A significant portion of the market worry for the week was resolved when European fiscal leaders were finally able to hash together a deal that would open the doors to Greece receiving another round of bailout cash, but that wasn't enough to satisfy US investors as the markets dropped amid increasing concerns of a political impasse surrounding the fiscal cliff. Rhetoric was rosy immediately following US elections earlier this month that Republicans and Democrats would be able to come to the table and reach a compromise on the pending tax hikes and spending cuts that would result from enactment of the cliff, but each side looks again to have dug in its heels leading many investors to doubt that an outcome could be reached before the new year.
As previously discussed, it's more likely that politicians will be able to reach an agreement on extending the deadline for reaching a new deal, which would temporarily ward off the tax hikes and spending cuts that investors and political pundits alike believe would lead to another US recession, but do little to quell the uneasy nerves of investors who grow continuously impatient with Washington's inaction. That means nothing has changed for us on a day to day basis - we can still expect a volatile market as negotiations continue and it's likely that a few trading/accumulation opportunities may arise through the volatility.
There's a few opportunities that have already played out, and there are still more to keep an eye on moving forward. Here's just a few of them...
Synergy Moves Through Five Dollars
Earlier in the month of November shares of Synergy Pharmaceuticals (SGYP) hit a low of $3.19, but on Tuesday SGYP pumped through the five dollar mark for the first time since the opening days of September. Such a rapid turnaround attracted the attention of investors - as volume topped a million shares traded for the first time in months - and brought to focus Synergy's upcoming milestone catalyst that could launch the company into a status as a mainstream player in the GI market.
In regards to SGYP dropping to the low threes, such a move could be in relation to the company's merger with Callisto Pharmaceuticals (CLSP). The deal was announced, in part, to eliminate a forty percent interest by Callisto that was generally regarded as a roadblock to attracting more professional or institutional investor interest. Had the announcement reached its intended target and attracted such interest, those guys would likely want in at lower prices than where shares were trading at the time, hence the drastic drop to three.
The rebound, however, plays into the accepted theory of the sector that has developmental biotech or small pharma companies realizing a run-up leading into a milestone event. Previously these run-ups occurred leading into FDA approval decisions, but more often than not these days the run-up comes before the announcement of late-stage, pivotal trial results. That is likely the case with Synergy.
As those who have followed - and probably traded - the Synergy story well know, results from the recently-completed Plecanatide Phase IIb/III trial in the treatment of chronic idiopathic constipation (CIC) are slated for release come the first week of January. With the attention given to that milestone date by those watching this stock, it should be expected that volatility and volume will grow during the closing weeks of 2012. Results are generally expected to roll in positive, given the product's shared mechanism-of-action with the recently-approved Linzess, which was developed by Ironwood Pharmaceuticals (IRWD) and partnered with Forest Laboratories (FRX).
With those similarities noted, Synergy shares also spiked when Linzess garnered approval a couple of months ago. Ironwood and Synergy also completed a licensing agreement that would alleviate any potential legal issues surrounding the two products on market sharing the mechanism-of-action.
The recent price spike may be attributed to the positive mood surrounding the results, and there could be more to come, considering the fact that we are still over a month away from the release. That offers investors plenty of time to play their respective positions prior to the milestone event. With that said, some profit-taking is also likely between now and then, leading to waves of volatility that investors could play as trades or accumulation points.
It's also worth noting that the spike on Tuesday could also be related to a presentation by Synergy President and CEO, Gary S. Jacob, Ph.D, at the 24th Annual Piper Jaffray Healthcare Conference in New York City during the day. Encouraging statements from management leading into a major catalyst event could always help form the 'perfect storm' for a pre-milestone price run. It's worth keeping an eye on SGYP and appreciating the potential value that positive trial results could add to the market cap, should they be positive. At the same time it's a fickle and volatile market right now and investors would also be wise to take at least a little off the table into any significant run in order to protect some trading profits, while also potentially holding a core group of shares for the long run.
