The international markets received a nice boost this week as signs that the European economy would respond well to stimulus packages were noted while US productivity numbers were up more than expected for the most recently-completed quarter. While the outlooks again look swell, however, some stocks were not faring so well as the week progressed.
Here's a look at some stocks and stories making news thus far in the week...
Spectrum Pharmaceuticals (SPPI): Shares of Spectrum Pharmaceuticals dropped by fifteen percent at one point on Wednesday before the closing the day nearly two bucks to the downside after the company reported another round of record earnings numbers. Total revenue for the latest quarter approached seventy million dollars while FUSILEV revenue - keeping well in line with recent growth trends - nearly doubled over the same quarter from the previous year.
To top all that good noise off, the company now has nearly $280 million on the books.
So why would a company reporting another round of record earnings drop by fifteen percent? As the headlines question the cause and others debate how such a move is possible, the answer is actually quite easy. It's the short interest.
For months we've speculated on how the growing short interest of the Spectrum stock would play out on the open market, regardless of how promising returns on revenue were becoming. The "squeeze" that was becoming apparent as revenues grew manufactured a share price high of well over seventeen dollars as new shorts continued to jump on board. It's easy to get roped into the theory that shares of a feel-good story are going to keep rising as long as the story stays good, but it's also important to take note of the power of the big boys - sometimes the shorts win.
In this case they played on reports of an earnings "miss" for Spectrum while also playing up the slow traction of Zevalin in gaining market foothold. Because the company has over-performed quarter over quarter during its historic price run, expectations and enthusiasm began to get a bit carried away which allowed for some media outlets to circulate headlines of a "miss."
The shorts - who don't always win their battles, but more often than not eventually do (bear raids, call them what you want) - took the opportunity to pounce, leaving Spectrum shares well below their 52-week high.
This scenario should come as little surprise in this highly-volatile sector and should also come as a reminder that it's important to bank at least some profits as a stock rises, because time and again there are too many shareholders left disappointed in this sector, even though they've found a decent company that is producing.
Gains are not gains until they are sitting in your cash account.
So what now?
Again, as is often the case when shares of a decent company fall victim to the shorts, a nice buying opportunity could open up. The once-high-flying Human Genome Sciences (formerly HGSI) had dropped down to the seven dollar level as the shorts and bears created doubt in the market, and before many investors could sort out whether this was a solid buying opportunity or not, GlaxoSmithKline (GSK) finally came through with a much-anticipated buyout offer and a quick double was in effect for Human Genome.
It's my opinion that Spectrum is in a similar boat right now. A buyout may not materialize, but the company is obviously moving in the right direction. Even the naysayers are now giving FUSILEV the respect it deserves on the market and Zevalin is only in the early stages of growth. Given the growth trends, the deal for Allos Therapeutics (ALTH) and the cash on hand, look for SPPI to rebound again once the majority of shorts have covered for these lower prices.
In the meantime, let this latest correction be a stark reminder that corrections can materialize out of thin air in this sector, especially when the shorts are pouncing big. A perusal of the message boards will reveal many an investor warning shorts that they are doomed, and at times they are, but more often than not the big boys win - that's why it's important to just have the goal of picking up the crumbs, not trying to eat the whole cake on the way to unrecognizable riches - and that's done by selling a few shares here and there on the way up.
It's a much worse feeling, in my opinion, not to have sold shares of a company when you could have made some nice bank than it is to have sold, only to watch shares continue higher while you're sitting on a European beach already on the Goose.
As always, each investor must devise his or her own entry and exit strategy and stick to it.
Sunshine Heart (SSH): It has been a solid couple of months for Sunshine Heart. The company last week received FDA approval to utilize its "next-generation" C-Pulse device in patients undergoing treatment as a part of the North American feasibility trial and also for future patients in a pivotal trial geared towards FDA approval expected to start later this year.
Sunshine also received CE Mark Approval for its device that treats heart failure, opening the doors for the company to secure its first commercial sales, also later this year.
On Wednesday morning Sunshine then amended its previously-filed S1 to note the interest of a new strategic investor who is looking to purchase up to three million dollars worth of company shares as part of a recently-announced stock offering. Although the identity of the new investor has yet to be revealed, according to the S1, it looks like Sunshine is in the early stages of a significant partnership that could pan out into something bigger later on down the road, should C-Pulse continue to prove successful.
As noted in the filing, the new investor will send a "board observer" to Sunshine who will monitor developments and who could then be able to recommend that the initial monetary investment should turn into something a little bit bigger, such as a partnership or all-out buyout. Such a move is standard operating procedure for large players of the sector who are looking to potentially evolve an initial investment into a potential new revenue stream of their own. Sometimes big-money funds will also send a representative of their own to the board of a company just invested in, but with SSH still trading at relative "developmental levels," common sense would indicate that a big player in the medical device industry may be looking to make an early move on C-Pulse, where a 'first right of refusal' for a potential sale or partnership could more easily be achieved.
The new investment falls in line with recent discussions that the continued success of C-Pulse would eventually attract the interest of a much larger medical device company, such as Boston Scientific (BSX), but bear in mind that the phantom investor is still not known, and at this point we're talking pure speculation.
It is a story to watch, however, for the reasons noted above.
TrovaGene Inc (TROV): TrovaGene is another company whose shares have slipped recently, but should be watched as the company may be developing breakthrough diagnostics tests that could identify cancer and other diseased through urine, the most non-intrusive means to date to detect such ailments. TROV's technology identifies in a urine specimen specific transrenal DNA and RNA originating from normal and diseased cell death to achieve its goals.
Such a technology would somewhat ease the burden on the health care system as the less-invasive nature of the tests replaces the more-intrusive and more-expensive alternatives.
The company has added this year numerous key scientific personnel, a sign of validation from the medical community, and has also recruited numerous clinical study sites for a pending trial that will test the technology in identifying pancreatic cancer. The planned Q4 trial start provides an imminent upcoming catalyst, as does interim data on currently ongoing studies.
While studies are still relatively early in progress, the technology has demonstrated enough proven success to keep this one on the radar. Urine-based diagnostics could be the next generation of cancer and infectious disease detection.
Amarin Corporation (AMRN): Amarin's second quarter numbers and comments are on the street, and while no surprises were evident, investors will continue to key in on a few words that may hint at an anticipated buyout or large partnership. The commercialization update provided for Vascepa will include, according to company comments:
An acquisition of Amarin, a strategic collaboration, or self-commercialization, the latter of which could include third-party support.
It's still likely, in my opinion, that a buyout will materialize, if not only based on past interest, but until such a scenario becomes more evident, shares may remain trading well off the highs set leading into approval.
Also of note, the company continues to await word on the final status of Vascepa as a New Chemical Entity (NCE) - which would add years to its market exclusivity - while also awaiting final word on a few new patent submissions.
Additional approvals for Vascepa in a broader scope of patient population is also being prepared for early next year, according to the quarterly report.
While trading has been depressed for AMRN over the past couple of weeks since approval, the current price levels could look quite attractive for the rebound-minded, as with SPPI.
This one reminds me of HGSI when it was at seven.
This sector is never left without excitement. That's why we love it. Happy Trading!!!
Disclosure: Long AMRN.
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