Stock Watch Wednesday, 27 March 2013

Includes: AMRN, DNDN, FPMI
by: VFC's Stock House

U.S. markets spiked on Tuesday and international shares followed suit on Wednesday, aside from markets in Europe, after housing and durable goods data provided another round of reassurance that the economic recovery in the States was well on track. Concerns in Europe remained, however, even after a bailout deal was reached earlier in the week in regards to Cyprus. The fact that large depositors in the Cypriot banks were 'taxed' heavily as part of the deal concerned investors across the European continent and applied pressure to regional markets and the euro currency, too. Markets on this side of the pond continue to disregard the Cyprus news, but the longer it affects Europe, the potential increases that investors over here will become somewhat concerned as well - but as long as the encouraging economic data we've seen continues moving forward, a large-scale pullback will be viewed as improbable. Especially given the likelihood that America is about to witness its first real budget deal in years.

The stability we've become accustomed to during the early-year record setting uptrend looks to have been replaced by more volatility, if the past few trading sessions are to be a judge, so it could be inching back towards a trader's market, whereas the "buy and hold" crowd has done quite well so far this year. If the overseas markets are an indicator for Wednesday, though, another up day could be in the works.

As the broad-market stories continue , there are still plenty of individual stocks and stories to keep an eye on. Here are just a few of them for the week of March 25, 2013...

Healthcare, Biotech, Pharmaceutical:

Dendreon Sinks As Short Interest Grows

Dendreon (NASDAQ:DNDN) shares dropped another four percent on Tuesday, following a downtrend that has been in place since shares spiked at over the seven dollar mark in early February. No significant news has been released to support the fading share price, but a key milestone was met earlier this month when the company announced that it had settled a class action lawsuit that had been filed in 2011 against certain of its officials for providing 'false and misleading' statements in regards to the Provenge commercial launch. The downturn in price indicates some investors may have 'sold the news' after the settlement, but moving forward, the current share price retreat may offer investors looking at playing the prospects of a revival in Provenge sales the opportunity to buy the dip. After all, earnings will be the key driver to this stock and it was anticipation of the earnings report that fueled Dendreon's early-year run.

The growing short interest in Dendreon shares may indicate that few believe in the potential for Provenge to rebound. The last quarterly report reversed the trend of slumping Provenge sales, but it'll take another quarter of such results to convince some of the non-believers out there that a rebound in sales is for real. Those chances are viewed as decent by those taking the long story, as some insurance carriers, such as Aetna (NYSE:AET), have expanded their coverage of Provenge treatment over recent quarters and could help fuel growth moving forward. While investors may look at the spike in short interest is a sign that few are buying into that theory, the inherent nature of the sector may be more responsible for that interest than the Dendreon story itself. It's all-too-common in the developmental biotech and small pharma sector to see shorts jump on top of any share price spike, simply because the volatility of the sector attracts just as many - if not more - short-term day, swing, momentum and catalyst traders as true longs. With short-term profits in mind, these traders bail on the stock, which opens the door for the shorts to take ample opportunity of such action.

Since Dendreon pretty much lives and dies by Provenge sales these days, the short-siders know that they have ample opportunity to cover before the next report, if in fact they feel it is worthwhile to do so. Some may stick around in anticipation of a negative report, which means that any better-than-expected results could fuel a modest bout of covering that could help rebound the share price, at least to over the five dollar level again.

While some investors still believe that Provenge has the potential to turn into the blockbuster that many thought it would be after approval, especially if used in conjunction with other products hitting the market - such as Medivation's (NASDAQ:MDVN) Xtandi, Sanofi's (NYSE:SNY) Jevtana, and Johnson & Johnson's (NYSE:JNJ) Zytiga, for instance - few would argue that the commercial was a highly successful one, especially since it was undertaken without the help of a major partner.

The potential for a rebound lies on the horizon, though. Expansion into Europe is viewed as a key catalyst that could unfold later this year and the company remains a potential buyout play, too, especially when the market cap sinks to near the stock's 52-week lows. Press has been negative of late, convenient for the rising short interest, but although a return to the post-approval highs has never materialized since, DNDN has proven a solid trade over the past quarters. Considering shares tend to run a bit into each earnings report, the current dip makes DNDN worth checking out again - especially if the broad markets head south along with Europe and take even the speculative plays with it.

FluoroPharma Patent Attracts Some Trading Action

Shares of FluoroPharma (OTCQB:FPMI) continue to trade relatively under the radar, but an announcement last week that the company had landed another key patent attracted some modestly-increased trading action and enough volatility to have the low and high of the day on Tuesday significantly apart. Such action could be indicative that speculative investors may be forming the basis of a position ahead of key catalysts, but the volume also indicates that many are not yet ready to jump "all in" with Phase II trials still in the relatively early stages. That fact may offer the more patient investors the opportunity to take a look and slowly anticipate results of the ongoing trials, which have already returned encouraging early results.

FluoroPharma has developed a pipeline of positron emission tomography (PET) imaging agents that are used for the efficient detection and assessment of various forms of coronary artery disease and certain types of cancer. The most advanced of its products, CardioPET, and BFPET are currently being tested in Phase II trials and early indications would indicate success, as mentioned above. Additional interim and actual results from these trials serve as potential catalysts for the coming quarters.

