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.
The market demise that began with Google's (GOOG) surprisingly weak earnings report about ten days ago - which was then followed by additional salvos of dismal earnings from other industry leaders in multiple sectors - continued last week with an early-week drop that saw the DOW sitting at just above the 13,000 mark by the close on Friday. Few signs of economic strength and improving earnings were offered to help keep enthusiasm afloat and pessimism at bay, although the two percent growth in the US GDP reported last week beat most analyst estimates and has warded off any immediate concerns of a return to recessionary times. The news was played down by many pundits, however, and the markets failed to react with any conviction as earnings reports continued to disappoint.
Moving into the new trading week, it's highly likely that politics - and even weather - will trump any news that the earnings season can produce. The last full week of the US Presidential election campaign will intensify an already volatile political climate just as the 'Perfect Storm' comes barreling down on the east coast. Once the storm passes and the focus is again on politics and economic data, expect Friday's jobs report to create a wave of buzz that could hold presidential implications. A report that is stronger than expected can give the incumbent US President the boost he needs to put a close race over the top, while a notable disappointment can potentially sway those that may still be on the fence to cast their vote in favor of the challenger.
If the race is truly as tight as is being reported, this is one of those rare, key weeks where the smallest of details could potentially shape the course of a nation's history - that's what it's all about.
While the east coast hunkers down in expectations of Sandy and the political heat intensifies in the battleground states, here's a few stocks and stories to keep an eye on during the upcoming trading week...
Earnings: It's been no secret that this earnings season was expected to be a weak one, even long before the first reports started rolling in, but a few high-profile surprises to the downside - such as Google and McDonald's (MCD) - sent the shock waves in motion and even the most optimistic of investors decided that there would not be enough 'beat the street' reports to justify any potential rebounds. The last real hope may have come last week when the Apple (AAPL) juggernaut reported, but even Apple's numbers - although still demonstrating a stellar growth rate - came in under estimates and shares dropped to below the six hundred dollar mark for the first time in months.
Of note this week, Starbucks (SBUX) is set to announce results on Thursday. Given the company's modest earnings miss during the previous quarter, and the fact that the current earnings season has pretty much hit everyone and anyone hard, expectations may be tamed for SBUX, too, as shares have dropped by about five bucks from their late-September-early-October highs. Signs of strength, however, may emerge from the company's 'K-Cup' single-serve coffee offering which has consistently eaten away at the market share of competitors, given the name and quality provided by Starbucks that resonates with consumers.
Overall, a hit or miss by Starbucks should not influence broad market trading trends, but it could offer insight into how much free cash consumers are willing to spend on the 'luxuries' these days - although some would argue (including this guy) that a decent cup of coffee or two to get through the morning is a necessity, not a luxury.
It hasn't been all bad news this quarter, though. Sirius XM Radio Inc. (SIRI) CEO Mel Karmazin, for instance, provided early-month guidance at Liberty Media's (LMCA) analyst meeting a few weeks ago that it would up its year-end subscriber guidance thanks to an auto-industry rebound over the past few months. SIRI shares had been gunning for three bucks for weeks already, but the positive guidance gave the stock the boost it needed to approach that mark, falling just short at $2.97.
Sirius is slated to report earnings this coming Tuesday and with investors already riding high on the encouraging tone at the Liberty meeting, more attention may now be paid on the activities surrounding last week's announcement that Karmazin will step down come February 1st. Karmazin has presided over Sirius since 2006, secured the merger with XM and worked the deal with Liberty's John Malone to stave off bankruptcy in 2009 when SIRI shares traded for a mere nickel. Malone and Liberty are just about over the threshold where they would control SIRI and it looks like Big Mel chose the path of stepping aside, rather than essentially work for his sometimes-adversary.
Investor reaction has been mixed since the Karmazin announcement, but this will be a story to watch this week and for the coming months. While SIRI did receive a supporting boost earlier in the month when it was announced that the stock was added to Bank of America Merrill Lynch’s U.S. 1 List based on growth in the auto market - which was accompanied with a 'Buy' rating and a four dollar price target - some believe that there may be little upside left, especially in the current economic climate.
