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.
Progress was minimal last week regarding fiscal cliff negotiations but the market shrugged it off and used an encouraging jobs report to close strong, with the DOW sitting at over 13,150 heading into the new trading week. Given the 'crunch time' time status of cliff negotiations, and also given the increasing likelihood that that politicians are preparing to actually go over the cliff in an effort to blame each other for any economic catastrophe that might strike, volatility could increase this week as investors look to move away from any investments that could be most hard-hit by the stark tax increases and spending cuts that would result if a deal is not reached in time. It's also about that time of year where many investor start to effectuate tax-loss selling, which could also apply downward pressure to the markets between now and the end of the year, especially in the absence of a cliff deal.
Reports have also circulated over the weekend that even investors who are sitting on profits could be just as likely to bail out of their positions before the end of the year in order to secure paying the 2012 tax rate, rather than waiting for next year when the capital gains and other tax rates are likely to be higher. Such comments may be somewhat unfounded on a large scale and could be a part of fear-mongering on the part of various media outlets, but at the same time many investors - including this guy - believe that the best place to sit out broad market uncertainty is on the sidelines. With each and every day that Washington looks to be at a stalemate, the likelihood increases, in my opinion, that investors will start going to cash - and if that's the case, then we could see red in the ledger during the coming weeks.
If the politicians can get their act together, however, and find common ground that would ease investor worry, then there's no reason to believe that any late-December dive would be more pronounced than normal tax-selling would indicate, unless any agreement comes with enough tax hikes that would lead investors to believe that the consumer will be hamstrung going into 2013.
Last week's jobs numbers created a festive holiday mood with the unemployment number dropping again - an especially encouraging sign considering the Sandy aftermath - and this week investors can look towards the Federal Reserve meeting on Tuesday and Wednesday for signs of encouragement.
It's becoming an old and tired theme that the immediate future of the markets revolves around the fiscal cliff negotiations, but it's still all too true - and if the politicians go on their holiday break (the government effectively shuts down for two weeks come mid-December) at the end of this week without a deal, then investors will likely assume the worst. As discussed for quite a few weeks now, the prospects of the worst case scenario coming to fruition make it a good time to increase cash positions in order to jump into any nice dips that may materialize.
As always, there are sure to be a few stocks and stories to keep an eye on, and some updates on those which we already follow - here's just a few of them...
Apple Drops To 'Bear Territory'
Apple (AAPL): Another two and a half percent drop on Friday left Apple shares down by nearly ten percent for the week and threatened to return the stock to the five hundred dollar mark seen in mid-November before a brief rebound had shares trading towards six hundred bucks just a handful of trading days ago. Speculation behind the drop is plentiful, with profit taking, potential 2013 tax increases and/or concerns about future margins gaining much of the attention, but one trend that cannot be ignored is that AAPL may have officially entered 'bear territory' as the 50-day moving average fell below the 200-day moving average last week. Many chartists view this cross as a bearish sign and if that is in fact the case this time, then investors may see more pronounced selling over the coming weeks since many traders actuate trades based solely on chart information.
The case is also being made in the press that Apple is losing its market steam due to fierce competition from the likes of Samsung and its Galaxy smartphones, and some are even arguing that Apple is competing against itself by releasing the iPad mini, which sells for cheaper than the iPad and also lowers the company's margin rate. Such concerns can immediately fuel an already bearish mood and embolden the short sellers, but it could also lead to more pronounced selling than is justified and create a potential buying opportunity for those still believing in Apple's significant cash position, market dominance and future product portfolio.
This will be a hot story to watch for the remainder of the year. Should selling continue into either the end of the quarter or until a fiscal cliff solution is announced, then buyers could find themselves in a situation where shares of a tech juggernaut are on sale for significantly lower than where they were valued just months ago. Concerns of higher tax rates may be somewhat justified, especially if margins are shrinking, but the only real sign of trouble for Apple comes when the company demonstrates that it can no longer lead the way in tech innovation for smartphones, tablets and whatever similar gadget comes next - or when the consumer quits dishing out cash every few months to buy the "newest" model of an existing product that does pretty much the same thing. At that point, the gig is up.
For now, though, the headlines and the fear mongers may bash this one down to a pretty attractive entry point.
