A New Index of Highly Defensive Stocks
[web link to index stats and 36 companies] [more]
Anticipating Active '09 for AspenBio Pharma
Now that AspenBio Pharma (APPY) has completed enrollment earlier this month in its FDA 510(k) clinical study for the world's first blood-based appendicitis screening test, AppyScore, investors will not have to wait much longer to get the results. Results in the 800 patient trial are expected in January, which will support APPY's 510(k) application for marketing clearance if the study objectives are met as in the previous, smaller clinical trial of AppyScore in 2007 with 98% sensitivity.
APPY expects to file its 510(k) with the FDA in January for the initial, 45-minute version of the test and hopes to gain marketing clearance by the end of 2Q09. However, assuming the clinical trial results support a 510(k) application, APPY will begin partnership discussions for an estimated $1 billion global market for the appendicitis screening test. Also, APPY is developing a faster, 15-minute version of the test which will follow the initial version and result in a second 510(k) filing at a later date.
APPY also has an animal health segment and signed a deal with Novartis (NVS) Animal Health earlier this year in April for exclusive licensing and commercialization of BoviPure LH and BoviPure FSH. The two animal health products are produced by recombinant DNA [rDNA] technology, which offers advantages such as increased potency, increased stability, no risk of disease transmission as with animal-based hormones, and lower manufacturing cost.
From a financial standpoint, APPY is well positioned with about $18M in cash, $26M in total assets, $6M in total liabilities, 31M shares outstanding, and 34.8M fully diluted shares. Insider and institutional ownership are significant at 23% and 40%, respectively, while the short interest declined to 841,286 as of mid-December. The Company has a very low burn rate of about $1.9M per quarter, which is much lower than most development-stage bio-pharma companies of its size.
The market cap currently stands at just $185M with APPY trading at around 6 bucks per share, with both metrics poised to move much higher if everything goes as planned in early 2009 with the trial results and AppyScore receives 510(k) marketing clearance by mid-2009. APPY should easily eclipse the all-time highs of around 15 bucks achieved in October 2007 based on initial annual revenue ranges [included in the accompanying table] of $126M-$296M for the appendicitis screening tests and the two animal health products.
At 15 bucks, APPY would trade at a market cap of less than $500M, which is still well below the $1.2B market cap for Sequenom (SQNM) and would also include more cash on the balance sheet from licensing deals and milestone payments. Also, the recent appointment of John Landon to the Board provides experience in the diagnostics industry and suggests APPY could become a takeover target as Mr. Landon served on the Board of Cholestech and Digene before they were sold to Inverness Medical (IMA) and Qiagen (QGEN), respectively. [more]
Four Healthy Stocks Trading Above Moving Averages Amgen (AMGN), AspenBio Pharma (APPY), BioDelivery Sciences (BDSI), and Cypress Bioscience (CYPB) are four healthcare stocks that I follow which are poised to close out a rough 2008 for the overall market trading above their 50 and 200-day moving averages, in addition to having significant catalysts in 2009 which may lead to further gains. Below is a summary of the 2009 catalysts for these companies and click on the names or tickers below for a link to all of the articles on my blog for each stock:
Amgen filed a BLA for bone drug denosumab in the following two indications: the treatment + prevention of osteoporosis in post-menopausal women and the treatment + prevention of bone loss in patients undergoing hormone ablation for either prostate or breast cancer, with the potential for over $3B in peak sales for the drug based on S&P analyst estimates. AMGN has also posted strong results this year while raising guidance on several occasions on better than expected results for their anemia drugs.
Now that APPY has completed enrollment earlier this month in its FDA 510(k) clinical study for the world's first blood-based appendicitis screening test, AppyScore, investors will not have to wait much longer to get the results. Results in the 800 patient trial are expected in January, which will support APPY's 510(k) application for marketing clearance if the study objectives are met as in the previous, smaller clinical trial of AppyScore in 2007 with 98% sensitivity.