Synergy warrants (SGYPW) also traded up by fifteen percent on Tuesday on volume well above the daily average.
MRI Interventions Named 2012 Global Company of the Year
MRI Interventions (MRIC) also demonstrated significant movement on Tuesday with volume rolling in at nearly quadruple the daily norms. The spark igniting the volume spike may have been an announcement that the company had been named the the "2012 Global Company of the Year Award in Image-Guided Neural Interventions by Frost & Sullivan, a global business research and consulting firm," as outlined in a Tuesday AM press release. With this award, Frost and Sullivan looks to recognize novel, new technologies that have been supported by successful implementation plans and strategies in their respective fields. MRIC won the award on the basis of its ClearPoint MRI-enhancing system that provides medical professionals with real-time imagery during complicated procedures on the brain. As noted previously, this company has noted significant growth over the past few quarters and recently boosted its sales force in order to support plans of more growth into the brain surgery sector both in the United States and Europe. The Frost and Sullivan award can be viewed as a public validation of the growth strategy.
As MRI broadens its exposure with an increased sales force, it's likely that the company could come up in discussions involving mergers and acquisitions in the healthcare and medical device sectors. Already MRI has standing partnerships with Siemens AG (SI), Boston Scientific Corporation (BSX) and Brainlab and as the ClearPoint system develops and continues to build a performance records, those partnerships could either grow or turn into all-out acquisitions, as discussed by another Seeking Alpha author this week.
In support of that theory is the fact that MRIC's technology fits well with the current trend of developing less invasive (which also means less costly) methods of conducting previously highly-invasive procedures. In the eyes of potential buyers, partners and investors, it also helps that MRIC has been able to realize impressive revenue gains not just for the sale of its ClearPoint systems, but also for the 'disposable items' related to the individual procedures conducted with each sold unit.
This company is well positioned to take advantage of the trends in health care and in the merger/acquisition market. The Frost and Sullivan award provides support for that theory, hence the significant volume spike on Tuesday.
Amarin Spikes Five Percent
Shares of Amarin Corporation (AMRN) were on the move Tuesday after Citigroup (C) initiated coverage of the company with a 'Buy' rating and stamped a price target of $20 on the stock. The enthusiastic coverage spurned weeks of speculation by other media outlets that a delay in deciding on a New Chemical Entity (NCE) status by the FDA for Vascepa would ultimately lead to the company going-it-alone and keep the share price from rising any further. According to the Citi report, Vascepa is likely to receive the five years of coverage provided by a NCE designation. Additionally, its the opinion of Citi that Vascepa will ultimately reach the billion-dollar potential that many have predicted it has on the open market. Also providing the stock a boost early this week was the issuance two more patents from the US Patent and Trademark Office. Many believe that even without the NCE designation, Amarin has fortified its protection of Vascepa with a strong patent portfolio.
The move to the north side of twelve is good news for Amarin investors, needless to say, especially for those that re-loaded their positions in the tens just trading days ago. Although entirely confident, the Citi opinion is still just that - an opinion - and there is still the chance that the company will be forced to go-it-alone, should a partnership or buyout not be announced soon. Most likely, all relevant parties are awaiting a final NCE designation in order to put a more accurate value on Vascapa, which - according to Citi's report this week - should be viewed as a billion-dollar blockbuster. Pipe the Citi coverage in with any additional takeover chatter (Teva (TEV) and AstraZeneca (AZN) have been most-recently linked as potential buyers), and it's likely that Amarin could easily return to previously-traded levels.
Many believe that the FDA would have already denied NCE for Vascepa if that was the intent, a theory which I tend to agree with, which bodes well for those of the opinion that it may just be some legal wrangling holding up the decision.
Sparked by the Citi coverage, the pieces could be falling into place for Amarin.