Also of earnings note this week will be the Pfizer (PFE) report in the pharmaceutical sector and two big players in the oil and gas markets, Chevron (CVX) and Exxon (XOM). Pfizer enjoys much enthusiasm from analysts, although projections for this quarter are lower than they were for the year-ago quarter. The CVX and XOM reports, on the other hand, can offer insight into the strength of the oil and gas markets where solid earnings would be deemed a success, but consumers would argue that there is nothing successful about inflated gas prices.
Healthcare, Biotech, Pharmaceutical:
Dendreon (DNDN): Still on the earnings front, Dendreon is also set to report this week. Although revenue is predicted to be significantly higher than the same quarter from the previous year, the actualities are still far from the lofty expectations that came along with the historic Provenge approval of 2010. Shares dipped to below the four dollar mark last week as the market as a whole dropped, marking a nearly forty percent downturn since the summer months. The lower shares drop, the more probability - at least for the time being - that some may play the stock in hopes of a potential turnaround. This week's report could offer some insight into how much rebound potential is held with Provenge sales, although the basis of any argument that supports a near-term rebound may lie with the expanded insurance coverage provided by Aetna (AET) - and it still may be a bit too early to measure that effect. Investors will also be looking for any positive effects of recent cost-cutting measures.
The general consensus has revenue coming in at right around eighty million; any significant upside to that number could spark a modest rally in DNDN shares - at least to back above four - while a miss could plant shares in $3.50 territory until encouraging news hits - assuming that it does.
Considering the growth that Provenge sales have realized quarter-over-quarter, the case can be made that Dendreon shares are priced attractively for an eventual turnaround. For that to be true, however, the effects of cost-cutting measures must be realized in order to trim losses while Provenge sales need to keep gaining steam - something that may not become evident in this week's report, but could materialize during the current quarter.
MRI Interventions (MRIC): Moving away from earnings reports, but still looking at earnings numbers, MRI Interventions is another company that has demonstrated earnings growth over the past few quarters and could potentially be on the verge of a breakout. MRIC has developed the ClearPoint and ClearTrace MRI-enhancing systems that provide medical professionals with real-time imagery during complicated procedures on the brain and heart, respectively. The company has been successful in methodically implementing the ClearPoint system into the field of brain surgery - attracting Boston Scientific Corporation (BSX) and Brainlab along the way - and proof positive that growth trends are in the works may be the stark increase in revenue generated by the 'disposable items' associated with ClearPoint procedures. That's a key point to note for MRIC - the company not only receives revenue on the sale of its systems, but also on the related 'disposables'.
Accordingly to the latest-filed quarterly report, revenue generated by these items roughly tripled over the same period during the previous year, a key indication that the technology is catching on, or at least is being used more often.
Although stagnant for the better part of a month, a summertime run sent shares moving higher from under the two dollar mark to over five bucks in a snap, but - as is standard form in this sector when stocks experience quick moves - the traders bailed with profits in hand and the MRIC share price started to retreat. A subsequent stock offering dropped shares yet again and they have yet to recover.
Aside from the encouraging growth trends, however, there are other key items to note moving forward. Until this point the company has achieved its growth utilizing a minimal sales force. According to a recent CEO interview published on a popular biotech investing site, the company is planning to use the cash generated by the recent offering to boost its sales force. Additionally, in conjunction with the Brainlab partnership, ClearPoint has successfully infiltrated the European market, too, with the first cases of use noted last month.
With about seven million dollars on hand before boosting the sales force, MRIC is assessed as 'good to go' for cash until about the mid-way point of 2013. It's possible that another round of financing will be needed at some point, but MRIC also has the luxury - as a company still in the early stages of growth - of looking towards its BSX partnership for cash and the growing revenue from disposables.
Company shares dropped below the two dollar mark last week during the broad market downturn and could be worth keeping an eye if the overall slide continues.
Synergy Pharmaceuticals (SGYP): Synergy shares had been hovering at prices closer to five dollars than four for the better part of a couple of months leading into last week before some increasingly volatile price action resulted in a drop to sub-$4 prices. A five percent rebound last Friday, however, and some still-pending trial catalysts makes SGYP again a stock to watch this week. The news attracting interest early last week revolved around the initiation of a Phase I clinical trial for the company's second GI drug, SP-333 in the treatment of ulcerative colitis (UC). As previously discussed, while Synergy was building a pipeline consisting of drugs that targeted multiple indications in other sectors of the healthcare industry, the development of another GI drug candidate strengthened the company at its core and threatened to eventually make it a big player in that arena. Some investors may have taken note, judging by the late-week rebound.
