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.
Always an innovator and market-place leader, Google (GOOG) once again managed to do something that no other company had yet been able to do. The current earnings season was long-expected to be a disappointing one, but as report after lackluster report rolled in - along with some revised guidance to the downside - the markets traded relatively unscathed, remaining above the disappointing fray and leaving many with the impression that the few earnings surprises that did emerge provided enough juice so that the season would come and go without any major market shift transpiring...until Google reported.
In a report that hit the street on Thursday hours earlier than planned - causing the company to halt the trading of its stock - Google missed the mark enough to spark a dramatic downturn in the broad markets, culminating a loss of over twenty billion dollars from the GOOG market cap and a 200-point drop by the DOW on Friday. The results of some other tech giants that reported last week, such as Microsoft (MSFT), IBM (IBM), and Intel Corporation (INTC) were also quite dismal, but those were relatively expected disappointments, whereas Google's miss caught many off guard.
Not to place the blame for last week's market dive solely on Google, it's also fair to point out that McDonald's (MCD) also missed analyst expectations on Friday, contributing the overall market drop. The fast food giant faced slowing US sales and reported an income drop of well over three percent on a year-over-year basis, somewhat of a surprise since Yum Brands (YUM) kicked off the earnings season with a fairly encouraging report a few weeks ago. Following the YUM report, many investors believed that MCD, too, could fare well amid the global economic uncertainty.
Investors will likely take more of a precautionary approach to the markets during the coming trading week as it's now obvious now that the expectancy of a weak earnings season will not soften the blow when the big boys come in weaker than expected, even with sporadic surprises along the way. Moving into the last half of the season, stability could be lost. This week, Apple (AAPL) will headline the reports - and the fact that AAPL declined by nearly four percent on Friday could be a sign that investors are may be preparing for any eventuality because just about everybody looks vulnerable right now.
Moving onto other economic indicators, the Federal Reserve has a policy meeting on Tuesday and Wednesday that will draw its fair share of attention. Stocks traded stronger following the Fed meeting last month - when additional measures of stimulus were promised - but the mood is a bit more tense these days with a slew of earnings misses and the political climate at a boiling point.
New home sales data will also be released at mid-week, but the true spotlight will be on earnings.
It'll be a busy week for sure...here's a few stocks and stories to keep an eye on...
Healthcare, Biotech, Pharmaceutical:
Amarin Corporation (AMRN): All attention is on Amarin again. Some late-week price and volume action is demonstrative of the itchy trigger fingers held by Amarin investors these days with all the hype surrounding a potential buyout and a New Chemical Entity (NCE) status for Vascepa. When a stock is being heavily-watched for imminent expectations of market-moving news, volume will rush in at the slightest hint that "the news" is actually hitting the wires - and that's what happened to AMRN last Thursday when a 'peer-reviewed' journal published a statement indicating that the FDA in fact viewed Vascepa as a new chemical entity. The link made the National Institutes of Health website and AMRN shares immediately flew higher by over a dollar, only to retrace once it was realized that 'the news' was not actually the news that everyone was waiting for, rather just a head fake. The market as a whole then went south on Friday and AMRN closed down by another four percent, leaving investors to - once again - wait for next week.
If anyone doubted that investors were taking this NCE news seriously, Thursday's movement is proof positive that they are. Some would argue that Amarin's patent protection alone is enough to justify a buyout at a very significant premium - and they may be right, given Vascepa's expected blockbuster status - but others give huge credence to the full five years of definitive market exclusivity provided by NCE status and believe that potential buyers would, too.
Most would agree that a deal is going to get done here, it's just a matter of price - and that's where NCE comes in. Amarin probably doesn't want to under-cut itself early only to receive the designation later, but with each FDA delay, investors are accepting the fact that NCE could be a no-go, which may deflate the value of any deal. While a buyout could lead to an instant double in share price - similar to the move experienced by HGSI right after GlaxoSmithKline's (GSK) initial offer for that company - but the share price may be slower to recover if AMRN decides to go-it-alone.
Once again a hot one to watch this week.
