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 one of the climatic scenes of 1989's baseball hit 'Field of Dreams,' Shoeless Joe Jackson offered the kid rookie - Archie "Moonlight" Graham - some advice as he took the plate at a pivotal point in his first ballgame. "He's not gonna wanna load the bases, so look low and away," noted Joe before then warning, "but watch out for in your ear," as Moonlight had just winked at the pitcher.
The markets this week are at a similar point in the summer trading season as investors have been winking at the market for months, in a mocking manner, while watching prices rise and rise on questionable fundamentals. The bullish trends that culminated in the S&P achieving highs not witnessed in years were duly noted, but it was also noted, in a deeper look, that the DOW reported two of its lowest-volumed days of the year last week. How many times can we wink at the market before potentially seeing that late-summer swoon materialize?
Investors are likely preparing for two different scenarios, just like Moonlight Graham did.
Plans are being devised based on strategies that entail taking advantage of continued bull-market gains, which include playing some continued trades while looking for more encouraging economic data, but investors are also considering that the recent rally may have lacked real conviction - especially since the current corporate earnings season was lackluster, to say the least, and no one really seemed to notice.
If last week was a sign of anything, it was a sign of unpredictability. Therefore, investors are wise to take precautions against both the bull and bear theories. If ever there was a time for balance, now's it - you don't want to be too short or too long on anything. Diversity is key.
Given the fact that the US presidential race is up in the air right now and no one can predict which candidate's policies to expect to be implemented in Washington in November, there's reason to believe that many will look to abandon the market and switch to cash as the drama plays out all over TV and on the Facebook page debates, that get really annoying, by the way. That means a September swoon could be in store and it should be on the back of every investor's mind. The only factors that could combat that threat would be overly-encouraging signs of economic growth, either in the US or globally, but it still looks like 'nothing gives' on that front, too.
There will be some key events to monitor during the coming week, though, chiefly in the name of the Fed minutes that are set for a Wednesday release. The most recent round of housing data will follow and both could provide solid indicators, one way or another, as to how the economy is trucking along.
The final rounds of the primary earnings season are also quickly upon us, but the trend has been underwhelming, thus far, so we can't expect help on that front. The US markets did post another solid trading week last week, however, so there could be some more excitement in store. That said, with so many uncertainties still making their way to the horizon, both in the markets and in terms of geo-politics, expect investors to start growing a little bit more edgy. That spells potential volatility.
As always, there are sure to be plenty of stocks and stories to keep an eye on. Here's just a few of them...
Healthcare, Biotech, Pharmaceutical:
Amarin Corporation (AMRN): Amarin shares traded relatively flat last week after having dropped big following the announcement of an FDA approval for Vascepa in the treatment of very high triglycerides during the closing days of July. Interest will still be very heavy on this company and its stock during the coming week, too, as an expected key catalyst that should have materialized last week failed to do so.
Ever since the Vascepa approval, investors have been monitoring the situation as to whether or not the product will receive a new chemical entity (NCE) status from the FDA. Such a designation would extend the product's exclusivity on the market and help investors and potential buyers of the company better gauge Vascepa's overall lifetime value. The decision was to be announced this past Friday but that decision will now be somewhat delayed, as explained last week, still leaving a few uncertainties to deal with in the eyes of investors.
Regardless, the current AMRN market cap has shares trading at levels that could be quite attractive to those banking on a potential blockbuster future for Vascepa or an eventual buyout of the company. AMRN has run to nearly twenty bucks on news of a buyout before, and could likely do so again if the speculation heats up. Should it look like the company has decided against selling, then a rebound in share price may take longer to be realized as Amarin will need ample time to ramp up commercialization and start the revenue stream flowing on its own.
Aside from these above-mentioned catalysts, news on additional patent protection is due to come in over the short term and the company also plans to file later this year for a more broad application of Vascepa in the treatment of high triglycerides than what was included in the original submission.
When no NCE news came on Friday, AMRN shares closed down by over two percent. As speculation surrounding that designation continues, this will still be a hot story to keep an eye on for both the potential of Vascepa on the open market and for Amarin's potential as a buyout play. Any combination of news on any of the above-noted catalysts could lead to a quick rebound in AMRN share price.
