At the conclusion of each week, VFC's Stock House examines some news items, stocks and stories that made headlines during the previous trading week, but may also make headlines or influence trends during the upcoming week as well.
During the trading week beginning on July 9, the markets were suffering from reinvigorated talk about how Europe's economic storm could again hamper any recovery of the global markets. That wasn't the case last week, however, as repeated days of rallying markets launched the DOW back over the 13,000 mark again as headlines from Europe reinforced the worlds of top officials that have declared that the European Union is committed to solving the problems of Spain, Greece and others without threatening the viability of the Euro Zone.
Given the strong market rally last week, even while some major American companies reported sub-par earnings, investors will be looking towards the coming week with some enthusiasm - and like last week, between earnings and a slew of other developing stories in the markets, there's plenty of action to grab investors' attention.
Since the London Games are in full swing - Daniel Craig as Bond and Rowan Atkinson as Mr. Bean stole the opening ceremonies - let's not waste any time and get right to the action this week. Here are just a few hot stories to watch:
Healthcare, Biotech, Pharmaceutical:
Amarin Corporation (AMRN): As most expected, Amarin Corporation received FDA approval for AMR-101 - now to be known as Vascepa - on Thursday evening, but company shares traded as much as twelve percent lower through the following trading day on Friday. Given all the hype surrounding the expectations of approval and the subsequent drop in AMRN share price, this one will continue to be a hot stock to watch during the coming week.
Amarin's drop may not have come as a surprise to many, as the trend in the sector these days is to see shares of a company receiving an FDA approval drop after the announcement. Such a drop may disappoint the latecomers to the game, but these drops usually follow a nice period of run-up into the pending decisions. This allows the more speculative event-based traders the opportunity to buy in and then bank out with a profit when the 'buy the rumor, sell the news' phenomena completes its cycle.
When the price goes down during the 'sell the news' period, that's when the more conservative, longer-termed investors can buy in knowing that they are buying into an already-approved product. Given that the shares have already dropped, too, some may even consider them a discount - which is a true statement, compared to the previous highs set.
Some of this may apply to Amarin, but there's more to this story than usual, and there's also reason to believe that the drop is only going to be a temporary one.
First, investors are paying a lot of attention to Vascepa's status as a new chemical entity or NCE. Amarin was buzzing mid-month when a report from a popular financial website speculated on the outcome of talks between the FDA and Amarin regarding such a label, and the NCE is considered to be an important part of determining the true long term value of Vascepa - both for investors and for potential buyers of the company, as it helps to determine how long generic competitors will be kept at bay. Whether Vascepa is determined to warrant the NCE designation will be known within weeks - which also should coincide with announcements of new patents - and provides a solid short term catalyst to look forward to.
While that catalyst alone may not be the primary factor in a share price push of twenty bucks, it could help - especially if investors start taking notice of a potential buyout. Amarin shares flew close to twenty once before on such speculation and many investors believe that this company's story will ultimately lead to that action.
Talks could now move forward in earnest, now that Vascepa has been granted approval. A potential suitor may want to wait on the NCE status and/or pending patents before consummating the deal to determine a final value for the deal, but knowing the product is approved is the largest hurdle to negotiate.
Another concern for the parties to negotiate may be that Vascepa was approved for the limited market of very high triglycerides. That limitation could prove an impediment to growth over the short term, but Amarin - or a potential acquiring company - will certainly move forward with another approval to include all indications of high triglycerides.
It's possible that a potential buyer would wait until that approval is in, but given the approval last week and the highly successful Phase III trial data, a deal is likely to come at any time. Considering that large pharma is desperately on the hunt for new potential blockbusters given the slew of products that have come off patent over the past couple of years, potential suitors may want to secure this product sooner, rather than later.
With a solid slate of catalysts still expected, as described above, and with the buyout speculation likely to pick up, expect the buzz surrounding Amarin to do anything but die down.
The only question regarding a charge to twenty, in my opinion, is how long the current period of consolidation will last. I'm guessing not long - unless the CEO specifies in a certainty that the company is not for sale.
Horizon Pharma (HZNP): Horizon Pharma also received a key approval last week, when the FDA gave the nod for the company's rheumatoid arthritis treatment, Rayos, to hit market. Like Amarin, Horizon shares have also had an outstanding price run over the past couple of months, but also like Amarin, shares slid immediately following the announcement of approval.
As I described last week, Horizon does not have some of the remaining catalysts that Amarin does that would be necessary to ward off a longer and more protracted price drop following the FDA news.
Specifically, Rayos has not necessarily been identified as potential blockbuster as has Vascepa and has even been labeled as a "me, too" drug by some since it is simply a controlled-release dosage of something already on the market. With that in mind, expectations are mixed about how much and how quickly the product can eat into market share.