Last Friday's patent announcement further boosts the company's intellectual property portfolio, always an important process for a still-developing company, and boosts the potential of its pipeline, too, having secured patent protection for a "series of metabolic markers for PET and SPECT imaging. The compounds' specific use is for metabolic activity deficiencies in organs such as heart and liver as well as for tumor tissue activity."

Based on the early trial successes, Zack's maintains a price target of well more than double the current levels and it's possible that the share price could move in accordance, should the upcoming trial catalysts look encouraging. As mentioned before, such speculative picks often roll along relatively ignored when the broad markets are moving higher and investors are making money on much safer and more stable picks, but when speculative money starts entering the market again, both short and long-term traders could be attracted to the likes of FPMI as a developmental catalyst play. The broad risks of the sector apply, especially with a "Phase II" company, but a bit of interest and volume could quickly send FMPI shares near the value described by Zack's in its recent price target justification, as linked above.

Additionally, heavy volume earlier this month with little - if any - price movement could also be indicative of accumulation, for those that are attracted to potential 'volume before price plays.'

Amarin Dives As Early Sales Are Described as a Disappointment

Analysts and pundits alike continue to take a very skeptical approach in regards to Amarin Corporation (NASDAQ:AMRN) and the commercial launch of its flagship product, Vascepa, mainly due to the fact that the company launched the product itself, without the help of a commercial partner or a buyer. Given the failures of other smaller companies to successfully launch a product on its own, use Dendreon - discussed above - as an example, Amarin will need to prove itself in terms of sales numbers before convincing the naysayers that it can get the job done. The initial word has it, by those monitoring early script numbers, that Vascepa is slow to gain traction and AMRN shares slipped to below the seven dollar mark this week as a result. It doesn't help that Jim Cramer has provided a negative opinion on the stock, too, although a comparison to the Mets trading R.A. Dickey is hardly relevant. The Mets rebuilt for the future with that deal by trading a pitcher nearing wheelchair age who had banked two good seasons in a long and unimpressive career before coming to New York, so if anything - Cramer threw Amarin some sly props with that one.

A slow start should not come as much of a surprise to anyone, however, as the company CEO at the time of the launch looked to temper early expectations. Even those analyzing the opening weeks of the launch admit that it is far too early to judge the success of the launch, so the assessments should - at least at this time - be taken with a grain of salt because AMRN is still very early in the game. Some have argued that it would be unfair to judge Vascepa on the open market before it is approved for both the MARINE and ANCHOR indications, where patients with very high triglycerides would also have a shot at the medication. Those arguments are highly valid, too, although they do little to soothe investors looking for a shorter-term gain than waiting quarter after quarter for what results could provide.

In the absence of impressive early sales numbers, the significant short interest in the stock will continue to pull in gains of its own. The wild card, still, is the potential for a partner or a buyout to materialize. Since the launch is underway and a sales team is in place, however, a buyout would seem more likely than a partner. The lower the share price rolls, too, then the more likelihood that a deal could materialize as a potential bigger player could swoop in and maybe land the company for a fraction of what it would have taken shortly after approval when hype was high and shares approached twenty bucks/per share. I'll continue to use Human Genome Sciences as an example to that accord.

The wild card to a buyout still remains a New Chemical Entity (NCE) designation for Vascepa, which has been in limbo for months now. With another month just about in the books, investors are turning attention to April, when the possibility of a decision could again present itself. A negative decision would likely weigh on the downtrend, although it's likely that some of the recent decline is pricing in a negative opinion, while a positive decision could lead to a rebound in price if renewed buyout talk accompanies the news.

Those looking for short-term gains may bank on the NCE catalyst for a chance at a trade, but those waiting for the long-term viability of Vascepa have eyes towards an expanded approval later this year. Those investors may enjoy the opportunity that AMRN is providing as a "buy the dips" play. Given the negative press, increased short interest and lack of NCE, AMRN's downtrend may be tough to halt in the absence of news. Still one of the more intriguing plays in the sector, as the lower this one goes, the more probability that a buyout will materialize, in my opinion, although longs holding since the highs could be disappointed, as was the case when a nearly identical story played out with Human Genome.

Roundup: Aside from European markets where investors are still digesting the impact of the Cyprus deal, most international markets were up leading into Wednesday's U.S. open. Early signs in the U.S. indicated a red open, although some of this week's "feel good" economic results could keep investors enthusiastic through the course of the trading day. As mentioned in the open, the up-and-down trading on a day to day basis emphasizes the fact that volatility has entered the market. Such action could lead to some profit taking, since we're still sitting at or near record highs, and that could snowball into even more volatility. There is no drama surrounding political decisions in Washington affecting the market, so stocks are free to move in line with relevant individual developments, barring any unforeseen news hitting the wires. As long as European markets remain in the red, however, the threat of U.S. traders becoming nervous increases. With no big events planned on Wednesday, it's a day to keep an eye on those individual portfolios for any "buy the dips" or "under the radar" plays that may be out there.

Disclosure: I am long AMRN, OTCQB:FPMI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

About this article:

Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500. Become a contributor »
Problem with this article? Please tell us. Disagree with this article? .