Amarin Drops On 'Go It Alone' Strategy For Vascepa
Amarin Corporation (AMRN): Amarin shares dropped by nineteen percent on Friday after the company announced the previous evening that it was in the process of implementing its 'go it alone (GIA)' option in preparing for Vascepa's first quarter commercial launch. As we've previously discussed, new drugs marketed without the help of big pharma often take a little longer to catch on - and some never do - hence the expectations of a drop to sub-$10 prices if the company chose the GIA path; and the quick realization of those expectations once it did. Still, many predict that Vascepa is destined to reach its billion dollar potential and many also believe that a buyout will ultimately become a reality, just not for prices that were previously expected.
In conjunction with the announcement of the GIA strategy, Amarin will hire a sales force of 250-300 professionals to market Vascepa for the MARINE indication. Additionally, the company has secured a $100 million non-equity financing deal with an investment fund managed by Pharmakon Advisors to bankroll the endeavor. While many headlines out there on Thursday evening and Friday morning have keyed in on the financing deal as the reason AMRN shares dropped, the fact that the financing was debt driven and not dilutive to shareholders should be viewed as a preferable to shareholders. More true to the situation, the price drop is due to the fact that investors no longer see a buyout as imminent, meaning there are likely no immediate gains to be had as a result - although a deal could still materialize at any time if the conditions are ripe.
Also, without a buyout or major partnership, any AMRN price increase will have to come on the merit of Vascepa alone, and that adds a bit more risk to the equation in the eyes of shareholders. Dendreon (DNDN), for instance, failed to gain rapid infiltration of the prostate cancer market when it launched Provenge a couple of years ago and many believe that this is at least partly the result of the company failing to sign a major partner for the product.
With Teva Pharmaceuticals (TEV) and AstraZeneca (AZN) both being named as potential buyers of the company over the past weeks, Amarin has certainly been surrounded by its fair share of buyout intrigue. What has likely hampered the consummation of such a deal is the continued FDA delay in rendering a decision on Vascepa's New Chemical Entity (NCE) status. NCE would grant Vascepa five years of market exclusivity from generics, potentially a key factor in determining the value of any buyout. The company argues, however, that patent protection alone would be enough to secure Vascepa's blockbuster status for years to come, but the fact that a deal could not be done to date may be an indication that other entities are not buying that argument. In discussing NCE in last week's conference call and in previous public comments, Amarin's CEO has both said that NCE was an issue holding up progress, but also stated that it was "much ado about nothing." Those two viewpoints negate each other, but investors are convinced now - more than ever - that it is, in fact, an issue in securing a buyout deal.
Thursday's news sets the next chapter of this company's history in motion, but it's not likely the final chapter. Vascepa still could gain approval for the ANCHOR indication in due time and a buyout may still be realized once (if) NCE is ever resolved. As long as GIA is the course of action undertaken by Amarin, though, expect the share price to remain deflated - until the buyout rumors come again.
Again, this story reminds me of the GlaxoSmithKline (GSK) buyout of Human Genome Sciences a while back - HGSI had traded to unsuspecting lows before being scooped up for twice the price of where it was trading. The final deal was less than many long investors had expected or hoped for, but in the end the premium was still money. Amarin, too, may be swept up for prices below what many were expecting, but at the end of the day, any deal would still likely come with a pretty hefty premium.
Amarin's dive may not be complete just yet, depending on general market conditions and any additional news that may fly from the press boxes over the coming week, but considering that the potential of Vascepa has not changed, another buying opportunity may be presenting itself; the payoff may have just been pushed a bit down the road. It's also likely that those patting themselves on the back over the weekend may be doing so prematurely.
Another hot one to watch this week.
Implant Sciences Continues String Of Large Orders
Implant Sciences (IMSC) may have reached a pivot point in its development over the past couple of weeks with the completion of multiple large orders for its Quantum Sniffer (QS) explosives and narcotics trace detector (ETD) units, some of which were destined for various US Government agencies. As mentioned last week, the sales to the US agencies were notable in that no announcement has yet been forthcoming in regards to final word from the US Transportation Security Administration (TSA) on the testing and validation process for the QS-B220. It had been largely assumed that government agencies would not begin to purchase Implant's products until a TSA determination had been known. Since they're starting to buy anyway, investors have taken it as a sign of confidence in the technology and a validation of Implant's potential in the homeland defense and security industries.
