Stocks gave us a wild ride last week as numerous factors converged to incite more extreme market volatility that we had seen since the conclusion of the fiscal cliff drama at the beginning of the year. The DOW jumped over a hundred points on Friday, following two notable down days, and closed the week above the 14,000 mark again, albeit barely. The volatile trading action is likely to continue into the new trading week as budget negotiations in Washington will likely dominate headlines and keep investors on edge. Unlike the fiscal cliff talks that resulted in a last-minute deal during the dawning hours of 2013, both sides look more inclined this time around to hold their ground, which means that the potential is high that the much-discussed sequestration measures will come into effect on Friday morning. Such an even would translate into swift federal spending cuts that have the potential to negatively impact the overall economy, let alone stall the recovery.
Another event with market-moving implications to keep an eye on this week is Fed Chairman Ben Bernake's date with Congress. Much of last week's mid-week drop was attributed to statements from the Fed that stimulus measures long in place since the depths of the recession may be pulled back earlier than previously indicated and Congress on Tuesday and Wednesday will hear personally what Mr. Bernanke has to say in those regards. Friday's rebound provided some evidence last week that investors may have felt they overreacted by selling into the Fed comments last week, there's little doubt that Mr. Bernanke's comments this week will be heavily watched, especially in light of recent developments in Europe over the weekend.
Sooner or later those European concerns are likely to effect trading on this side of the pond again. With the enthusiasm of the January rally and the encouragement of this earnings season, investors easily brushed aside any concerns of a stalling global recovery, but analysts predicted last week that the European economy had at least another year of recession and turmoil on the table before reversing course and climbing into growth.
Warnings of slow growth were even apparent in the supposed powerhouse economies of Germany and England, but the light was dimmed even more when Moody's downgraded the UK's Triple-A credit rating. It's yet to be seen how much of an impact that move will have on the European or global markets, but it's an eye-opener heading into the new trading week.
Also this week, the Italian elections will be in the spotlight and it'll be a disappointing sign if Italy votes Berlusconi's 'Bunga Bunga' squad back into power, as it's time for the Italian economy to embrace the financial reforms that have been put into place since his ouster and not reverse course back into the all-too-recent past. That said, there's little doubt that the worst of the worst is in the rear view mirror for the Euro Zone (EZ) as a whole, but it's evident that the light at the end of the tunnel is still a ways off in the distance.
Bernanke's comments, US budget talks, looming sequestration and the EZ's continued strife could lead to a volatile week ahead. As is always the case, there will be plenty of individual stocks and stories to keep an eye on while the major news plays out. Here are just a few of them for the week of 25 February, 2013...
Retailer-heavy Week Could Mark Or Dispel Trends In Consumer Spending
There was enough gas left in the earnings season tank to help support Friday's price spike as a few high profile reports still rolled in, but most of the big players have already reported, so the remainder of the season will be dominated by the B-list, for the most part, and small cap or still-developing companies whose reports are hardly likely to move the markets as a whole.
With that being said, this week's reports will be retailer-heavy and the sector as a whole could prop up the markets, if the ancillary news discussed above allows. Of the major retailers, Home Depot (HD), Lowe's (LOW), Best Buy (BBY) and Dollar Tree (DLTR) can - through guidance for the current quarter - all help to mark or dispel a slowing trend in consumer spending noted by Wal-Mart (WMT) officials earlier in the month. Any indications that Wal-Mart was right - that consumers are slowing their pace of spending this quarter - and the markets could suffer, especially if investors don't like comments coming from the Fed and Europe. Any trading of the retailer stock will likely be solely forward-looking, given that consumer spending for the reported quarter has already been noted and documented by earlier reports. There shouldn't be any major surprises. Saks (SKS) is also one to keep an eye on in the sector, although earnings here represent more of a niche core of higher-end consumers and are not necessarily a sign of overall strength in the sector.
Amarin Report Centered On Vascepa Guidance
Amarin Corporation's (AMRN) earnings report and conference call is going to be one worth watching this week as it is one of the more popular stories in the biotech/healthcare sector and has garnered quite the fair share of headlines and speculation of late. Although the never-ending story of Vascepa's status as a New Chemical Entity (NCE) will continue to hog the spotlight, this week's earnings report, set for Thursday, 28 February, will have investors interested because of the possibilities of hearing an insight into how Vascepa's commercial launch is coming along and what - if any - guidance will be available moving forward. Bear in mind that the launch was undertaken in late January and will have no relevance to the earnings report itself, as it will cover the last quarter of 2012.