The market cap currently stands at just $185M with APPY trading at around 6 bucks per share, with both metrics poised to move much higher if everything goes as planned in early 2009 with the trial results and AppyScore receives 510(k) marketing clearance by mid-2009. APPY should easily eclipse the all-time highs of around 15 bucks achieved in October 2007 based on initial annual revenue ranges [included in the accompanying table] of $126M-$296M for the appendicitis screening tests and the two animal health products.
In mid-December, BDSI submitted its Risk Evaluation and Mitigation Strategy for pain drug candidate Onsolis (BEMA fentanyl) based on the feedback it received from the FDA's complete response ruling on the NDA in August. Since the FDA has informed BDSI that all other aspects of the NDA review are complete, the prospects for Onsolis approval are excellent – although investors and traders will likely have to wait six months since the Company has guided expectations for a Class 2 review designation. BDSI expects to generate positive cash flow from operations next year with approval of Onsolis likely by mid-2009 and the $30M milestone payment upon FDA approval + market launch is a significant catalyst by itself given the Company's current market cap of around $48M.
CYPB and Forest Labs (FRX) announced positive Phase 3 results earlier this month for milnacipran in the treatment of fibromyalgia, which was statistically significant compared to placebo. CYPB has about 4 bucks in cash, zero debt, over 10 years of patient data for milnacipran outside the U.S., and a large database of milnacipran trial data confirming its benefit in the treatment of fibromyalgia. At current levels, the risk/reward ratio strongly favors the upside on milnacipran approval compared to the downside risk of more delays by the FDA – as an outright rejection appears highly unlikely given the statement by the agency at the time of the PDUFA date. [more]
CME Group (CME) has lost more than half of its market value over the past three months and the stock price has cratered by nearly three-quarters in the past year. As illustrated in the accompanying three-month chart and table of valuation parameters [click to enlarge] for the major U.S.-listed exchanges, CME is extremely oversold and trades at less than two-thirds of book value (0.66) despite its position as the world's largest futures exchange with a major new source of revenue in the form of central counterparty clearing for credit default swaps [CDS] – which represents an estimated $45-$60 trillion market. [more]
The table at the web link below includes 39 companies in the ETF Innovators [ETFI] Emerging Diagnostics Index of U.S.-listed stocks with market caps of $10-$200M. The index includes diabetes care device makers such as DexCom (DXCM), personalized medicine lab service providers such as Clarient (CLRT), clinical diagnostic test developers such as OraSure (OSUR), diagnostic imaging service providers such as Virtual Radiologic (VRAD), diagnostic equipment makers such as Vision Sciences (VSCI), and genetic analysis + molecular diagnostic companies such as Affymetrix (AFFX). [more]
Top 40 Rated Emerging Bio-Pharma Stocks
[web link to table of 40 Emerging Biotech & Pharma Stocks] [more]
New Global Tobacco Index: A High-Yield Safe Haven
In stark contrast to my previous article on socially responsible and green exchange-traded investment vehicles, the accompanying table [click to enlarge] presents the Top 10 companies by market cap and statistics for the ETF Innovators [ETFI] Global Tobacco Index, which easily outpaced the overall market and benchmark ETFs over the last year.
The Top 25 Rated companies managed to post a gain of 1.5% on a total return basis in the past year, thanks to an average dividend yield of 6.3%. All benchmark ETFs posted losses over the past year on a total return basis, including Consumer Staples SPDR (XLP) (-17.5%), Claymore/Sabrient Defensive Equity Index (DEF) (-31.5%), Vanguard Consumer Staples (VDC) (-17.3%), and iShares Dow Jones Select Dividend (DVY) (-34%).
The Top 10 companies by market cap will be getting smaller as Altria (MO) is set to close on its acquisition of smokeless tobacco maker UST Inc. (UST) early next year. Companies yielding over 5% among the Top 10 largest include Philip Morris International (MO), British American Tobacco (BTI), Altria, Reynolds American (RAI), and Lorillard (LO).