The string of large orders continued last week. On Wednesday morning the company announced the sale of another 18 H-150 handheld units to an existing customer in China. As stated in the accompanying press release, Implant has supplied its products to customers in China since 2005. The continuation and growth of these relationships should be viewed as a sign of customer satisfaction and evidence that Implant may be able to survive with international orders alone. Given that IMSC is the only American company in the ETD market at a time when increasing national focus is on supporting US businesses and jobs, however, Implant could be positioned for robust US growth, too, especially with government agencies now jumping on board.
Although shares are trading for well more than double their 52-week lows, volume has not yet entered IMSC trading to the point that would indicate mass acceptance of the potential. While trading on the pinks and while still considered developmental - or in the earlier stages of growth - there will be some skeptics out there. It's also worth considering that parties that have been short in the past may still be lurking around waiting to pounce, should the time arise. Previous comments from the company have indicated that a move from the pinks would be considered when it financially made sense to do so, as would a possible name change of the company. With the size and scope of the orders for the QS technology increasing, then those events could materialize sooner rather than later.
At the pace this company has released news of late, IMSC will be one to keep an eye on this week.
Again, the big news investors are waiting for is final word of the TSA validation process.
Healthcare, Biotech, Pharmaceutical:
Synergy Pharma Retraces to Five
Synergy Pharmaceuticals (SGYP) was a noted winner for the month of November with an overall price spike of about forty percent. Taking into consideration a mid-month dip to three bucks, however, SGYP nearly doubled in just a couple of weeks time. As discussed at the time, such quick moves in this sector are often followed by retreats in share price as profit-takers transfer some paper gains into actual and the day, swing and momentum traders move on looking for their next quick fix. Last week that retreat in the SGYP share price took effect and shares closed the week at just over five bucks, while slipping below that mark during intra-day trading on Friday.
While I'm always a fan of banking some profits into any significant price gain because the market - and especially this sector - is often volatile and unpredictable, investors should not register last week's pullback as anything more than just that - a pullback. The real catalyst event is still weeks away with the expectations of a Plecanatide Phase IIb/III results release, and it's possible that shares could quickly rebound leading into that event. Should results be positive, then a further increase in price to levels predicted by analysts could be in store. In the meantime, because we've already had one significant price run materialize so quickly, the likelihood for volatility over the coming weeks increases as investors look to re-consolidate positions leading into the main event.
Again - there's not sure things in this business, but results are generally expected to roll in positive, since Plecanatide shares the same mechanism-of-action with the recently-approved Linzess by Ironwood Pharmaceuticals (IRWD) and partnered with Forest Laboratories (FRX). Synergy has a licensing deal in place for the Linzess mechanism-of-action, should Plecanatide make it to market, nullifying future concerns of patent infringement. Plecanatide is also being investigated for use in treating constipation-predominant irritable bowel syndrome (IBS-C) and the total market targeted by the product could be measures in the billions, leaving plenty of room for both Linzess and Plecanatide to capitalize.
Results are less than a month away, so it's exciting times ahead for Synergy. Any spontaneous dips lower could offer investors another opportunity to re-load the trading shares.
Titan Pharmaceuticals (TTNP): Shares of Titan - which had slipped to trading consistently in the sixty cents range - were thrust back into the ball game in September when the company announced an investment of over four million dollars by a potential Probuphine partner. A long time coming, the deal marked a key pivot point for the company, which had slowly lost the faith of its investors by seemingly stretching out the time frame for landing a partner and filing an NDA for its opioid addiction treatment, Probuphine, for years. With a potential partner on board (a final deal is expected to consummated - or not - by the end of the year) and an NDA filed for Probuphine, as noted in a recent quarterly earnings call, Titan could again be gearing up for prime time. Having rebounded to over the dollar mark again, and looking poised to remain there, TTNP could be positioning for a solid news flow in 2013. An FDA decision on Probuphine could be announced as soon as summer in 2013 and further details regarding the nameless licensing partner could prove another price catalyst.
Cash should not be much of a concern for the immediate future, given the roughly five million dollars on hand at the end of the quarter, but investors should consider the potential for additional financing needs early next year if the un-named partner does not come through with some additional up-front cash.
The opioid addiction market is a billion-dollar-plus market, and growing, providing Probuphine with significant market potential, should the FDA give the green light. To compete, however, new products often need to offer a unique angle. Probuphine does just that with Titan's proprietary ProNeura drug delivery technology, which is a subcutaneous, controlled-release implant that negates the potential for misuse, abuse or overdose when treating opioid patients. Probuphine is also being investigated for use in chronic pain.