In anticipation of the Amarin report, speculative headlines popped up again over the weekend leading to the possibilities of a potential buyout of the company and the potential for the stock to eventually head higher even if a buyout does not materialize. These ideas have been covered heavily by numerous financial media outlets over the past year or so and will continue to be until the story plays out one way or another. The argument for Amarin as a buyout candidate, as previously discussed, revolves around previous predictions that Vascepa could eventually become a billion dollar blockbuster, once fully approved for both the MARINE and ANCHOR indications. Given the amount of major money-makers coming off patent these days in the world of big pharma, it's no secret that many of the larger biotech/pharmaceutical companies are looking to boost their respective pipelines, and Amarin - with a potential blockbuster in hand - could look like an attractive target.
NCE is also key because it would add significant overall value to any deal, although company officials have also noted in recent conference calls that the patent protection achieved for Vascepa should solidify the product's protection for years to come, regardless of NCE.
Although we've heard quite a bit from and about Amarin already in 2013, the upcoming call gives investors a chance to hear the latest updates regarding buyout talk, the status of the commercial launch and expectations of building momentum. The AMRN share price has been stuck in a range of between eight and nine bucks and is likely to remain there, barring a determination on NCE or growing strength regarding the launch. Any positive surprises in earnings guidance could send shares back to the double digits, as could a positive NCE outcome or renewed - and real - buyout talk. Nice earnings story to watch this week.
Spectrum Declines As Generic Competition Heats Up
Shares of Spectrum Pharmaceuticals (SPPI) traded lower last week after reporting earnings that, although record setting for the year, provided yet another round of evidence that Fusilev may be falling victim to an availability increase of its generic competition, leucovorin. It was widely recognized throughout 2012 that a supply shortage of the generic greatly contributed to the boost in Fusilev sales and the surge in SPPI share price that hit the high teens at one point before dropping back to the current levels.
As described by the company in the associated press release and earnings call, however, the quarter-over-quarter slowdown in Fusilev sales was attributed more to gross-to-net adjustments, primarily related to mandatory government rebates for some patients. In fact, notes the PR, sales themselves were up on a quarter-over-quarter basis. The company's story is certainly more favorable to the long argument, but investors should bear in mind that a continued boost in the generic supply chain could cause a continued slowdown in Fusilev sales.
The good news is that, moving forward, Spectrum expects revenue growth for Folotyn, a treatment for refractory peripheral T-cell lymphoma acquired in a deal last year for Allos Therapeutics, to potentially offset slowing Fusilev sales, should that scenario materialize. Folotyn brought in nearly fifteen million for the quarter and - adjusted to speculate on a year's worth of sales - returned stronger revenue numbers than were registered for Allos the year prior. Zevalin added another eight million for the quarter and the thirty million in revenue for the year helped the company achieve the record numbers reported in its press release.
Judging from the swift four percent price decline following Thursday's report, it's apparent that investors are harboring concerns that generic competition is going to eat away at Fusilev sales. Such concerns may be minimal if the company's notes about gross-to-net adjustments continue to be accurate, but no specific guidance was given moving forward, other than that revenue was going to continue to increase. Should Fusilev sales start to slow, an investment in SPPI at this point could be considered a vote of confidence that Zevalin revenue, which offered a significant year-over-year return, will continue on the upswing while Folotyn sales continue to grow, too.
Considering those aspects, it's not unreasonable to believe that the company's predictions of another overall growth in revenue for the year is possible, although the lack of specific guidance will leave some investors concerned that not even the management team is certain how the end game will play out. On the other hand, any surprises along the way that would spark a still-very-significant short interest to cover could lead to a quick rally.
Following last week's drop on another solid earnings report, Spectrum will be one to watch moving forward. If the market as a whole decides to drop again this week as the result of global geopolitical and economic events, as it did during the middle days of last week, then it's possible that SPPI could drop even lower than expected, potentially providing an entry point for those looking to play the future growth of the pipeline.
It's not too often that you see shares of a company reporting record revenue decline after the report, but the short interest indicates there are still some non-believers out there that doubt Fusilev's ability to thwart the generic competition. That's the key to watch for the short to mid term.
Healthcare, Biotech, Pharmaceutical:
AntriaBio Could Alter Diabetes Market
AntriaBio, Inc. (ANTB) is an emerging story in the developmental biopharmaceutical sector that may be worth keeping an eye on this week as trading volume picked up quite a bit during the past few trading days when the company's potential in the diabetes market started gaining increased exposure from popular financial and healthcare news outlets.