Synergy Pharmaceuticals (SGYP): Synergy shares also took a hit last Friday as the market as a whole tanked, but the news was not all bad as the company reaffirmed its efforts to position its stock as a potentially attractive target of institutional dollars or - as hinted by the merger with Callisto Pharmaceuticals (CLSP) a while back - maybe even a buyout. Under the terms of the Callisto deal, as announced in July, Callisto shareholders would be granted 0.17 shares of Synergy common stock for each outstanding share of Callisto common stock. Those new shares would then be 'locked up' for a total of eighteen months, barring a 'Change of Control' event. Wording such as that hints that a company is positioning itself to become the target of a larger merger or acquisition and the lock-up period offers an ample amount of time to get something done.
Some of the terms changed last week, however, as the company entered into 'Amendment No. 1' of the deal. The share exchange would not take place at a rate of .1799 shares of SGYP for every one of Callisto's and the lock-up period would be pushed back to twenty four months and the merger is expected to come to fruition within the current quarter - although last week's 8k also warned that it might not take place in the time frame expected, or at all. It is fair to note that such language is routine for the sake of legalities.
The Callisto deal strengthens Synergy's position since Callisto held over forty percent of Synergy pre-merger. Such a large position by one entity could often be viewed as a road-block to attracting institutions or funds, but that will no longer be the case once this deal is consummated. More noteworthy, however, is the pending trial catalyst that is expected to materialize within the current quarter. Given the August completion of enrollment for Synergy's Phase IIb/III clinical trial measuring the effectiveness of Plecanatide in treating chronic idiopathic constipation (CIC), previous expectations that results will be released by year-end 2012 look to be in tact. Positive results from this trial could lead to SGYP being compared to Ironwood Pharmaceuticals' (IRWD), for valuation's sake, given that company's recent FDA approval for Linzess - a product previously known as Linaclotide that shares origins and a similar mechanism-of-action with Plecanatide. Plecanatide has proven to have less of a side-effect profile than Linzess during trials, according to publicly-available information, and Synergy still stands to benefit from a potential partnership deal; IRWD has already partnered with Forest Laboratories (FRX) in a profit-sharing deal, yet still has a valuation of well over a billion bucks.
Given the pending trial catalyst and the possibilities options opened up as the result of the recent M&A activity, SGYP will be a hot one to watch for the duration of the quarter. A couple of analysts have also issued very enthusiastic reports on the company over the past few months and Friday's price retreat may have provided a decent buying opportunity for investors banking on Plecanatide success and fair valuation of SGYP as compared to IRWD.
With Friday's seven percent move lower, SGYP will be one to watch this week.
NeoStem, Inc. (NBS): Two pieces of milestone pipeline news and increased interest in the regenerative medicine sector over the past couple of months have attracted a fair amount of investor interest to the NeoStem stock, although volume tapered off late last week as the broad market drop and some flailing blue chip companies drew attention away from the developmental and speculative plays. With a new week upon us, NBS will be one to watch.
Earlier this month, data confirming the ability of the company's VSEL technology to assist in bone-growing in pre-clinical studies in mice made its rounds, while earlier in the summer NeoStem received approval from a data monitoring committee to continue moving forward with its Phase II PreSERVE trial. PreSERVE puts the company's AMR-001 stem cell technology to work in repairing damaged heart tissue following a heart attack. Both news items cement NeoStem's place in the stem cell space and have contributed to the company's market cap settling at above the one hundred million market, after trading for a significantly lower cap earlier in the year. Given the billion-dollar-plus market targeted by AMR-001, more remarkable gains may yet materialize with the progression of trials.
Speculative companies can be much more susceptible to bouts of volatility during periods of market turmoil, but opportunity can prevail in those circumstances where the market drops and investors look to put speculative money back on the sidelines for a while. NBS has thus far proven immune to this phenomena, at least over the recent past, indicating that a solid base of longs has formed as 'true believers.' Also of significance, and unlike other developmental companies, NeoStem already has a revenue stream. Through its Progenitor Cell Therapy division, NBS has contracted out its services and grew revenue at a rate of 95% during the past two quarters, according to numbers presented in the latest quarterly report.
For a time Advanced Cell Technology (ACTC) and Geron (GERN) were stealing all the stem cell spotlight, but NBS has quickly take a prime position at center stage as a potential leader in the field. Given the company's pipeline progress and moves to strengthen the financial position this year, NBS is one to watch in the stem cell sector - and one to watch this week for the fluctuating volume patterns.
