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  • Conatus- Several Catalysts Ahead Could Change Valuation Dramaticallly

    Conatus (NASDAQ:CNAT) a biotechnology company focused on the development and commercialization of novel medicines to treat liver disease. Conatus is developing emricasan as a first-in class, orally active caspase protease inhibitor designed to reduce the activity of enzymes that mediate inflammation and cell death, or apoptosis. Conatus believes that by reducing the activity of these enzymes, emricasan has the potential to interrupt the progression of liver disease. For additional information, please visitwww.conatuspharma.com.

    Our Immediate Takeaway: Intercept Pharmaceuticals (NASDAQ:ICPT) is valued at 5.5 Billion; Conatus at about 130 million. ICPT is going after the same targets as CNAT in terms of Liver Diseases... ICPT stock has risen from $18 in 2012 to $225 currently in 2014 and as high as $500, with analysts targets of as high as $700. ICPT rose based on a NASH (nonalcoholic steatohepatitis) phase 3 trial that was going so well it was halted. NASH has a population target of 6-10 million americans by itself. ICPT went up almost 30 times in value on the news...

    We think Conatus can certainly head higher in market cap given their methodologies in the same markets and stages they are in. To help reference, below is the summary of what ICPT does. Then read on about CNAT and maybe you can connect some dots like we are trying. The catalysts are numerous in the last 6 months of 2014 as discussed in this article.

    Intercept Pharmaceuticals, Inc., a development stage biopharmaceutical company, focuses on the development and commercialization of novel therapeutics to treat chronic liver and intestinal diseases utilizing its proprietary bile acid chemistry. It primarily develops obeticholic acid, a bile acid analog that is in Phase III clinical trials for the treatment of primary biliary cirrhosis; in Phase IIa clinical trial to treat portal hypertension; in Phase II clinical trial for the treatment of alcoholic hepatitis; in Phase IIb clinical trial for the treatment of nonalcoholic steatohepatitis; and in Phase IIa clinical trial to treat bile acid diarrhea. The company was founded in 2002 and is headquartered in New York, New York.

    Background:

    Emricasan is a first-in-class, orally active pan-caspase protease inhibitor designed to reduce the activity of all ten human caspases, which are enzymes that mediate inflammation and cell death, or apoptosis. Conatus believes that by reducing the activity of these enzymes, emricasan has the potential to interrupt the progression of liver disease and potentially provide treatment options in multiple areas of liver disease. They have observed compelling preclinical and clinical trial results that suggest emricasan may have clinical utility in slowing progression of liver diseases regardless of the original cause of the disease. To date, emricasan has been studied in over 500 subjects in ten clinical trials. In a randomized Phase 2b clinical trial in patients with liver disease, emricasan demonstrated a statistically significant, consistent, rapid and sustained reduction in elevated levels of two key biomarkers of inflammation and cell death, alanine aminotransferase, or ALT, and cleaved Cytokeratin 18, or cCK18, respectively, both of which are implicated in the severity and progression of liver disease.

    The company went public in July of 2013 at $11 per share. Many of the insiders participated in the offering, taking up roughly 10% of the offering in fact and NONE of them have sold a single share since the IPO. 6,000,000 shares were sold raising gross $66,000,000. As of the most recent quarterly report CNAT maintains about $52,000,000 in cash, so far judiciously using shareholder dollars.Current Market Cap:

    16 million shares outstanding at $7.66 is about a 123 million market cap. 52 million in cash, giving Enterprise Value of 71 million as of 7/15/14. Conatus' financial position should be enough to fund operations through 2016, even without any additional contributed amount from any collaboration that can be realized with strong Phase IIb data in ACLF or other indications

    Insiders are all in: Aligned with Shareholders at $6.87 basis

    Via reading the IPO filings we find that pre IPO insider stockholders have a cost basis Pre-IPO of an average of $6.87 per IPO share adjusted for 9.6 million shares or over 60% of the company PRE IPO. We find this interesting because its more common when we review filings to find that insiders have an extremely low basis relative to the IPO price. In this case, the average price per share paid is not that far off the current market price of CNAT shares, and the shares trade at a nice discount to the IPO price some 11 months later!