After having purchased the assets of PR Pharmaceuticals in January of this year, AntriaBio has positioned itself, pending successful trials, to eventually enter the multi-billion dollar market of basal insulin delivery with its own once-a-week basal insulin shot, AB101. The current standards of care, measured by Sanofi-Aventis' Lantus and Novo Nordisk's (NVO) Levenir, each require patients to receive at least one shot daily and pull in over eight billion dollars annually, combined, according to publicly available information. Emphasizing the once-weekly advantage, it's understandable why AB101 is starting to attract the increased attention of investors who may be looking at buying into the ground floor of potential next-generation product.
AntriaBio itself has not been around for too long, becoming public only recently through a reverse merger after first having purchased the assets of PR Pharmaceuticals, as noted above. PR Pharma had already invested tens of millions of dollars into the preclinical development of AB101, but was unable to see its development through to fruition as the depths of the economic crisis dried up funding for many developmental biopharmas, PR included. As a result, PR Pharma followed suit with many other of those companies unable to find funding during the severe recession and declared bankruptcy in November of 2008 - but the AB101 technology lives on with AntriaBio.
Some investors are skeptical about buying into companies that have become public via means of a reverse merger, most notably because such transactions were in the past considered as a tool for companies to deliver themselves to investors without the transparency that accompanies a standard IPO, but also because such actions don't always bring in the large amount of immediate cash that an IPO does. In today's economic climate, however, where cost effectiveness bears the highest of considerations, reverse mergers are considered much more commonplace because, quite simply, they provide a much cheaper path to becoming publicly traded than going through the expensive IPO process. That said, each investor needs to conduct his or her own due diligence on a case-by-case basis and invest accordingly, because not all reverse mergers - just like not all stocks - are created equal.
According to a presentation posted to the AntriaBio website, pre-clinical animal studies have already been completed and the company intends on having some human data available by the end of the year. Again, in a demonstrated effort to minimize costs through the early stages of development, ANTB will initiate trials in Russia first, where the costs of conducting such trials are significantly lower and where patient recruitment is known to be up to ten times higher than in the US and Europe, according to the above-linked presentation. The company does plan, however, to move forward with the IND process with the FDA in the US while continuing development in Russia. Should some human data already be available at that time, it could help to support and expedite the initial IND proceedings.
Another benefit to getting some human data under the belt early-on and in a cost-effective manner is that this strategy could also help to land an early partner. Also according to the most recent company presentation, AntriaBio will look to land regional and/or multi-national partners, once the initial trials have returned results. Once a partner is on board, investor concerns of dilutive financing deals that often accompany the pipeline progression of developmental companies somewhat subside.
AntriaBio is also utilizing its technology in producing the long-acting Glucagon-like peptide-1, also known as AB201, which would be intended for use as a once-monthly injection, again superior to other products already on the market. AB201 is in earlier stages of development than its pipeline counterpart and is currently being prepared for pre-clinical studies.
Yet another item that may be of interest for investors taking a look at this company is that the management team consisting of numerous industry veterans has a history of not only developing small biopharma start-ups, but also bringing them to the point of partnerships and/or sales. Merger, partnership and acquisition speculation often accompanies small companies in this sector and a management team with a history of consummating such deals often lends credence to the speculation.
As demonstrated by Organovo Holdings (ONVO), another company brought public through means similar to that of AntriaBio, trading often starts off light for these companies, but has the potential to pick up steam as the technology and pipeline becomes known. Organovo, for instance, nearly tripled in quick fashion after its reverse merger about a year ago and has offered bouts of volatile trading opportunities since then, too, emphasizing the ideal that it is always wise to utilize a handful of trading shares to bank profits when available, even while potentially holding onto a core group of long shares to see the story out over the long term. With the trading volume picking up as it did last week, it could be worth keeping ANTB on the radar screen this week, and for weeks to come.
Roundup: Investors have had a lot to digest over the weekend, with the UK credit rating downgrade coupled with the increasing prospects that we're due for sequestration here in the US, which increases the emphasis on Mr. Bernanke's mid-week comments. Investors may become increasingly squeamish if the Fed intends to cut stimulus measures simultaneous with other disturbing news hitting the markets, and the continued lack of cooperation in Washington doesn't help matters much. Given the salvos of headlines hitting the wires from numerous fronts, it's highly likely that last week's volatility is going to continue into the new trading week. A round of solid numbers and guidance from the retailers reporting this week could be enough to stave off a broad market drop, especially if guidance contradicts the earlier Wal-Mart warnings for February, but we're still in trading territory where it looks like a pretty good idea to keep some cash on the sidelines and take advantage of any dips. It's also a good time to concentrate on the individual stocks and stories that make up our respective portfolios.
Disclosure: Long AMRN, ANTB.
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