Sunshine Heart (SSH): Sunshine shares dipped to lows not seen in months last week and could be positioned for a rebound, considering the pending catalysts of commercialization in Europe during the current quarter and the initiation of a pivotal trial in the United States for C-Pulse that will be geared towards and FDA approval. The C-Pulse Heart Assist system, for those new to Sunshine, is a device that has thus far proven in trials in both in North America and Europe to halt - and even reverse - the progression of heart failure in patients with Class III and ambulatory Class IV heart failure. Milestones have been a-plenty this year, with an approval in Europe for C-Pulse and an Investigational Device Exemption (IDE) by the FDA that clears the way for development in the US.
Given the timing of these developments, Sunshine is positioned to register its first commercial sales at right about the same time as the initiation of the US trial, marking two significant milestones within the current quarter.
There were some investor concerns aired last week on the Seeking Alpha website, however, that may have led to the drop in the SSH share price. Highlighting those concerns were the purported lack of funds the company has - or will have - to advance C-Pulse to market in the United States. Other concerns were raised that competition from Heartware International (HTWR) and Thoratec (THOR) essentially render the C-Pulse as irrelevant in the market for heart-care devices. While any investor concern should be entertained for the sake of solid DD, these particular concerns - at the face value in which they were presented - are misleading.
Sunshine may again need to raise funds at some point in development, a given for all still-developmental companies - but one cannot ignore the fact, too, that C-Pulse can start pulling in revenue from European sales at any time now. It shouldn't be expected that immediate returns will alleviate any future financing needs, but should the product gain swift share on the European market, it could drastically reduce such threats. Additionally, a recent round of financing has positioned the company on sound footing until the mid-way point of the US trial, at which point a potential partner could come in and make a move. The idea of a partner coming in may not be so far-fetched, considering that the recent financing deal included a multi-million dollar up-front payment by a "strategic investor" who will also send a member to Sunshine's board. Such moves strongly hint at partnership or buyout interest.
In regards to competition on the market, C-Pulse is implanted outside of the bloodstream, in direct contrast to the standards of care currently on the market for heart-assist devices. Because of this fact, the implantation procedure is considered 'minimally invasive' and greatly reduces the potential of contamination that could result from introducing foreign bodies into the bloodstream. Additionally, current treatments for Class III heart failure including limiting a patients activity and normal routine, where patients treated with the C-Pulse have noted an overall improvement of physical activity, according to the early studies that formed the basis of the European approval.
Given the swift share price decline last week and the largely misleading investor concerns, Sunshine Heart will be one to watch during the coming week.
Mannkind Corp (MNKD): Those that have followed the up-and-down year of trading for shares of Mannkind largely expected that a late-year round of financing would unfold as the company looked to fund the remained of Afrezza's development to market as a potential inhaled insulin alternative to the needle for diabetics. The news finally came last week as MNKD shares plunged to below the two dollar mark when it was revealed that the public offering consisted of 40 million shares and 30 million warrants to buy another 0.75 share, all priced at $2. In conjunction with the financing, CEO Al Mann relieved the company of over two hundred million in debt in return for more shares. This deal will fill Mannkind's coffers with $80 million and allow for the final stages of Afrezza development before the product again goes before the FDA. Dilution was massive - again - for shareholders who held through the recent turmoil and the offering, but last week's dip - that will likely carry into the new trading week - could again attract investors willing to take a position on the potential of Afrezza. Data from the last Phase III trial was encouraging, although the trial was not conducted with the same inhaler that the company planned to market. The latest trials will test Afrezza with the next-generation inhaler. With financing out of the way and given the sharp drop in share price last week, MNKD will be one to watch this week.
Dendreon (DNDN): The market dropped big to close out the week last week, but the beaten-down Dendreon held steadfast and closed Friday modestly in the green. After a Reuters report earlier in the month sent DNDN shares realing, the stock has inched higher and investors are now concentrating on the October 30th earnings release that could offer indications to how much the cost-cutting measures are helping and as to whether or not Provenge is making headway on the market. Some have predicted a decline in Provenge sales to the mid-$70 million range, but a surprise to the upside could reinvigorate life into the slumping DNDN shares. Moving beyond the current quarter, investors could look to the expanded insurance coverage announced by Aetna (AET) earlier in the month as a key to the future.