Having rebounded nearly forty percent in short term - and while trading for over a buck again on a consistent basis - investors may start to take this one for real again. Any dips may provide an ample buying or trading opportunity with a potential 2013 approval catalyst lining up.
Lpath, Inc. (LPTN): Recently we discussed the possible near-term catalysts for Lpath, Inc., which included the potential for its partnership with Pfizer (PFE) to grow. While no news on the partnership front has hit the wires since that time, a couple of key events over the past week underscore Lpath's potential in continuing to lead the way in the field of lipid-based therapeutics. This past Monday it was announced that Lpath had ranked "eighth among biotechnology and pharmaceutical companies and 60th overall on the 2012 Technology Fast 500, Deloitte's ranking of 500 of the fastest growing life sciences, technology, media, telecommunications and clean technology companies in North America." The ranking could be considered validation of Lpath's ImmuneY2 platform, with which the company has developed two primary product candidates, iSONEP and ASONEP, which target the multi-billion dollar markets of Wet AMD and cancer, respectively.
Pfizer, as mentioned above, is already partnered for iSONEP and holds a first right of refusal for ASONEP.
Lpath also received a key patent in Europe last week.
Shares traded relatively flat for the week as investors are chiefly looking towards potential trial catalysts in 2013, but with a big player watching - and playing along, as Pfizer is - every item of validation should be considered as a building block, laying the foundation for future collaboration.
Worth keeping an eye on - both for the developing technology and for the potential partnership catalyst to materialize over the short term.
Two of food and beverage industry's leaders made some noise last week and could be noted as decent accumulation picks with an eye towards the mid-to-long term. McDonald's (MCD) pushed the ninety dollar mark again late last week after an analyst at Janney Capital Markets upgraded the stock to a 'Buy.' McD's, as we recall, slipped early in the earnings season as profits shrunk along with growth margins, but barring a major negative Sandy effect, MCD could rebound along with the slowly-rebounding economy, should current overall trends continue.
Yum Brands (YUM), on the other hand, had issued a fairly encouraging report early in the season, leading to a nice price spike, but tempered forecasts in China over the coming quarters led to a ten percent drop in share price. Company officials attempted to reiterate their optimism at last week's shareholders meeting, however, although shares hardly rebounded.
Both have the potential to rebound, given their recent declines, with an eye towards holding a few shares for the long term. The overall state of the global economy can weigh down the industry somewhat, but people will always eat and the low-cost restaurant offerings often do well, even in bad times. That said, the strategy with these may be slow accumulation, for the time being, as the lack of a fiscal cliff deal could lead to a broad market drop in the coming weeks. Stocks such as these that are a part of large funds and/or retirement plans could suffer.
Celsius Holdings (CELH): Another company in the food and beverage industry looking for success in China is Celsius Holdings, although for reasons different than those mentioned above. While MCD and YUM have already dominated their home US market, Celsius has maintained quarter after quarter looking to just hold onto its niche following. Looking to expand internationally, the company announced last month that it had partnered with Shanghai Honglu International Trade Co., Ltd for its first push into the Chinese market. As the economy in China has boomed over recent years, just about every industry has registered pronounced gains, including the weight-loss and healthy beverage category. Celsius looks to capitalize on that trend. With a relatively modest market cap, it wouldn't take all that much success for this company to thrive, a few consecutive quarters of demonstrated growth has been tough to come by with this one. After looking to have finally settled at around the two million/quarter range for revenue, the latest report came in at $1.4, well below investor expectations. A few days of high volume since then could be an indication that some are taking a flyer on the company as others lose faith. Worth watching, as the dramatic percentage swings in this stock in the past have provided ample trading opportunities.
Roundup: The market can go either way these days, but as long as the cliff is still unsettled, chances are better that it'll go down, not up - at least in my opinion. The theme for cash on the sidelines prevails, as any market dip should be looked at as an opportunity to pick of some of those 'watch list' stocks for more attractive prices than for what they had been trading previously. It's also quickly coming into vacation season, especially for Washington where the government all but shuts down for about two weeks, so the news flow may lighten. Politicians, too, play the same games as publicly traded companies do, however, so keep an eye out for those late night, Friday or holiday evening press releases that investors would not want to see during a prime trading session. Nothing good ever comes from them, as they hope you'll miss it. 'Tis the season for friends, family and football, so enjoy.
Disclosure: Long AMRN, TTNP, IMSC, CELH, MCD, YUM, DNDN, SGYP.
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