    80% of the shares are controlled by insiders and institutions. That means only about 3 million shares in the float, causing volatility, but also creating a potential explosion in price on good news and developments we foresee later in 2014. Several developments between July through December 2014 could propel interest and share price much higher.

    Catalysts: (Second half 2014)

    Phase 2b trial results expected 2H14 for ACLF

    Phase 2 results for NASH expected 2H14 (NASH is a serious chronic liver disease caused by excessive fat accumulation in the liver that induces chronic inflammation. This leads to progressive fibrosis that can lead to cirrhosis, eventual liver failure and death.)

    Initiation of Phase 2b for Chronic Liver Failure Indications 2H14

    Possible partnerships for further Phase 2/3 trials

    (click to enlarge)

    At $7.66 per share currently you are getting $3 in cash, so your net valuation is $4.66 per share or about 75 million. You are not paying much more than insiders average Pre-IPO cost, and your getting the company at a $3.34 discount to the July 2013 IPO.Worth a Read: Two articles laying out the story very well on CNAT

    We would advise reading this very thorough and objective June 12th 2014 article including a one on one interview with the founder and CEO of CNAT. Review article here

    In addition this March 2014 article we found enlightening vis a vis comparing with ICPT

    The Science and the story:

    We like the science of this Protease Inhibitor based methodology for Liver enzyme based therapy by CNAT. Originally the technology was developed by the CEO, Dr. Mento and then the private company was sold to Pfizer. Later, Pfizer stopped further development and CNAT acquired the rights and now has the FDA green light to continue to proceed. Pfizer stopped the development from Phase 3 because there were some elevated liver enzyme levels and there was concern by the FDA that perhaps those could be cancer causing agents. Pfizer elected not to conduct further studies to prove this to be not the case, and so CNAT executives who had developed the protease inhibiting technology swooped in and re-acquired full rights to themselves again. They went public shortly thereafter.

    In the meantime, CNAT hired outside experts to evaluate the Phase 3 trial results and data points. All of the reports that came back indicated the liver enzyme related issues would not be cancer causing agents. FDA then had CNAT conduct further studies which they did, and in January of 2013 the FDA handed them the green light to continue. They raised money in the July 2013 offering, and that is where we are now in June of 2014... furthering the studies. (See article we linked above)

    We think the stock is suffering from a "historical bias" in the minds of investors relating to the Pfizer situation, and that is creating a huge discount and therefore the opportunity in our opinion to enter at a low risk entry point (NYSE:LRE). The CEO has eluded to this himself in interviews.

    Recently IDIX was acquired by Merck for 3.8 billion, laying down a huge valuation for Hepatitis C pipeline (LIVER) and that moved some liver treatment biotech's upward quickly. We had a 10 million share explosion which is 3x the float on CNAT in one day. The stock spiked from $6 to $10. Roth Capital also put a $19 price target on the shares recently around the same time. The stock backed off, then had another huge volume day a few weeks ago and again the week after running upwards to fill a gap above at $9.50, then pulling back yet again. We think this type of action is a pre-cursor to potential future upward movements that likely could spike the stock upwards like ICPT (not necessarily same price of the stock, but same potential explosive move and they are also working on the NASH disease like CNAT. ICPT had their trial halted due to the fast responses patients were seeing and the stock exploded). To wit, in Clinical Trials, CNAT's Emricasan inhibited apoptosis, fibrosis and inflammation in a model of NASH. (See before and after photos on this page below)

    Liver disease effects almost every cancer patient as it is, and any company that is making headway tends to get acquired quickly or their share price moves sharply higher.