A new Global Tobacco ETF would provide investors with a defensive, high dividend yield option which generates consistent returns regardless of the overall market conditions. With the market turmoil over the past year, the Top 25 tobacco stocks posted a gain on a total return basis compared to double digit losses in benchmark defensive and consumer staples ETFs. [more]
Railroad Index Will Benefit from Infrastructure Spending
The table above presents the seven largest companies by market cap in the ETF Innovators [ETFI] Global Railroad PerformIdex among 53 total companies with market caps over $150M which are active in the railroad industry, including rail transport, rail infrastructure, and railcar manufacturing. The Railroad Index fared better than the iShares Dow Transports (IYT) over the past year and the PowerShares Progressive Tranporation Portfolio (PTRP) since its inception in late September.
However, the tabe included below illustrates weak performance among the eight largest North American rail transport companies, with an average loss of 23% in market value in the past year, including: Burlington Northern (BNI), Union Pacific (UNP), Norfolk Southern (NSC), Canadian National (CNI), CSX Corp (CSX), Canadian Pacific (CP), Kansas City Southern (KSU), and Genesee & Wyoming (GWR).
The best performing group in the index was the 21 rail transport companies based in Japan, which posted a gain of 1.5% as an equally-weighted average return in the past year with an average market cap of $4.9B U.S. Dollars.
Railroad companies should benefit both directly and indirectly from President-Elect Obama's plans to invest heavily in infrastructure spending as part of a plan to revive the overall economy and create at least 2.5M jobs. Aside from the direct benefit to rail infrastructure companies such as L.B. Foster (FSTR) and Trinity (TRN), rail tranpsort companies should also benefit from increased demand for their services to move around the basic materials used to build new bridges, roads, and other projects.
Stem Cell & Regenerative Medicine Stocks Surge in Past Month
The accompanying table [click to enlarge] includes the Top 10 Rated companies among a total of 64 and statistics for the ETF Innovators [ETFI] Cosmetic and Reconstructive Medicine [CRM] Index, which includes companies with market caps over $100M engaged in cosmetic medicine products, regenerative medicine + stem cells, orthopedic repair, joint replacements, and cardiovascular (heart + blood vessels) treatments.
The Top 10 Rated companies are dominated by those focusing on cardiovascular treatments, including VNUS Medical Technologies (VNUS), Thoratec (THOR), Edwards Lifesciences (EW), Vascular Solutions (VASC), ATS Medical (ATSI), and Abiomed (ABMD).
Over the past year, the Top 40 Rated companies in the CRM Index fared better than the Healthcare Sector SPDR (XLV), iShares Nasdaq Biotech ETF (IBB), and the S&P 500 SPDR (SPY) – thanks in part to a major surge in six stem cell and regenerative medicine companies highlighted below with their one-month stock price return and current market cap:
Osiris Therapeutics (OSIR) up 10.9% to $603M
Cytori Therapeutics (CYTX) up 87.6% to $110M
RTI Biologics (RTIX) up 48.5% to $157M
Integra LifeSciences (IART) up 15.4% to $967M
StemCells (STEM) up 20.6% to $122M
Geron (GERN) up 45% to $367M
The new administration is viewed as favorable for increased spending on basic scientific research (including stem cells) and, more importantly, companies such as Pfizer (PFE), Roche (RHHBY), Johnson & Johnson (JNJ), Novartis (NVS), and GlaxoSmithKline (GSK) are starting business segments focused on regenerative medicine through direct investments and partnerships as a new frontier for R&D to bolster their pipelines. [more]
Top 5 Rated Stocks in Global Health IT Index
The accompanying table presents statistics and the Top 5 rated companies in the ETF Innovators [ETFI] Global Health Information Technology [Health IT] Index, which is structured to include companies with market caps between $50M - $10B. The rating system is based on a formula which considers each company's market cap weighting, net income weighting, and historical stock price returns and the index is equally-weighted among all 52 companies, which is dominated by small-caps with an average market cap around $600M.