OncoSec Medical Incorporated (ONCS): OncoSec Medical continued its move higher last week, returning more than a double in just over a month. Last week's drive resulted from a European CE Mark certification for the company's proprietary OMS electroporation device, which uses electroporation to deliver treatments and therapies directly into targeted cells using electrical pulses. This strategy has proven to be an effective delivery method, as the electric stimulus spurs the cells to contain a drug or treatment more effectively within the cell wall than standard methods of delivery without damaging the surrounding tissue. CE Mark approval allows a company to commercialize a product in Europe and this event marks a very significant milestone for OncoSec. Investors responded accordingly and ONCS shares held up well during Friday's downturn. Given the quick run in price, ONCS is still one to watch.
Technology, Products, Services:
Sirius XM Radio Inc. (SIRI): SiriusXM is pushing three bucks with conviction. The stock that traded for a mere nickel just a few years ago received another boost last week when it was announced that it was added to Bank of America Merrill Lynch’s U.S. 1 List based on growth in the auto market and its 'Buy' rating that is accompanied with a four dollar price target. Sirius is not slated to release quarterly results until the end of this month, but an enthusiastic update was offered by CEO Mel Karmazin at Liberty Media's (LMCA) analyst meeting a few weeks ago, supporting the push to three. The buzz is all positive around this company and patient shareholders have been rewarded. With auto sales up, Sirius is primed to benefit and the unique content of SatRad is unparalleled by the competition. The only downside to potentially keep in mind is that the runup has been fairly quick and some profit-taking could kick in at some point, especially if the broad markets continue to dive - although shares held strong during Friday's dip.
Microsoft: Earnings this quarter may not have exactly rallied the troops, if Friday's three percent dip is an indication, but expectations should be put on the upcoming future catalysts rather than the recent past. Windows 8 is slated for an imminent release, as is the 'Surface' - Microsoft's head-first dive into the tablet market. Both mark milestones in the company's recent history and could potentially justify a purchase of MSFT shares that closed last week well over four dollars lower than the 52-week high. A week earnings season has killed tech stocks and the market downturn threatens to crush them even further, but the dividend-yielding MSFT could again be worth a look for those that believe Windows 8 and Surface could revive this company's past reputation as a next-generation innovator. MSFT already holds a strong foothold in the gaming market and is sitting on tens of billions in cash. A dip to the mid-twenties would mark an ideal buy, in my opinion.
Google: It was only weeks ago that GOOG was slapped with a price tag of $850 by an analyst at JPMorgan Chase (JPM), making last week's drop to well below the seven hundred dollar mark either bad timing by the JPM analyst or a rash overreaction by jittery investors who now look ready to bail at the slightest hint of trouble. Solid earnings by Apple this week could help to rebound the tech sector as a whole, but if the market continues to tumble, there could be some continued buying opportunities to be had. Like Microsoft, Google has the cash on hand that could lead to continued innovation and although GOOG's numbers missed, the company still registered growth overall. Worth watching this week.
Roundup: For months now we've seen what was expected to become volatile turns to the downside turn right back into modest moves higher, so there's a chance that Friday's action could be much ado about nothing. That said, investors did look to have said "We've seen enough" of the quarterly disappointments and decides to pull away a bit. Economic indicators continue to be as mixed as a politicians promises from day-to-day offering no solace that stability is on the horizon. Trading opportunities are likely to appear and disappear from day to day, keeping investors not only interested, but that much more twitchy as it takes an extra few cups of coffee and maybe a Celsius to stay alert. As the markets roll on the last presidential debate will provide fireworks on Monday night, but at this point the redundant statements of our politicians is about as entertaining as a Mets game in September. Enough is enough already. Let's get it over with so Facebookers can get back to their normal "TGIF!!!" and "Happy Hump Day!" posts instead of the incessant bickering about who said what when. That said, everyone should get out and vote - it's one of the great benefits of freedom that too often goes unappreciated by those who take it for granted.
Disclosure: Long AMRN, SGYP, SSH.
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