    Our opinion is that Conatus is an emerging technology leader in this field and the shares have the type of potential for massive upward movement as various trials continue to develop, patients are enrolled in new trials, and data comes out continually. Much of this will begin likely in the 2nd half and into the 4th quarter of 2014 we think in terms of timeline.

    Six Phase 1 trials conducted in the US, EU and Asia with Predominantly healthy volunteers

    Four randomized, placebo-controlled Phase 2 trials conducted in the US and EU Included patients with liver diseases due to a variety of causes with Emphasis on HCV infection.

    • Clinically relevant results
    • Reproducible reductions in elevated biomarkers of inflammation and apoptosis

    The company is fully funded through their clinical programs and trials, and have patent protections into 2028. Initial small, targeted indications may offer accelerated regulatory pathways and additional indications may access much larger populations. Conatus believes their one drug therapy attacks the various "insults" to the liver. See diagram below:

    (click to enlarge)

    Here we see some before and after slides from existing trials showing efficacy: Note that NASH is why ICPT stock blasted up...

    (click to enlarge)

    Summary:

    Our view essentially is the current share price discounts the market cap of the company to only 123 million. ICPT is at 5 billion to give you a competitor valuation sample. Of the 123 million market cap we have 52 million in cash, fully funded. Insiders and institutions control 80% of the stock. Insiders did not pay much more than $6.87 per share for 60% of the company pre-IPO. Insiders bought 10% of the offering at $11 per share, well above their $6.87 basis average. Not one insider has sold a single share since the IPO. Catalysts exist in the 2nd half of 2014 that could push the market cap dramatically higher very quickly as there are only 3 million shares in the float. These are the type of risk reward set ups we like to find in Biotech, and among our past picks included CUR which doubled, BLUE which rallied from $23 to $40 in 4 weeks, and EPZM which doubled in 7 weeks last November into early January 2014. We think that patient investors who can accumulate shares under $9.50 could be well rewarded over the next 6-12 months for the risk you take as an investor. Traders may come and go, but the upside here is potentially extremely high due to the huge addressable markets, the continuing issues facing liver disease and cancer patients, and the science itself that CNAT controls.

    Risks:

    Obviously with any Biotechnology stock in various stages of trials for various indications things can go awry at anytime. Results may not be what is expected or forecasted. Share prices can drop dramatically based on not meeting endpoints in studies for example.

    Disclosure: The author is long CNAT.

    Additional disclosure: We released this report on June 25th to our registered Free members on Stockreversals.com We are updating it a little bit and releasing it on our Insta-blog today for a brief period of time. We are active traders and may buy, sell, or hold any stock mentioned at any time in any of our communications. Trade at your own risk.

    Jul 16 8:52 AM | Link | 2 Comments
  • May 31st- 9 Fresh Ideas In Our Weekend Edition
    Welcome to our Weekend SRP Edition for May 31st 2014:

    We review some past positions, recent weekend picks, markets, sectors, and new ideas every weekend:

    Join either our Free service at www.stockreversals.com or our Premium trading service at www.stockreversalspremium.com

    The highlight of this past week was our 19% one day gain on JMEI at the SRP service. Alerted at $23, we sold it at $27.80 the next day. A 19% gain on a $10,000 trade would have covered 2.5 years of SRP service for a subscriber, not bad…

    Over the last few weekend editions we have put out some good growth plays. Among them are TRN, which hit all time highs and is up over 20% from our profile. AFOP the telecom equipment maker has rallied from $18 to $22 before pulling back Friday. AL, Aircraft leasing we had out last weekend, soared this week. ARRS another telecom maker we had a few weekends back is up from $28 to $33 per share and breaking out. URI from 71 to $101, THRM from 26 to 40 and the list goes on.

    So what we do is look for 8-10 stocks that we pre-screen and chart out, then you take it from there and consider a position and do some further due diligence. Before we get to that, let's discuss the markets and Gold a bit.

    The SP 500 hit the all time highs again this week, heading to our projected 1925-1930 resistance pivots. We could see a correction unfold from these areas in early June. The small cap index bottomed out in May as we projected back on May 10th edition, and Biotechs also bottomed out many weeks ahead of the ASCO conference which we also foresaw. They may correct near term for sure.