As a new ETF idea, the Top 30 Rated stocks would be chosen as active components and rebalanced each quarter on a semi-active basis. Over the past year, the Health IT Index has outpaced its benchmark ETFs, including Vanguard IT (VGT), Healthcare Sector SPDR (XLV), and Technology Sector SPDR (XLK). Other major companies in the Health IT Index included in the Top 30 Rated include Cerner (CERN) and Eclipsys (ECLP).
The Top 5 Rated companies include Quality Systems (QSII) – NextGen electronic medical records system, CardioNet (BEAT) – CardioNet System for real-time, outpatient heart rhythm monitoring, Computer Programs & Systems (CPSI) – hospital information systems, SXC Health Solutions (SXCI) – pharmacy benefit management + transaction sytems, and Allscripts-Misys (MDRX) – electronic prescribing (e-prescribing), medical records, and health information systems.
Starting in January, Medicare will offer a financial incentive for doctors to embrace e-prescribing and begin imposing penalties in 2012 for those who continue to scribble their drug orders on paper – with the goal of reducing medication errors and improving efficiency. As a retail pharmacist, I currently process less than 1% of daily scripts by e-prescribing, but the system works well and is more efficient and safer than having patients drop of their handwritten scripts.
First, there is no need to decipher sometimes challenging handwriting which can result in medication errors. Also, e-prescribing is more efficient since the scripts can be transmitted at the point of patient care and processed before they arrive rather than dropping off their script and waiting for it to be filled. Although the number of e-scripts is currently low, many prescribers already utilize computer-generated scripts, which can easily be adapted to electronic transmission.
Another potential boon to Health IT companies is the potential for a substantial investment in the industry as part of plans for healthcare reform to improve the quality and efficiency of care. [more]
Socially Responsible & Green Investing: Make a Statement or Make Money?
Index Universe reported last week that Pax World filed with the SEC to launch three socially responsible investing [SRI] exchange-traded funds:
sShares KLD North America Sustainability Index ETF
sShares KLD Europe Asia Pacific Sustainability Index ETF
sShares FTSE Environmental Technologies Index ETF
These three would compete with two existing SRI-based ETFs, including iShares KLD Select Social Index (KLD) and iShares KLD 400 Social Index Fund (DSI). DSI is down 36.6% in the past year while KLD fared slightly worse with a loss of 37.3%. As illustrated on the accompanying chart, there is a very high degree of correlation for the DSI, KLD, and the S&P 500 Index – which are nearly indistinguishable on the one-year chart. The trailing 12-month yield for KLD is 2.3%, slightly higher than DSI at 1.9%, but below the S&P 500 SPDR yield of 3.1%.
The website for KLD shows a respectable level of net assets at $93M with Top 5 stock holdings that include JNJ (5.9%), IBM (3%), Heinz (HNZ) (3%), Microsoft (MSFT) (2.7%), and Hewlett-Packard (HPQ) (2.6%). The total number of securities held by KLD is 218 and the fund has double digit concentrations of 19.2% in tech, 18.4% in healthcare, 18.1% in consumer goods, and 12.3% in financials.
The website for DSI reveals net assets of $59M with Top 5 stock holdings that include Procter & Gamble (PG) (4.5%), JNJ (4.1%), MSFT (3.7%), IBM (2.8%), and JP Morgan (JPM) (2.8%). DSI holds a total of 401 securities, with double digit concentrations of 22.4% in information technology, 16.5% in consumer staples, 15.9% each in financials + healthcare, and 11% in consumer discretionary.
The launch of another investment vehicle, AirShares (ASO), for carbon credits this past week to compete with iPath Global Carbon ETN (GRN) is consistent with the trend of SRI applied to the market for exchange-traded products. I have also identified 19 companies for inclusion in a Global Carbon Credit Trading Index, which is mostly made up of companies that are big on hope and promises but short on revenue and profits – other than the larger, established companies in the index with real operations that generate carbon credits on the side such as Waste Management (WMI) and CNX Gas (CXG).