Additionally, the buyout talk surrounding Amarin has not accompanied Horizon into the FDA approval. In fact, reports have indicated that the company is boosting its own sales force, meaning the plan is to "go it alone." Unfortunately, those plans don't always work out well for smaller companies - as demonstrated by Dendreon (DNDN), especially when a company is peddling products that doctors aren't quite convinced are better than what's already out there. Big pharma could promote such products and get away with it - not so easy for the little guy on the block.
There's still a long way to go before it's all said and done, but for the short term the lack of additional catalysts pending has hurt HZNP, as shares dropped by more than twenty percent at one point Friday, before recovering to close the day down by seventeen percent. Amarin shares, by comparison, are still hanging onto additional pending catalysts and closed the day twelve percent down.
With Rayos, Horizon also has the rheumatoid arthritis drug, Duexis, on the market. Sales for that product have been very modest thus far, but those with a positive opinion on HZNP predict a swift increase in revenue for that product.
Another positive that Horizon has going for it is the insider and hedge fund buying that went on previous to the runup. Keep in mind, however, there was also a lot of selling on Friday.
Still worth watching this week as many will consider it a "buy the dips" play, but it's still a bit speculative, in my opinion, due to the nature of how quickly these products will gain market share.
Synergy Pharmaceuticals (SGYP): Trading was mixed last week for shares of Synergy Pharmaceuticals, recovering from an early-week swoon to close Friday up by over three percent. Last week was the first full week of trading following the company's announced merger agreement with Callisto Pharmaceuticals (CLSP) that is due to be finalized by the end of October, according to a company press release, linked above.
As previously argued, this deal strengthens the case for Synergy Pharmaceuticals as an investment as it spreads Callisto's interests in Synergy through the entire Callisto shareholder base. Before the merger deal, Callisto - as a stand-alone entity - controlled nearly forty percent of SGYP. Such scenarios often serve as road blocks for large funds and institutions looking to buy in. Once this deal is consummated, that road block will be non-existent and, conveniently enough, results from the ongoing Plecanatide should be released soon after.
Data from this key II/III trial are widely expected to roll in positive, based on previous studies of both Plecanatide and the success of Linaclotide, a product being developed by Ironwood Pharmaceuticals' (IRWD) that shares origins and the same mechanism of action with Plecanatide.
Plecanatide has proven to have a superior side effect profile, however, potentially giving it a significant advantage over Linaclotide, once it hits market. Linaclotide has the advantage of making market first, should the FDA approve the product in September.
Ironwood has already partnered its product with Forest Laboratories, Inc. (FRX) and holds a market cap of well over a billion dollars. Synergy should soon start looking to match that cap, especially if results from the ongoing trial are positive, given the very significant market opportunity for Plecanatide and because it has yet to partner its product.
Any potential partnership or buyout speculation provides another catalyst for SGYP, and it's an important note to remember that the shares going to Callisto shareholders will be locked up for eighteen months - unless a change of control even takes place first.
All things considered, SGYP is a hot one to watch as shares have been potentially positioned to move during the coming months.
Cytosorbents Corp (CTSO): Cytosorbents was tagged with a rating of 'Buy' last week by analysts at Brean Murray. The coverage was initiated as the company undertakes the commercial launch of its potentially breakthrough blood purification product, CytoSorb, in Europe.
Given the small size of the company and considering its limited resources, it took a slow and methodical approach to reach this very significant milestone since the European medical authorities approved the product well over a year ago.
CytoSorb has very significant market potential, especially considering that there is no effective treatment for severe sepsis and other conditions of high cytokines on the market at this time. CytoSorb was proving to be an effective enough such treatment during a European trial that regulators across the pond approved the device before final trial results were even in.
Additional trials, mainly one that will be conducted with the FDA in mind, will open the door for additional approvals around the world, while in Europe it's a 'see it to believe' approach looking to be taking shape.
Although commercially launched, initial sales numbers are likely to be modest as the product grows acceptance in the medical community, but if the data continues to roll in that proves CytoSorb could cut days off a patient's stay in the ICU, then sales could eventually start to ramp up very significantly.
Already moving a bit on the analyst coverage, CTSO is again a hot one to watch.
Facebook (FB): It looks to have been a severe case of "selling high" when company insiders and other relevant entities went public with Facebook just a couple of months ago, as the IPO milked every last dollar it could from the ordeal. There's essentially nothing wrong with such as strategy, as the Mets are trying to "sell high" on Daniel Murphy right now, too, but the consequence is a following of retail investors who initially bought into the hype and as a result, now feel "un-friended."
In fact, if you're to believe the news headlines, the Facebook IPO - which is widely considered a failed one - may have put investors, especially retails ones, off the idea of again partaking in such events for quite a while. That doesn't matter much now, however, as the guys who were positioned to make the most from the IPO did just that.
With the IPO in the rear view mirror, however, the company announced it first quarterly earnings report as a public company. In a much-anticipated event, Facebook announced numbers that showed an over thirty percent growth in revenue, but shares dropped big on Friday as the numbers demonstrated a trend of slowing growth.