    Gold has been slammed mostly because the US Dollar has rallied in the month of May along with small caps bottoming out for now. The money rotated out, but over the last 2 days of trade we noted Gold stocks moving up a bit off lows while Gold continues a bit lower. This can often indicate they are washed out, so we mention once again MUX as one of our favorites. We said near $2 last week it was probably a low risk buy and its up 8% this past week.

    That brings us to our list of 9 stocks we are interested in for this week, only a few of them are repeats from recent editions:

    ALGN; MUX; SWHC; SWKS; KORS; IDTI; ENBL; ZBRA; TRUE

    Align makes invisalign braces, just started a share re-purchase program too, nice base pattern

    Mcewen Mining- Gold miner with low cash costs to produce, well run… put a stop at 1.90 though

    SWHC- Gun maker… low PE solid growth

    SWKS- Skyworks Solutions, provide guts to Apple and more, well run, strong growth

    KORS- Micheal Kors- keeps delivering on luxury good earnings growth

    IDTI- Integrated circuits and custom work

    ENBL- Recent IPO in the pipeline sector, fast growth, post IPO Base breakout

    ZBRA- RFID TAGS

    TRUE- Recent IPO, insiders bought last week AFTER THE IPO!! Helps you buy a car for less…

    (click to enlarge)(click to enlarge)(click to enlarge)(click to enlarge)(click to enlarge)(click to enlarge)(click to enlarge)(click to enlarge)(click to enlarge)

    May 31 5:25 PM | Link | Comment!
  • Alliqua- Ready For The Next Stage Of Growth?

    ALQA- Alliqua 6.99 close of 1/6/14

    Website: http://alliqua.com/

    Nov 19th Investor Presentation PDF: CLICK HERE

    Shares Outstanding- 11 million. Celgene owns 15%, 4 other hedge funds 17%, Insiders north of 30%- Tightly Held

    Alliqua, Inc. (OTCQB:ALQA) ("Alliqua") is a biopharmaceutical company focused on the development, manufacturing, and distribution of proprietary transdermal wound care and drug delivery technologies. Alliqua's technology platform produces hydrogels, a 3-dimensional cross-linked network of water soluble polymers capable of numerous chemical configurations.

    Alliqua currently markets its new line of 510(k) FDA-approved hydrogel products for wound care under the SilverSeal® brand, as well as the sorbion sachet S and sorbion sana wound care products. Alliqua's electron beam production process, located at its 16,000 square foot GMP manufacturing facility in Langhorne, PA, allows Alliqua to develop and custom manufacture a wide variety of hydrogels. Alliqua's hydrogels can be customized for various transdermal applications to address market opportunities in the treatment of wounds as well as the delivery of numerous drugs or other agents for pharmaceutical and cosmetic industries. Additionally, Alliqua's drug delivery platform, in combination with certain active pharmaceutical ingredients, can provide pharmaceutical companies with a transdermal technology to enhance patient compliance and potentially extend the patent life of valuable drug franchises.

    Research from the Kalorama Institute forecasts the wound care segment of medicine to reach approximately $21 billion by 2015, a 25% growth from 2012′s figure at $16.8 billion, presenting vast potential for companies who can differentiate their technology from the standard of care in the respective division. Though not sexy, growth is growth and we discuss a little known company with big name investors and big time management about to make a splash, ALQA has that opportunity, so we highlight it today in our Business Disruptors series.

    The Story:

    We bet you have never heard of this little company, kind of like nobody had heard of "Global Eagle Entertainment" (NASDAQ:ENT)when we wrote that up, and 66% later people were banking some nice profits. Good chance not many had heard of "Neuralstem" (NYSEMKT:CUR) either back on October 30th 2013, and now its up 38% and climbing in volume and price. How about YY Incorporated (NASDAQ:YY) which we wrote about in the spring of 2013 at $16.35 and it now stands at $58 per share? Himax (NASDAQ:HIMX) we wrote up on SeekingAlpha.com at $4.55 per share, its now around $14-$15 for a triple. Don't think too many knew who that sleepy little wearable computing play was either at the time.