The SRI and green investing themes are fine if you are looking to make a statement with your investments. However, I would prefer to make money and have no problem investing in Altria (MO) with a dividend yield over 8%, even though I have never smoked and would not encourage others to do so. Also, I hope that coal companies are not forced out of business due to the widespread adoption of carbon credits in the U.S., which amounts to a penalty for a major source of our nation's power grid that is cheap, abundant, and does not come from the Mid-East.
Given the expense ratio of 0.5% each for KLD and DSI; one could achieve nearly identical results with SPY at a fraction of the cost (0.08%) or do much better than the overall market with a specialty ETF such as iShares Nasdaq Biotech (IBB) at about the same expense ratio (0.48%). The even higher expense ratios of 0.85% for ASO and 0.75% for GRN are another negative factor in addition to the massive declines in crude oil and other energy commodities in the past year which threatens the funding and viability of many renewable energy companies and the entire concept of carbon credits. [more]
An 11-Month Analysis of Coal Price, KOL, USO, and UNG
The accompanying chart [click to enlarge] includes an 11-month analysis of Central Appalachian Coal Futures (NYMEX: QL), Market Vectors Coal ETF (KOL), U.S. Oil Fund (USO), U.S. Natural Gas Fund (UNG), and S&P 500 (SPY).
The prices for coal futures from other areas of the world were excluded in the chart analysis to avoid congestion from too many data points and since the correlation is high (around 95%) to QL. An 11-month analysis was chosen since KOL began trading in mid-January of this year and the chart was constructed using the daily closing price for each element.
Despite the market turmoil and widespread decline in commodities, the price of Central Appalachian Coal managed to gain 21.7% in the past 11 months, compared to declines of 63.2% for KOL, 54.6% for USO, 43.5% for UNG, and 34.6% for SPY.
Also, the coal company ETF (KOL) was only 54% correlated to the price of Central Appalachian Coal (QL), but KOL was highly correlated (90%) to the overall market as measured by SPY. In contrast, the price of coal had a very low correlation of just 29% to the overall market.
Given the importance of coal in the global energy markets, the lack of a exchange-traded product for coal prices, and the low correlation of the coal company ETFs to coal prices; a CoalFund could be developed as a new investment vehicle to provide investors with exposure to the performance of near-month futures contracts for the global price of coal from the following four major coal producing and exporting regions in the world as specified below:
1.) United States: NYMEX Central Appalachian Coal Futures (QL), Western Rail Powder River Basin Coal Swap Futures (QP), Eastern Rail CSX Coal Swap Futures (QX)
2.) Europe: Intercontinental Exchange (ICE) Futures Rotterdam (ATW)
3.) South Africa: ICE Futures Richards Bay (AFR)
4.) Asia (Newcastle, Australia): ICE Futures – globalCOAL NEWC Index, ASX Thermal FOB Newcastle [more]
Air Transport Index: Four Stocks Bucking the Trend
The accompanying table [click to enlarge] includes statistics for the 58 component companies in the ETF Innovators [ETFI] Global Air Transport Index, which are listed in descending order by market cap. The index is dominated by passenger airlines, but also contains air freight companies such as Atlas Air (AAWW) and helicopter services companies such as Bristow (BRS).
Over the past year, the index declined by 47.6%, compared to a 28% loss for the iShares Dow Transports (IYT), 41% loss for the S&P 500 SPDR (SPY), and 36% loss for the 13-stock AMEX Airline Index. Claymore is set to launch a passenger airline ETF in early 2009 at a time when the industry is benefiting from much lower jet fuel costs, but still facing the prospects of waning demand for air travel among consumers and businesses from the global economic slowdown.
If nothing else, the new airline ETF should be an excellent trading vehicle with high volatility, as a sample of six airline stocks, including Continental (CAL), AMR Corp. (AMR), Delta (DAL), U.S. Airways (LCC), UAL Corp. (UAUA), and AirTran (AAI) have surged off their 52-week lows by 2X-5X with many still trading off their 52-week highs by 50% or more.