Synergy Pharmaceuticals (SGYP): Synergy shares closed Friday up by nearly four percent on the day, capping off a strong week that saw the company's share price rise by over a buck in all - good for a nearly thirty percent gain in just five days. Volume remained within the daily norms during the run.
Synergy is entering a very exciting period in its development that could make or break the future. Last week's run could be a measure that investors are taking notice to that effect. As discussed early last week, the company's Phase IIb/III Plecanatide trial in the treatment of chronic idiopathic constipation (CIC) has completed enrollment and is coming to an end, with results expected for release later this year. It is widely expected that the results from this trial, which enrolled well over eight hundred people in total, will be positive, given the encouraging results from earlier studies and the success of Ironwood Pharmaceuticals' (IRWD) Linaclotide, which shares the same origins and mechanism of action as Plecanatide.
In fact, although a potential market competitor to Synergy, Ironwood's success could directly impact the potential of the SGYP share price and that may also have been a factor in last week's run. Ironwood is slated to receive an approval decision from the FDA for Linaclotide within weeks now - 12 September, to be exact - and a positive decision on that front should also bode well for Synergy, given the above-noted similarities in treatments. What serves as validation for Linaclotide could, too, serve as validation for it's "sister" product, Plecanatide. Once on the open market, however, Plecanatide could have the ultimate advantage as patients have noted a much softer side effect profile than what has been seen with Linaclotide use, at least thus far in development. Such advantages could quickly allow Plecanatide to gain market share, even though Linaclotide will make market first.
It's a rare case in this sector, but in this situation what's good for Ironwood is good for Synergy. Therefore, Ironwood's pending approval catalyst should also be watched by Synergy shareholders. Investors may have keyed in on that fact, which is likely played a role in last week's SGYP price spike.
Additionally, Aegis Capital Cor tagged SGYP last Tuesday with a price target of $25 following the announcement of the trial completion. Aegis also noted the expectations of positive trial results and the potential of Plecanatide on the open market. In terms of valuation, Aegis noted the following:
"Synergy's current market cap of about $250mm does not adequately value the potential of Plecanatide and the firm's platform technology, in our view. We also note that linaclotide is currently valued at a level approaching $3bn based on the market cap of Ironwood Pharmaceuticals (IRWD/NASDAQ - Buy), the originator of this agent."
The Aegis valuation also likely played a factor in SGYP's rebound. The next few months will make or break Synergy and the catalysts are due to start rolling in at a rapid pace in just weeks. Since the markets trade ahead of news, look for continued movement and volatility in the SGYP share price. A hot story in the sector to watch for the coming week, and for well into the third and fourth quarters.
Spectrum Pharmaceuticals (SPPI): Although reporting another round of impressive earnings and revenue growth, shares of Spectrum have finally fallen victim to a huge number of shorts who had been piling on as the stock recently rose from below ten bucks to over seventeen. The ensuing decline caught many off guard as sales of the company's flagship product, FUSILEV, has been consistently gaining steam quarter after quarter and even the skeptical seem to have become believers in its potential to continue growing in the market. Additionally, Spectrum's secondary product, Zevalin, while not returning huge revenue just yet, is predicted to also start raking in a more significant revenue stream.
Shares were down by five percent on Friday as numerous new developments circulated the wires and could play key rolls in the near-term trading of this stock, making Spectrum a hot story to watch next week, especially given the recent pullback and the uncertainty of how long it may take for the bulls to regain control of their prized stock.
In Friday news, the company announced another extension of the Allos (ALTH) deal, leaving investors to wonder why Spectrum is having so much trouble gaining enough support for this transaction if it is in fact as positive a deal as the company has previously expressed. Each and every delay, and there have been a few now, erodes investor confidence, which is likely a partial cause of Friday's share price decline.
The company also announced last week plans to initiate a more rigorous marketing campaign for FUSILEV. According to a Wednesday press release, the campaign will include increasing the sales force footprint, a new website, "health care professional educational tools and resources, digital and online campaign, and peer-to-peer live educational programs."