    So when someone says to you, "I never heard of that company", there may be a good chance that is exactly what you want to hear.

    This brings us to our sleepy little Alliqua, hereinafter referred to as ALQA:

    Follow the big money:

    People first woke up to this wound care and drug delivery company in November of 2013 when the well known industry giant Celgene (NASDAQ:CELG) took a 15% stake in the company and licensed two of their wound care delivery products to them directly. Around the same time, a group of institutional investors took a similar sized stake with a $7 million investment (Celgene's was $6 million). With this transaction, Alliqua received the right to develop and market the advanced wound care products Biovance® and Extracellular Matrix (ECM). Together, the two wound care products will be developed harnessing Alliqua's proprietary technology, offering a product with immense potential to penetrate the market with the support and conviction from one of the utmost trusted names in the industry, Celgene.

    The company importantly (For a catalyst) is in the process of Uplisting to a national exchange like the NYSE-MKT or NASDAQ-CM generates advantages in broader visibility, increased liquidity and accessibility to the deep pockets of institutional investment firms and retail brokers. This has been witnessed many times throughout the past, with a great example of the benefits uplisting offers being realized by Organovo (NYSEMKT:ONVO) a company whose share price soared from $3.90 to $8.50 on the news of the uplist alone. (We covered ONVO for nice profits at our SRP service)

    Product Development:

    Biovance is a collagen-based decellularized and dehydrated topical wound covering produced from human amniotic membrane that is indicated for the management of non-infected partial- and full-thickness wounds. The product, which is ready for commercial use, is expected to be launched during the latter part of the second quarter 2014. ECM is a suite of advanced wound management products made from extracellular matrix derived from the human placenta.

    ALQA also has products on the market, their wound care portfolio includes SilverSeal, Hydress and other hydrogel-based products, as well as sorbion's hydration response technology that was licensed earlier in 2013. These products alone are game changers in the wound care industry in our opinion. The drug delivery solution via a transdermal patch also adds to the portfolio. The Company plans to develop lidocaine hydrogel patches for the treatment of localized acute pain, including post-operative pain, back pain, as well as pain associated with sports injuries and arthritis. The results of a study came out positive this past year and address a significant market for the company. The results are here.

    ALQA will continue to develop their hydrogel technology into a superior transdermal and topical delivery mechanism. They are also expanding plans to build a preeminent wound care company that provides world-leading technologies to wound care practitioners.

    Follow the People:

    We believe that people are crucial in our decision as to what small companies we take a stake in. This has been discussed with ENT, XON, and SFXE recently in our Premium service and elsewhere. The winners who have a proven track record of building up businesses and even selling them off on behalf of shareholders are often worth investing with. In this case, ALQA is a sleeper because they are chock full of top executives formerly with Bristol-Myers Squibb and Celgene.

    Alliqua's Chairman is Jerome Zeldis, the Chief Medical Officer veteran of Celgene since 1997. From that time, Celgene's market capitalization grew from $100M to over $60B, attributed greatly due to the efforts and hard work of Mr. Zeldis.

    They appointed to the Board of Directors on December 4th Mr. Perry Karsen, age 58, who is The Chief Executive Officer of Celgene Cellular Therapeutics, a wholly owned subsidiary of Celgene Corporation, for which Mr. Karsen also serves as Executive Vice President and Chief Operations Officer. As part of the Celgene transaction they had the right to place someone on the Board of Directors of ALQA.