A notable laggard is former industry giant, Southwest (LUV), which has lost 37% of its market value in the past year and now ranks number seven in terms of market cap among passenger airlines in the world, with Singapore Airlines (SINGF) taking over the top spot.
Four top performing companies in the index which have either managed to post stock price gains in the past year or currently trade close to their 52-week highs include JetBlue (JBLU), Allegiant Travel (ALGT), Alaska Air (ALK), and Hawaiian Airlines (HA). [more]
Five Healthcare Stocks for a Happy New Year
The accompanying table includes a basket of five small-cap stocks chosen from the ETF Innovators [ETFI] new healthcare indexes. The five companies are trading above their 50-day moving averages with expected upside catalyst(s) in the next six months or less.
AMAG Pharma (AMAG) announced last evening that the FDA issued another complete response for its iron deficiency anemia drug ferumoxytol (Feraheme). More details are expected today at 8:30 AM [ET] when AMAG will hold a conference call, but the Company stated no additional clinical trials will be required for approval and stated the following issues remain to be clarified with the FDA prior to approval: (1) data to clarify a specific chemistry, manufacturing and controls (CMC) question, (2) resolution of the deficiencies observed during the pre-approval inspection of the Company’s manufacturing facility, and (3) finalization of labeling discussions (suggesting that approval is merely delayed).
Earlier this month, AspenBio Pharma (APPY) completed enrollment in its pivotal Phase 3 clinical trial for AppyScore, which represents the first blood-based diagnostic screening test for appendicitis. On December 10, APPY guided for a time frame of 4-6 weeks for announcing the trial results with plans for an early 2009 submission for FDA approval in the form of a 510(k), which means results should be out within the next 2-4 weeks.
In mid-December, BioDelivery Sciences (BDSI) submitted its Risk Evaluation and Mitigation Strategy [REMS] for pain drug candidate Onsolis (BEMA fentanyl) based on the feedback it received from the FDA's complete response ruling on the NDA in August. Since the FDA has informed BDSI that all other aspects of the NDA review are complete, the prospects for Onsolis approval are excellent – although investors and traders will likely have to wait six months since the Company has guided expectations for a Class 2 review designation. BDSI expects to generate positive cash flow from operations next year with approval of Onsolis likely by mid-2009 and the $30M milestone payment upon FDA approval + market launch is a significant catalyst by itself given the Company's current market cap of around $48M.
Caraco Pharma (CPD) is still trading a value prices despite moving higher by about 2 bucks since I first wrote about the stock earlier this month. The pending tender offer for Taro Pharma (TAROF) by India's Sun Pharma (Bombay: 524715) implies a fair value of over 10 bucks for Caraco. Favorable growth trends for the generic drug industry include (1) nearly $70B in brand name drug sales with patent expirations through 2012, (2) a push to increase generic substitution rates from 65% of all prescriptions dispensed to over 70%, (3) continued industry consolidation of small and mid-caps by industry leaders such as Teva Pharma (TEVA) and Mylan Labs (MYL), and (4) the potential for legislation next year regarding generic versions of high-cost biological agents, with Merck (MRK) recently announcing plans for a bio-generic division which will initially target Amgen's (AMGN) anemia drug Aranesp.
Cypress Bioscience (CYPB) and Forest Labs (FRX) announced positive Phase 3 results earlier this month for milnacipran in the treatment of fibromyalgia, which was statistically significant compared to placebo. CYPB has about 4 bucks in cash, zero debt, over 10 years of patient data for milnacipran outside the U.S., and a large database of milnacipran trial data confirming its benefit in the treatment of fibromyalgia. At current levels, the risk/reward ratio strongly favors the upside on milnacipran approval compared to the downside risk of more delays by the FDA – as an outright rejection appears highly unlikely given the statement by the agency at the time of the PDUFA date. [more]
China Medical Embraces Molecular Diagnostics
China Medical (CMED) offers a compelling value since losing about 60% of its market value in the past year, with shares trading very close to August 2005 IPO levels at the close today of under 18 bucks. CMED is also included in the ETF Innovators [ETFI] Preventive Medicine Index and is one of my nine defensive stock picks for 2009.