On the other hand, funds and institutional parties may now decide to jump on board with more earnest since a recently-announced merger with Callisto Pharmaceuticals (CLSP) eliminated a forty-percent position in SGYP by one entity - a generally-regarded roadblock to attracting professional interest. Although the merger is still not a done deal until it's a done deal (expectations are that it will be finalized this quarter), such elements may look to get in early.
The major catalyst, however, revolves around the pending release of Phase IIb/III trial results for lead-product candidate Plecanatide in the treatment of chronic idiopathic constipation (CIC). Positive results could look to put Synergy on par with Ironwood Pharmaceuticals (IRWD), who saw its similar product, Linzess, approved early last month by the FDA. Given that Ironwood has already partnered its product with Forest Laboratories (FRX) and holds a market cap of well over a billion bucks, analysts predict that positive Plecanatide results could put SGYP on the path for near-equal valuation to IRWD, especially if a partnership pans out.
With last week's significant volatility creating multiple opportunities to add or trade the SGYP stock, this is one to keep an eye on, whether it be for a short term catalyst trade or for the long term outlook of Plecanatide, and the development of the remainder of the pipeline.
Lpath, Inc. (LPTN): It's been a tumultuous year for Lpath, Inc., but recent developments have again brought this company to the limelight. Early on in 2012 shares dropped significantly when an announcement hit the wires that inconsistencies (which proved to be unrelated to any Lpath trials) forced to FDA to temporary halt the company's iSONEP trials in the treatment of Wet AMD. iSONEP is devised from the ImmuneY2 technology that taps lipid-based therapeutics to target various ailments, including cancer. Pfizer came on board early in regards to iSONEP collaboration, adding additional intrigue to this company's story line. Pfizer also holds a first right of refusal to ASONEP development, as well, in the treatment of cancer.
A stock offering announced shortly after the trial halt further depressed LPTN shares at the time, but they again started to move following the announcement last month of an iSONEP trial re-start.
Following that wave of encouraging news, Lpath made another move to bolster its attractiveness to more serious investors. Earlier this month the company conducted a reverse stock split in conjunction with a move to the Nasdaq. In general, reverse stock splits are hardly kind to companies forced to undertake them, but since LPTN was dealing from a position of strength, shares have hardly suffered, and - in fact - they have jumped by over twenty percent in value since the split.
With the iSONEP trials re-started, and with the company's stock now listed on the Nasdaq, Lpath is a stock to watch. Pfizer's early interest in the pipeline development is a strong validation that this company is recognized by many as an industry leader in the field of lipid-based therapeutics, and it also hints at future buyout or partnership possibilities. The reverse split that landed LPTN on the Nasdaq was a logical next step in continuing to grow credibility among potential institutional investors.
Amarin Corporation (AMRN): Amarin shares pushed towards the thirteen dollar mark last week on increased volume when a report in the UK's Daily Mail indicated that AstraZeneca may be gearing up to make a bid for the company. The basis of the author's speculation is that AZ's new boss, Pascal Soriot, suspended a share buyback program in preparation for strategic acquisitions that could include Amarin's Vascepa. It's generally regarded on this side of the pond that Amarin will eventually be bought out, although each day that goes by without an offer raises speculation to the contrary.
This situation is highly reminiscent of the Human Genone Sciences - GlaxoSmithKline (GSK) drama that played out for months until a deal was ultimately announced. Like AMRN, Human Genome shares had dropped significantly from their previously-hyped highs and remained there for some time as rumors swirled across the pond that GSK was ready to swoop in with an offer. That scenario took a few more months to pan out once the rumors started, but here we go again - another rumor started in a UK report regarding a buyout that has reinvigorated the interest of US shareholders.
Amarin is still awaiting an FDA decision on whether or not Vascepa warrants a designation as a New Chemical Entity (NCE), but the company has continued to secure patents over the past months that would boost it's protection, regardless. NCE may be what investors and potential buyers are waiting for before making a move one way or another, but that alone is not likely to be a showstopper, as many predict Vascepa to become an ultimate blockbuster. It could, however, reduce the overall value of a deal, should the FDA decide against granting NCE.
