oracle Beats On Earnings
Volume and price were both riding high on Wednesday for Oracle Corporation (ORCL) when the company posted earnings that beat most estimates. The stock also set a new 52-week high during intra-day trading as per-share profit came in at 18% over the previous year's quarter. Forecasts also remained upbeat moving forward and CNBC's Jim Cramer offered the company a shout-out during his 'Mad Money' television program, although some are taking an "I'll believe it when I see it approach" to the company's ability to maintain such a positive uptrend. Many analysts have become believers, though, as JPMorgan Chase (JPM) reiterated its "overweight" rating and price target of forty bucks on Wednesday while Goldman Sachs (GS) and Citigroup (C) also made similar moves.
In riding a wave of growth in its software business, Oracle has built momentum that could push through into the new year. The stock is still trading for well below most analyst price targets and the company has regained its footing as a leader of the evolving generation of software and technology. Some may be skeptical about "chasing" this one higher - and maybe rightfully so - given the increasingly tense tone surrounding the fiscal cliff negotiations that could derail the December rally and have investors heading for the exits come January.
Those looking to ride this one for the long term portfolio are again encouraged by the positive growth trends the company has shown that turned into significant gains this year already, and it could be a nice 'buy the dips' play moving forward for those looking to jump in or accumulate more shares for the future.
Technology, Products and Services:
SiriusXM Appoints Interim CEO
Sirius XM Radio Inc. (SIR) CEO Mel Karmazin indicated months ago that he would be stepping down from his position as Liberty Media (LMCA) inched closer and closer towards majority control of the company and on Wednesday Sirius announced that an interim replacement has bee appointed. Originally it was thought that Karmazin would hang on until February, but of course, we now know that's not going to be the case. Karmazin has presided over Sirius since 2004, secured the merger with XM and worked the deal with Liberty's John Malone to stave off bankruptcy in 2009 when SIRI shares traded for a mere nickel. Malone and Liberty are just about over the threshold where they would control SIRI and it looks like Big Mel chose the path of stepping aside, rather than essentially work for his sometimes-adversary.
In temporarily replacing Karmazain, the company has promoted from within - appointing James Meyer to hold down the fort until a full-time replacement can be found. In light of the news shares have again approached - and even surpassed at one point - the three dollar mark after stalling just below that milestone mark a month or two ago. According to a Wednesday report, Meyer could be in line to permanently replace Karmazin, but the "search committee" appointed to seek out a new CEO has not yet made a final decision as such.
Shares of SIRI have been on the move this year - and even more so for those that have held from a nickel - and some predict that the stock can run further as the auto industry continues to rebound and the company entertains going international. If the auto industry slows, however, or if the broad markets take a dive, then SIRI shares could slip, but investors who are looking towards the future may use such opportunities to accumulate or add on the dips.
Investors will also be watching and listening for comments from Liberty as to what courses of action will be undertaken to bring SIRI into the next era of its business strategy. SIRI goes through some dull lulls every now and then, but this is once again a hot story to watch.
Healthcare, Biotech, Pharmaceutical:
Dendreon Pushes Higher
Dendreon (DNDN) shares have pushed higher this week on fairly strong volume after a Tuesday announcement that the company would sub-lease half of its Russell Center space in Seattle as part of continuing cost-cutting measures. DNDN shares traded for under four dollars at points over the few months as the cost-cutting measures were put into effect, but have since rebounded as the latest earnings report indicated that the measures were beginning to prove effective. Expanded insurance coverage by Aetna (AET) for the company's prostate cancer vaccine, Provenge, also helped fuel the rebound, while buyout speculation this week added to the early-week spike.
Dendreon may be positioned for a rebound year in 2013 and this week's move higher can be an indication that others would agree with that assessment. The company proved to be an earnings winner for the most recent quarter as shares spiked by as high as over thirty percent on huge volume when investors liked what they saw in the twenty seven percent revenue spike for Provenge sales over the previous-year quarter. Investors also took note of the fact that Dendreon officials expected savings from the implemented cost-cutting measures to reach $150 million annually.
Moving into the new year, investors will continue to look for additional proof that the expected savings are taking hold - and the sub-lease announcement plays into this - and also for proof that Provenge sales are going to regain some upward momentum. There's no doubt that the product did not hit the market with the great demand that was previously expected, mainly due to price considerations and reimbursement issues, but there have been methodical signs that the product could experience a resurgence, such as the above-mentioned expanded insurance coverage and the greater acceptance by "community oncologists," as noted in the latest earnings report.
While concerns exist about potential competition from Medivation's (MDVN) Xtandi, Sanofi's (SNY) Jevtana, and Johnson & Johnson's (JNJ) Zytiga, ongoing trials could prove that Provenge may be a preferable course of action when used in conjunction with some of those drugs, diminishing some of those competitive concerns.
With a nice move higher this week and signs of a rebound aligning, DNDN is one to keep an eye on leading into 2013.
Oncothyreon Crashes On Failed Study Results
Shares of Oncothyreon Inc. (ONTY), which had been making some noise over the past few weeks in anticipation of Stimuvax trial results, crashed hard on Wednesday as news circulated that the results were out and Stimuvax failed to meet the primary endpoints that would have justified a trip before the FDA for approval. Volume was monumental with the fifty percent drop in price, with well more than half the total float changing hands. Stimuvax, intended to treat non-small cell lung cancer, is partnered with Merck KGaA (MRK.F), whose shares also dropped by four percent on the news.