CMED reported its quarterly results last week and announced the sale of it High Intensity Focused Ultrasound tumor therapy system business [HIFU] to a major shareholder, Chengxuan International (which is owned by the Chairman & CEO of CMED), for $53.5M. The deal is expected to close by year-end and positions CMED as a pure-play in the higher margin + higher growth business of In-Vitro Diagnostics [IVD].
The sale of high-priced HIFU equipment occurs at lower margins and is not as predictable as the Company's molecular diagnostics business, which is poised for significant growth thanks to the recent acquisition of the human papillomavirus [HPV] DNA Biosensor Chip for cervical cancer detection and the Surface Plasmon Resonance [SPR] Analysis System. The acquisition provides CMED with a molecular diagnostics platform for HPV, including strains that cause cervical cancer, which is an estimated $700M market in China alone.
CMED already has plans to expand the use of the SPR System beyond just cervical cancer, with potential clinical diagnostic applications that include the detection of biomarkers for infectious diseases, cancer, cardiovascular disorders, and immune system disorders. A recent report by the World Health Organization estimates that cancer will overtake heart disease as the top cause of death in the world by 2010, which is part of an overall trend that predicts global cancer cases and deaths will more than double by 2030.
The Company's results for the second fiscal quarter included revenue of $42.8M and net income of $17.3M, up 35% and 52%, respectively, from the year-ago period. ECLIA diagnostic system sales were $18M, FISH diagnostic system sales were $10.6M, and HIFU sales were $14.2M. Although the sale of the HIFU business occurred at less than 1X sales, the growth of just 5.5% from the year-ago period is much less than the Company's other segments with ECLIA sales up 32% from the year-ago period.
Gross margin rose to 73.2% for 2QFY08 from just 61.5% in the year-ago period due to a shift in the sales mix toward higher margin, recurring ECLIA reagent kits and FISH probes – with the trend toward higher margins expected to continue with the recently announced sale of the HIFU business. As of the end of September, CMED had a cash balance of $398M with accounts receivable up by about 8% to $48M.
CMED provided guidance for FY08 (which ends March 31, 2009) excluding the HIFU business which included a revenue range of $121.5M-$123.4M (representing growth of 50.7%-53.1% from the year-ago period) and the Company will provide earnings guidance after the HIFU sale closes along with 3Q results.
The $568M market cap for CMED is less than half of the $1.2B value placed on another molecular diagnostics company, Sequenom (SQNM), which has major potential in the area of non-invasive, prenatal diagnostics for conditions such as Down syndrome.