This one has the potential to play out in similar fashion as HGSI/GSK did. Amarin is still likely to be purchased, in my opinion, but the final price may come in a bit lower than investors had originally anticipated and the rumors may play havoc on the nerves of growingly-impatient investors in the meantime.
The downer could be if the company indicates it will go it alone with Vascepa. Should that be the case, then eventual success is still a probability, but it may take a little longer to get there - and AMRN could dip below ten as the commercial launch ramps up.
Amarin is holding its cards close to the chest right now, which makes AMRN one of the hotter stocks to watch...still.
OncoSec Medical Incorporated (ONCS): Shares of OncoSec Medical retreated heavily following a quick run that returned more than a double in share price over a few weeks time. The major spark for the rally came as the company received a European CE Mark certification for the OMS electroporation device, the baseline technology for the company's pipeline of products. Another report last week, however, also highlighted preliminary results from a Phase II trial for ImmunoPulse in Merkel cell carcinoma (MCC).
ImmunoPulse - and the company's second pipeline path, NeoPulse - are both derived from OMS and utilize the electroporation process to deliver treatments and/or immunotherapies directly into a patient's infected cells. Electroporation consists of delivery treatments directly into targeted cells using electrical pulses. This strategy has proven to be an highly effective delivery method, given that the electric stimulus spurs the cells to contain a drug or treatment more effectively than standard delivery without damaging the surrounding tissue. Immunopulse sparks a patient's immune system into targeting cancerous cells itself while NeoPulse uses the OMS technology to destroy cancer cells using less harmful doses of bleomycin, a highly effective but also highly toxic anti-cancer drug.
Like most stocks in the speculative and developmental healthcare sector that experience very quick runups, profit-taking has come into play with ONCS. Such scenarios offer investors both the opportunity to bank some profits into a nice run, but also to reload at lower prices if the pipeline potential remains the same. Encouragingly enough for OncoSec, the discussed data will be published in a peer-reviewed journal, according to last week's press release, and investors may have a new-found confidence in the technology, following the release of results earlier this year for a head and neck cancer trial that showed just equal efficacy to the current standard of care.
With huge volatility surrounding this stock and a novel technology still developing, OncoSec is still one to keep an eye on.
Explosive Trace Detection (ETD) / Global Defense:
Implant Sciences (IMSC): Continue to keep Implant Sciences on the radar. Having been relatively silent of late in regards to the progress being made with Transportation Security Laboratory's (TSL) testing of the company's QS-B220 explosives and narcotics trace detector for potential future use in air cargo screening, an update last week from the company CEO noted that the final stages of testing would be complete over the near term. The TSL is the testing body of the Transportation Security Administration (TSA) and a near-term approval of the QS-B220 could allow Implant to take well advantage of a key December 3rd deadline imposed by the TSA stating that all inbound-US air cargo on passenger airliners will be screened for explosive traces. Implant has compiled a management team well-respected in the industry, settled short-to-mid term concerns of looming debt, and continued to grow its business internationally; the TSA approval could launch the company into the mainstream of the homeland and airline defense industries.
IMSC shares closed Friday up by five percent.
Roundup: As mentioned in the opener, it's rare when one trading week provides so much game-changing excitement as to potentially have global implications with every tick upwards and downwards. The markets are still uncertain of who will occupy the White House for the next four years, which means the jittery and volatile mood will continue this week as earnings likely continue to roll in looking unimpressive. In essence, too, the Friday jobs report could hold this election in the balance. President Obama has a strong following of people that may be waiting for just the right sign at the opportune time to convince them that his strategies of the past four years have borne fruit, and that report right before an election could reinvigorate the hope that was the basis of his last campaign. Will it all come down to one report? There's got to be more to it than that, but in today's society people tend to ask only, "what have you done for me lately?"
The wild card is Sandy. How many people - who were planning on taking advantage of early voting - will not go to the polls thanks to the calamity that Hurricane Sandy will bring with her? The battleground state of Florida looks to have been spared her wrath, but others may not fare so lucky.
Meanwhile, the markets will move on - and there's sure to be a fair share of spikes, dips and outright action all week long, regardless of all the political and hurricane-driven waves that may come our way. The biggest wave of all, though, could be Hurricane Eli storming Dallas.
To all those hunkering down on the east coast - stay safe, and I raise a glass to you.
Disclosure: Long AMRN, IMSC, SGYP, DNDN.
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