Stimuvax was predicted as a potential billion-dollar blockbuster, if successful, but Oncothyreon will now look deeper into its pipeline for a potential Plan B, starting with PX-866, a pan-isoform phosphatidylinositol-3-kinase (PI-3K) inhibitor. The product is currently being investigated in mid-stage trials and is still years away from a potential date with the FDA, placing ONTY back as a speculative, mid-stage investment. Merck KGaA will not dramatically suffer from this setback, but the company had been looking to use Stimuvax to reinvigorate life into a pipeline that is considered not-so-robust these days.
According to comments released on Wednesday by Merck, Stimuvax looked to be effective in treating a certain subset of patients and that the company would investigate that further, but as far as investors are concerned, it's a failed trial and regardless of the subset or not, another major trial would need to be conducted anyway.
ONTY has proven a winner over time, with price swings from the dollar level to over ten at points over the past years, but they don't all pan out in the long run - hence the need for investors to play the opportune trades when the times arise in order to ensure a green investment over the long run. Oncothyreon is not dead, but the potential just got set back a few years and its flagship product may no longer be considered viable.
TrovaGene Taps On Seven's Door
TrovaGene Inc (TROV) shares, which have already been flying higher this month, approached the seven dollar mark on Wednesday and with key catalysts setting up for early next year, TROV remains a hot one to watch. While the triple-the-norm volume supporting Wednesday's run is significant in itself, the 200,000 shares traded also indicates that stock has not yet received the wide-spread attention that may spark an even more protracted run, if positive events continue to unfold as they have recently. TrovaGene has developed a line of diagnostic technology that may identify specific markers for various cancer types through simple urine tests and some of those tests are nearing the commercial stages, the first of which - a diagnostic able to detect KRAS mutations through urine samples - is expected to reach that milestone this coming January.
Considering the potential of the technology, Aegis Capital recently initiated coverage of the company with a rating of "Buy" and helped to spark the December rally.
TROV's run on Wednesday, however, may have been related to specific news. The company announced early on Wednesday that it had "granted Genoptix, Inc. [a Novartis (NVS) Group Company] a worldwide, non-exclusive license to incorporate nucleophosmin protein (NPM1) into research and clinical testing services for acute myelogenous leukemia (AML)." The deal is significant for TrovaGene in that it comes with up-front fees as well as a potential revenue stream, in the way of future royalties. Specific terms were not included in the Thursday release.
This deal joins other collaborative efforts signed by the company and helps validate the widespread acceptance of the technology and also boostsTROV's potential as a merger and/or acquisition candidate later on down the road. TrovaGene is also capitalizing on a growing healthcare trend of exploiting less-invasive and less-expensive means of identifying and treating various cancers and disease types.
Having returned a clean triple in just a couple of months, this is going to be a hot story to watch moving into 2013. The value of the technology - and the company's patent portfolio - has been gaining the attention of investors. The commercialization catalysts of 2013 could be what puts this one over the top. Bear in mind that stocks in this sector experiencing such quick and monumental runs can set up for a pullback at some point - not to mention that there's never anything wrong with taking a little off the table when the percentage gains are so great - but that's what having a handful of trading shares is for, to supplement and support a strategy that may be based on holding a core group of shares for the long term.
Prolor Positioning For 2013
Shares of Prolor Biotech (PBTH) have been straddling the five dollar mark for a couple of months now, but the company may be positioned for an eventful 2013 after a year of achieving numerous milestones, including the dissemination of positive Phase II results for hGH-CTP in hormone-deficient adults and the initiation of a Phase II trial in Europe for the treatment of children in the same indication. It is expected that the company will launch a Phase III adult trial early in 2013.
hGH-CTP is based on technology derived from the naturally-occurring Carboxyl Terminal Peptide (CTP). CTPs can be attached to already-existing therapeutic proteins in order to slow the process by which the protein is removed from the human body, thereby creating an extended life span for an already-existing treatment and significantly reducing the amount of injections or applications a patient would need to endure during the course of treatment. With that said, hGH-CTP has already proven Phase II trials to be able to replace seven once-daily injections of hGH with just one injection taken weekly. That marks a huge quality of life upgrade over the current standard and could become the treatment-of-choice in the multi-billion dollar hormone deficiency market, if successful in the next round of trials and approved for market.
Significant validation was given to hGH-CTP with the initiation of the pediatric trial in Europe. European regulators need to be essentially overwhelmed by trial data in adults before approving a trial in children, therefore allowing this trial could indicate that they were, in fact, wholly convinced in the adult data presented.
It's also worth noting that Teva's (TEVA) Dr. Phillip Frost is already heavily invested in PBTH and that connection is intriguing because, which is already linked to other buyout rumors, could also be considered as a potential buyer of Prolor.
Although the news flow has been somewhat dormant of late from the company, development is still in progress and a Phase III is planned for 2013. Often times, it's best to buy into the speculative healthcare stories when no one else is paying attention, because when attention is already widespread, one likely would have already missed the rally.
Roundup: As noted in the open, the tense turn taken by the cliff negotiations may start to immediately weigh on the direction of the markets. Early indications are that stocks will open flat or slightly down, but as we saw into the close on Wednesday, a move to the downside could materialize rather quickly. That said, a move to the upside could form, too, if talks resume a positive tone, but it's crunch time now and the politicians look to be digging trenches for the final showdown. It could be an eventful closing to 2012 and if a deal is not done by January - the New Year fireworks may also provide quite a show. But at least the Mets found a catcher and an outfielder.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.