Green Mounting Roasting Profits
Some concern was mounting regarding future growth for Green Mountain Coffee Roasters (GMCR) as some of its patents expired and also since Starbucks (SBUX) started making a move into the single-serving coffee and K-Cup markets, but the company helped to temper those fears this week with an earnings report that beat the street and sent shares flying as high as twenty two percent during Tuesday's after-hours trading. In another sign of confidence, management also boosted its forecast for the coming quarters, too, helping to spark the late rally Tuesday and the early rally on Wednesday morning that spiked shares as high as twenty three percent in pre-market trading. Short interest is high with GMCR, with roughly a quarter of the float traded short, which could lead to a squeeze if shorts feel pressured by the encouraging signs of Green Mountain's report.
It's likely, though, that shorts will still consider the patent expirations and growing competition from Starbucks as a threat to GMCR's rosy forecasts and attempt to keep shares honest. To date, the company has not lost its licensing partners as a result of patent expirations, but this will be a story to watch. Starbucks had also issued a positive report earlier in the earnings season, emphasizing that there may be enough room for two super powers in this market.
Also noteworthy for Wednesday:
Implant Sciences (IMSC) announced on Tuesday morning a deal with another new distributor in the Middle East. All attention on this stock is being paid to the ongoing certification of the company's Quantum Sniffer (QS) explosive and narcotics trace detection (ETD) technology, but moves into security networks throughout high-threat areas of the globe should also be noted as potentially significant avenues for revenue growth. While Syria and Libya gain all the attention these days for turmoil in the Middle East, sporadic threats have also increased in other areas of the region, specifically in the Gulf countries. Recent deals by Implant in these areas is evidence that security agencies are taking notice and taking action. It's also evidence that the sales team has positioned the company to capitalize on the growing mobile threats.
Cytosorbents Corporation (CTSO) clarified its earnings release earlier this week which led to a rebound of more than ten percent in share price. Shares had slipped by about that much last week in response to the original report. Cytosorbents has been engaged in the commercialization of CytoSorb in Europe, a blood purification device that treats sepsis and other conditions where high cytokines are present. The roll-out has been slow and methodical, due to the company attempt to commercialize while smartly utilizing its limited cash resources, but the product has started to take off a bit, as evidenced by this quote by the CEO in his clarification of earnings, "That we have booked more revenue in the first 52 days of the fourth quarter than we did in the first 9 months of 2012, is a reflection of the increased effectiveness of our sales efforts and interest in our technologies." Investors should still temper expectations for the time being, but should the trend continue as reported in the current quarter, then patient investors could be handsomely rewarded. CTSO shares spiked to nearly four times their current levels when CytoSorb approval was announced last year.
Roundup: Overseas trading on Wednesday was tempered and it's likely that US trading will follow suit as attention is paid to fiscal cliff negotiations in the US. As discussed above, the market volatility surrounding these talks makes it a trader's market, but opportunities to accumulate particular stocks with an eye towards next year or beyond could show themselves into any dips that may materialize. During the drop of 2008-09, for instance, shares of SiriusXM (SIRI), for instance, traded for a mere nickel. Others, such as General Electric (GE) and Nordstrom (JWN) traded for well under ten dollars and twenty dollars, respectively. In any market - especially in the down markets - the opportunities will arise.
All it could take to lead to a broad rally is cooperation in Washington, as the economic data has been encouraging. Sales on Black Friday and Cyber Monday - especially on Cyber Monday - looked great and consumer confidence is rising. Retailers had some nice surprises during the earnings season and the housing data looks good again. All this spells potential rally once the fiscal cliff issues are resolved. Before that happens, though, we should expect the volatility that's been noted over the past weeks and another potential dip leading into the December tax-loss selling season. Often times, that's a pretty good accumulation point for some stocks that have declined this year, but are positioned to return solid gains the following year.
There's a lot to keep an eye on, and the climax of all excitement has got to be the New York Mets' offseason signings. Can you smell a ring next year?
Disclosure: Long AMRN, CTSO, GE, IMSC, SGYP, SGYPW.
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