    Options for CEO, David Johnson:

    CEO David Johnson has a strong Bristol Myers Squibb pedigree: He was formerly president of the ConvaTec division of Bristol-Myers Squibb, Inc. until 2008 when he orchestrated a sale of the division from its pharmaceutical parent to Avista Capital Partners and Nordic Capital in a deal valued at $4.1 billion. Concurrently, he acquired and integrated the assets of Copenhagen-based Unomedical to expand ConvaTec Inc.'s manufacturing and infrastructure into Europe. From 2008 through 2012, Mr. Johnson served as the chief executive officer of ConvaTec Inc. Prior to his tenure with ConvaTec Inc., Mr. Johnson held several senior positions in the U.S., Europe and Canada with Zimmer Inc., Fisher Scientific, and Baxter Corporation

    We also found this SEC Filing of interest. Instead of just giving the CEO of ALQA shares outright, they granted him the right to "Purchase" shares at $6.82 per share going forward. This just happened in December of 2013, a few weeks ago. You can buy the stock right around the same price at which he was granted purchase rights. This is interesting because its 730,000 shares which right now would be about 6.5% of the company (11 million total shares outstanding). For him to make out on this, the stock is going to need to have a fairly significant move over the next two years because the options vest over a 9 quarter period of time, not all right away. We find this intriguing and also a great incentive for Mr. Johnson to get the share price much higher as they roll out new products and come out of this re-organization. David was recruited 13 months ago to be Chairman of their Wound care division and join the board, and then they coaxed him into the CEO job. That is when things started to heat up for little ALQA.

    Others:

    Lori Toner- Chief Marketing Officer- Also came over from Convatec division of Bristol Myers Squibb

    Brad Barton- COO- Also of Convatec

    Brian Posner- Took over as CFO in September, formerly CFO of Ocean Power Technologies and prior to that CFO of Pharmacopeia.

    Essentially Mr. Johnson has pulled together the same team that grew the small division of Bristol Myers into a huge division that was then sold off. Now he aims to take ALQA from a little company to a much larger one using his experience and contacts in the same industry.

    This MID YEAR UPDATE is a quick read and you can see the early seeds of their transformation taking place since then and continuing to develop.

    The company has gone through a big re-organization in 2013, and now with a new war chest and new products hitting the market that are game changers, it's a good time to take a position ahead of the crowd. The company is also busy setting up to move to a major stock exchange, what they call in the business an "Up-Listing". These are often major catalysts to see big moves in liquidity, volume, and share price advances for a host of reasons. It's the initial catalyst we are getting out in front of at this time, along with the recently launched 4th quarter wound care product, and the coming 2nd quarter wound care product launch from the Celgene license.

    What appears to be the case here is multiple irons in the fire and pot of products that is bubbling up quickly. The company is cashed up, only has 11 million shares outstanding. They have incentivized the CEO to move the share price. They are up-listing to a major exchange likely within weeks. They have picked up substantial long term shareholders. They have added major distribution partners (McKesson) and new product lines. This is usually the best time to invest, as the stock has consolidated recent large gains over many weeks.

    Risks:

    Obviously this is a micro-cap stock with only a 77 million market cap and probably about 6-7 million in sales in 2014 (Our estimate). There is competition, though that seems to be somewhat mitigated by the executive team that built Convatec from the ground up before it was sold. They recently raised plenty of funds to execute their 2014 plans per management, so dilution risk seems minimal. The thin trade of the stock means investors should have a long term focus, though eventually we see volume picking up as they move to a major exchange this quarter.

    We don't view this as a trade, we view this as a likely strong capital gains candidate for patient shareholders. Our best projection would be to enter at 7.30 and below and then be patient as developments unfold. In speaking with a top level executive recently at ALQA, we asked about the trading volume, and his response was "We are working on that right now". We expect to see volume fairly soon and higher prices, so we are picking up positions while it's quiet… as we like to do.

    (click to enlarge)

    Disclosure: I am long ALQA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: Small portions of this article in part were taken from materials in a prior Seeking Alpha article published in November.

    Tags: CELG, ALQA, long-ideas
    Jan 07 3:55 PM | Link | 4 Comments
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