After having debuted at thirty eight bucks, then running to forty five after the IPO, FB closed Friday at under twenty four dollars. Earlier in the day the stock set a new 52-week low of $22.28. As some analysts now question the ability of the company to monetize its mobile market, especially since no guidance was provided to quell concerns regarding the near-to-mid term future, the potential is there for FB to drop even further.
That said, it's also likely that as shares drop - and I believe it's quite likely we'll see the teens at some point, especially if the overall markets tank again on economic worries - investors will consider this one a good 'buy the dips' play.
After all, with nearly a billion users, and a growing amount of them going mobile, Facebook has the base to continue to expand growth at even more impressive rates once it finds the right formula - and thus far, at least while the company was private, it has always found the right formula.
That said, this company operates in a niche that has been proven to be very unkind to fads at times, with MySpace being the prime example - so there is always the threat that tomorrow something better can come along, and that will always keep Facebook on its toes.
That said, to combat that phenomena, Facebook looks to have taken the strategy of buying up any start-ups with potential before they've got a chance to make it to the big show; and thanks to that IPO, we all know they have the money to do that.
Still hesitant to consider FB as a fair-value buy here, but any even more protracted dip that results from a broad market sell-off could make these shares attractive.
Always one to watch, though, if not only for the hype this stock creates.
Zynga, Inc. (ZNGA): Speaking of potential fads, shares of online-game maker Zynga, Inc have cratered to the three dollar range, far off the 52-week high of fifteen bucks, after earnings disappointed last week. ZNGA fell by over thirty percent immediately following the report, mainly due to a slowdown in revenue created from its Facebook games. Zynga is the largest game-provider to Facebook, but recent changes to the way Facebook lists its games resulted in Zynga games getting the boot from the front pages.
That said, Zynga's CEO discussed some major upcoming game launches that could spell opportunity, including a follow-up to the popular Facebook play, Farmville.
With that potential in mind, some may consider ZNGA a rebound play. It may be wiser, however, to wait and see this company prove itself again, especially considering that a number of lawsuits may be flying the way of company executives relating to securities trading. Concerns over those suits is likely to weigh on the share price until resolved, unless the earnings again pick up at an impressive rate.
Another angle portrays this company as a buyout target, and maybe there is something to that. Facebook's main objective right now is to monetize its mobile base - and having full control of Zynga's playbook could help it achieve just that.
Given last week's action, ZNGA will be one to watch this week.
Food and Beverage:
McDonald's (MCD) earnings report last week provided insight into how Europe's faltering markets are starting to affect the earnings of international companies on maybe a larger scale than had been previously estimated. Yum Brands (YUM) was able to ward off the European slowdown in its report the previous week. Given the evidence that MCD and other US companies are suffering from slumping sales across the pond, it's unlikely that the continuation of that trend during the earnings season will lead to any drastic market action - it's an expected element now. On the other hand, the schizophrenic media changes its opinion on how bad the European crisis is each week, so expect continued volatility.
International growth is still the plan of the day for American brand restaurants, so any dip to the mid-eighties makes MCD an attractive buy, in my opinion, for those looking for long term stability in their portfolio.
In fact, if some of the long-time stalwarts in the sector start slumping bad due to the reduced revenue resulting from poor economies in the States and overseas, it could be time to reload for that long term stability portfolio. Starbucks (SBUX) was another one hit bad last week on sub par earnings, but considering that the pocket money that consumers usually set aside to spend five bucks on coffee is the first to be cut from the budget in hard times, there's the potential that this company - and others similar to it - will bounce back in better times. Those that used that strategy during the crashes of 2008-09 made bank on the rebound. Sometimes ya gotta buy when others are selling, but only if you see the foundations for future growth in place. If SBUX trends lower, it could be worth a look.
Round-up: GDP evidence also revealed that the US economy may be heading back towards recession. Expect the media and/or the politicians to play on that at some point in the near future. Another market dip is also likely once they start up on the gloom and doom game, not too bad of one, but the Dow is most likely trading at the higher end of its range right now, so the shorts are likely to start jumping on and waiting for the financial news to again try and scare us. Nothing wrong with that action, as long you're prepared with cash on the sidelines.
The Fed is slated to speak this week, with the European Central Bank slated to offer words as well. Stocks could continue last week's rally into those key announcements, but may sell off again, depending on what's said. Chances are, nothing unexpected or that different from what we've already heard will come out of any of these statements, but again - it's all how the media spins it. The Romney camp is going to spin everything to the negative, the Obama camp is going to make everything look all peachy and rosy (or have us concentrate on something unrelated), and the truth will probably be somewhere in the middle. How Europe's financial outlook is spun - again - depends on the mood of the schizo media. The same thing goes on every week over there, but depending on how they want the market to react, that's how they report the news.
As always, expect another exciting week ahead.