While this campaign is expected to boost an already impressive growth rate for FUSILEV, some wonder the need to expend the extra resources to do so when recent success has already been so robust. Spectrum does have cash to spare, however, and this may be a move to solidify and consolidate those recent successes into a longer term winning strategy. Investors can hardly argue with that.
In yet another move to strengthen the SPPI share price, management recently boosted its plans for a share buy-back program from $25 million to $100 million. Given the company's cash on hand - which sits at $280 million, according to the most recent quarterly reports - and growth in free cash flow, the above-noted moves are affordable and look to capitalize on already-proven models of success.
It's likely, in my opinion, that without that huge short interest we followed over the past few months, Spectrum shares would still be trading at or near their recent highs, making the current prices a relative bargain. Eventually, however, Spectrum will need to make a move or two to boost its pipeline and vary its revenue streams for investors to become whole-heartedly confident in this company's move to the mainstream.
Still a hot one to watch.
Neostem, Inc. (NBS): Shares of NeoStem Inc were down by three percent to close the week last Friday, but recent developments at the company have this story as one worth keeping an eye on. The company reported last Wednesday that it had received approval from a data monitoring committee to continue moving forward with its Phase II PreSERVE trial, designed to measure the effectiveness of AMR-001 in preventing or treating major cardiac events following heart attacks. Such an approval, while by no means to be considered a major catalyst, is a firm validation of trial progress, especially for any company operating in a relatively new and high-profile sector - such as that of regenerative medicine and stem cell research. Regenerative medicine is predicted by many to be THE next big leap in medical technology and any progress by companies in the sector are highly watched by investors.
Developments of Advanced Cell Technology (ACTC.OB) over the past couple of years, for example, have led to triples in share price for that company at times while offering hope for patients suffering from severe eyesight loss. NeoStem, in its own right, has also recognized some recent milestones and is positioning to become a big player in the field. Most notably, some recent financial decisions and share price action have this company on the list of stocks to watch this week, and for the duration of the year.
NBS shares began climbing a few months ago on positive pipeline progress and then received a further boost as the company decided to divest its majority stake in a subsidiary, Erye, in order the strengthen its balance sheet. Through the noted divestiture, as outlined in the company's quarterly report:
"NeoStem expects to receive $12.3 million in cash and further bolster its balance sheet by removing $35 million in short- and long-term debt obligations through the divestiture of Erye. Fifty percent of the cash price has now been received directly or is in escrow and closing is expected to occur over the next 6-10 weeks."
Additionally, the company has raised $17.6 million year to date through warrant exercises and equity sales. Those sums significantly strengthen the company's balance sheet and support the development of AMR-001, which - if successful in trials and ultimately approved - would enter a billion dollar market.
With recent moves to strengthen the financials being undertaken and with a potentially highly-lucrative treatment being developed in a groundbreaking technological field, Neostem is one to keep an eye on, especially given the pullback last week.
Lpath, Inc. (LPTN.OB): Shares of Lpath had been on the rise and reignited with life over the past week while hitting highs of nearly a dollar to close out July, marking a rise of well over thirty percent than where those shares were trading just weeks before. As is normal in the biotech sector especially, profit taking took effect and a retreat followed the spike. LPTN traded down by over five percent on Friday and may be back in 'buy territory' as a key trial catalyst is still pending.
Earlier this year two ongoing proof-of-concept trials for iSONEP were halted due to FDA concerns with the company's fill/finish contractor, Formatech, Inc. Formatech was found not to be in compliance with FDA's current Good Manufacturing Practice requirements, but the trial halt had nothing to do with the safely trial or effectiveness of iSONEP. A new contractor was found and, according to the company's most recent quarterly report issued last week, Lpath is just awaiting the go-ahead from the FDA to restart the trials. That trial re-start could prove a significant catalyst for the company, as shares were trading for well over a dollar before the trial halt took effect.
Lpath, a recognized leader in the field of lipid-based therapeutics, also stands on much more solid ground than many other developing companies in similar stages of development due to a large investment and vote of confidence from Pfizer (PFE). Pfizer saw the potential of this company's technology and invested early in iSONEP while retaining a 'first right of refusal' for other products in the company's pipeline. The pipeline, however, is still just in Phase II development or earlier, so there is still a ways to go before potential approval.
