Endocyte And Vringo Offer Value Addition

by: Markos Kaminis

The biggest gainers on our list for April 16, 2012 were led by Endocyte (NASDAQ: ECYT), Vringo (NYSE: VRNG), Edelman Financial (NASDAQ: EF), Dreams (AMEX: DRJ) and American Realty Investors (NYSE: ARL). Of the group, we'll examine two value added events that haven't also capped value opportunity for two of these companies' shares.

Endocyte doubled Monday, gapping up as much on the open. The company garnered the help of Merck (NYSE: MRK), through the sale of its global development and commercialization rights for its novel investigational therapeutic candidate vintafolide (EC145). ECYT receives $120 million up front with a milestone payment opportunity for up to $880 million more if vintafolide achieves certain goals. The drug is currently in Phase III clinical trial for platinum resistant ovarian cancer and a Phase II trial for non-small cell lung cancer. Endocyte's strategic partnership with Merck will allow it to accelerate development of the drug for the potential treatment of other cancers.

Endocyte still gets to participate if the drug finds its market after an FDA approval, as the deal gives it an equal profit share in the U.S. and double-digit royalty throughout the rest of the world. The vote of confidence from Merck, plus the access to its channels and skills is definitely a value add for the now less-small small-cap. I expect the valuation ratchet up will mostly hold, though the stock did settle some after rising to an $8.20 top on speculative fervor post its gap open. The shares' gain again Tuesday indicates the value-add is being understood by the market and supported by smart money, in my view. Endocyte is now capital strengthened and supported for growth as Merck has a stake to pursue. While still depending on FDA approval, the not-costless vote of confidence from Merck travels with investors in my view.

Vringo - Dallas Mavericks Owner and the younger man's model businessman (not to mention Shark Tank predator) Mark Cuban took a stake in Vringo. A regulatory filing showed the billionaire took a 7.4% stake in the mobile social and mobile video services software applications company. The microcap stock charged into a 31% rally Monday on the news, moving back towards where it priced its IPO in 2010.

I watched an interview of the current CEO discussing the company, its IP effort, and its solid work with major mobile providers (including Verizon (NYSE: VZ) based on its website) and content providers (including Marvel, Warner Music and others). I believe in video and mobile video, and I see why Cuban took the interest in this player. But he's not the first, with Benchmark Capital and DAG Ventures, two venture capital firms with history in bets in Yelp (NASDAQ: YELP), ZipCar (NYSE: ZIP), Twitter and eBay (NASDAQ: EBAY), leading a 2011 financing interest.

Vringo looks like a flyer to me worth closer investor inspection, which Cuban should attract, and so he's added value already. The stock gave back some ground Tuesday, as while it has grown revenues lately, it continues to fall far short in the earnings (loss) category. Cuban's face on the name, and his no-nonsense, get it done influence should help the company's public profile. In the end, it is the cool factor that is going to have to catch on with a young audience that will determine the fate of Vringo.

I would keep a close eye on adoption and use statistics and Vringo's efforts in the social media realm for a good bead on the story. However, as far as valuation goes, it's got a long ways to go to earn its keep to a P/E of even 40X. So, I can understand why the shares gave back a bit the day after the news. That said, getting to $1 million to $2 million in earnings could happen as quickly as the shares jumped on Monday, considering the company's playing field.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.