The trial re-starts could come at any time, as initial indications were expectations of August. With that being known, LPTN is a stock to watch right now.
Also worth watching...
Facebook, Inc. (FB): Facebook, Inc. continues to disappoint as a key lockout period ended last week that resulted in the FB share price setting a new 52-week low of nineteen dollars as investors bailed on falling projections of growth. The lockout period had previously kept many investors who participated in the IPO from selling, but all bets were off when the lockout ended. Although a string of acquisitions and moves to strengthen the company's position in the mobile market provide hope for the future, investors are still unconvinced that the business plan can succeed in the mobile market.
The potential is there for an eventual rebound, especially at the first signs of mobile growth, but the next quarterly report seems like an eternity away right now and each week potential investors are losing conference with the continued losses in share price.
Still a huge player - if by name only right now - in the Internet and ad-hosting arena and well worth keeping an eye on, but it's likely that we have not seen the last of the selling. As previously discussed, a trip to the mid-teens could materialize, especially if the broad market takes a U-turn and drops.
Explosive Trace Detection (ETD) / Global Defense:
Implant Sciences (IMSC.PK): Implant will be a hot one to watch this week as it is the last week before the most significant catalyst in the company's development is potentially due to take place. The company has long advertised August 27th as the date that the US Transportation Security Administration (TSA) is set to decide during the last week of August on whether or not to approve Implant's Quantum Sniffer (QS) ETD technology for inclusion on the TSA list of qualified products. Such an approval by the TSA would free up the Sniffer technology to land at the heart of airport and airline security around the nation, and also in nations - such as Japan - that follow TSA approval guidelines.
Another key catalyst date to keep in mind is December 3rd. It is on that date that the TSA has mandated that all inbound-US cargo on passenger aircraft will be screened for explosives. Should Implant receive the Sniffer approval later this month, the potential is there to land immediate and significant government contracts, especially since the QS technology hold key advantages over competition that is already on the market.
The date with the TSA is slated for the following Monday, so investors looking to play this potential catalyst could start - or continue - taking positions this week. Already having made significant progress in landing overseas deals for the QS technology through 2012 thus far, the TSA approval is the event that has the potential to land Implant Sciences on the map as a big player in airport and airline security, in addition to becoming a name in the circles of government contracting.
Still trading on the pinks, IMSC may be losing some investor credibility in that light, but I would expect a news to a larger and more legitimate trading board, should this catalyst play through, in association with the name change eluded to by the CEO in a recent interview.
Bear in mind that playing unpredictable catalysts such as this one can prove risky. Shares could soar to at least a double on a positive outcome, but could also be significantly sliced if the decision does not turn out positive or if no update from the company is heard.
It's 'now time' for Implant and is well worth watching.
Roundup: In terms of economic data releases and action, it could turn out to be a dull week ahead. The above-noted Fed minutes will be worth keeping an eye on, as will the housing data, but it looks as if a 'warm, fuzzy' has embraced the markets and investors are satisfied with current expectations of slow growth in the US, stagnant growth in Europe and declining growth rates in other key areas of the world, such as China. The China scenario is intriguing in itself. Barely two years ago the media told us all how there was no stopping the rising juggernaut in Asia, whose growth rates would only keep increasing for decades to come. Now we see those growth rates slipping a bit as pictures post on TV of work-force protests resulting from poor wages and working conditions. The cheap labor force that provided a foundation for growth now wants more, so where are the pundits now?
Europe is getting the bad rap right now, but the one activity you can still count on from that continent is a solid and affordable vacation - and that industry is still going strong, even in countries that are suffering on a larger economic scale. Manzanilla on the Spanish beaches of the Costa del Sol? Chicken piri-piri with some village wine in the Portugese Algarve?
No bank debt is keeping that action from taking place. Trust me on that.
Meanwhile, look forward to another week ahead. Keep an eye on sustained growth, if modest, but also watch for "in your ear" - which would be a late-summer stock slide based on too many geo-political variables.