While HIFU sales accounted for just one-third of total 2Q revenue, CMED has lost more than one-half of its market value over the past three months despite the fact it will receive $53.5M for the division. CMED warrants a return to higher share prices and a market cap over a billion dollars with its recent decision to become a pure-play molecular diagnostics company with a near-term focus on the detection of HPV and cervical cancer – resulting in a more predictable stream of high-margin + higher growth sales from ECLIA reagent kits and FISH probes. [more]
A 1-Year Analysis of Lumber Prices Vs. Timber ETFs
The accompanying table [click to enlarge] includes a 1-year analysis for near-month CME Random Length Lumber Futures (LB), Claymore/Clear Global Timber ETF (CUT), iShares S&P Global Timber & Forestry ETF (WOOD), and the S&P 500 ETF (SPY). [more]
A New Index of Market Cap Leaders by Nation [more]
Healthcare investing trends in 2009 and beyond will be affected by the new administration's plans for healthcare reform, which are summarized at the Change.gov website. A key feature of the plan is making health insurance coverage possible for all Americans using the existing network of insurers and providers. The plan relies on tax credits for small businesses and eligible individuals to help pay the cost of health insurance premiums. Also, large employers which do not offer health insurance benefits would be required to contribute a percentage of their payroll toward the cost of healthcare for their employees. Insurance companies would be required to cover pre-existing conditions and the insurance market will be reformed to eliminate anti-competitive practices, including the creation of a National Health Insurance Exchange with a variety of affordable health insurance options. Investments in health information technology [Health IT] will be made to encourage e-prescribing and electronic recordkeeping to reduce the incidence of medical errors and encourage the portability of health information. The plan would also promote the use of generic drugs through increased substitution rates for higher cost brand names where feasible and prevent lawsuits which delay or block competition from generics. Other areas of focus include required coverage of preventive medicine services such as cancer screenings and increased funding for state and local governments to prepare for bio-terrorism and natural disasters. Below are links to new ETF Innovators [ETFI] healthcare indexes and ETF ideas which will be affected by pending plans for healthcare reform and other trends in the sector: Global Health IT: A small and mid-cap index of companies which provide e-prescribing and healthcare information systems to reduce medical errors and improve health outcomes through the application of technology, including companies such as Allscripts-Misys (MDRX), Cerner (CERN), and Eclipsys (ECLP). Global Healthcare Cost Containment: Includes generic drug and product companies such as Teva Pharma (TEVA) and Perrigo (PRGO) as well as pharmacy benefit managers such as MedcoHealth Solutions (MHS) and Express Scripts (ESRX) which share a common theme of promoting the use of generic equivalents to lower healthcare costs. Big Pharma: The outlook for pharma companies which rely primarily on brand, patent-protected drugs is not as robust and even Pfizer (PFE) has announced plans to begin selling generic drug products beyond their in-house Greenstone division. The Obama-Biden plan will promote increased substitution rates for generics, importation of pharmaceuticals from outside the U.S., and legislation for bio-generics – all of which favor companies in the Healthcare Cost Containment Index over traditional brand pharma. Preventive Medicine: Vaccine makers such as Emergent BioSolutions (EBS) could benefit from increased government sales of its bio-defense products such as BioThrax while diagnostics and clinical lab services companies such as Genomic Health (GHDX), Sequenom (SQNM), and Genoptix (GXDX) are set to experience increased demand for diagnostic screening tests and lab services to guide treatment for complex diseases such as cancer. Cosmetic & Reconstructive Medicine [CRM]: The CRM Index includes stem cell and regenerative medicine companies which are poised to benefit from increased spending on scientific research, including companies such as Osiris Therapeutics (OSIR), Cytori Therapeutics (CYTX), RTI Biologics (RTIX), Integra LifeSciences (IART), CryoLife (CRY), StemCells (STEM), Geron (GERN), and Aastrom Biosciences (ASTM). Global Hospitals & Outpatient Healthcare: Universal Coverage – Hospital companies such as Tenet (THC) are hoping for some relief from President-Elect Obama's plan to provide health insurance coverage to the uninsured, lowering the expense of bad debts and shifting more people away from seeking emergency room care for ailments which could be treated through primary care physicians or medical clinics. Health Benefit Providers: Healthcare reform by the new administration could involve mandated insurance coverage for pre-existing conditions and expanded health insurance coverage to the millions of uninsured Americans through tax credits to small businesses and those in need. Managed care companies may find themselves working closer with the government at lower profit margins, but higher volumes as millions of people enter the market for health insurance benefits.
This index of 28 companies contains retail pharmacies such as Walgreen (WAG), pharmacy benefit managers such as MedcoHealth Solutions (MHS), managed care companies such as UnitedHealth (UNH), supplemental health insurers such as Aflac (AFL), hospital pharmacy operators such as PharMerica (PMC), and workers compensation insurers such as Amerisafe (AMSF) – which is the only company in this index to post a stock price gain in the past year. [more]
The nine defensive stock picks I wrote about last week are off to a very strong start, posting a 7.4% gain as an equally-weighted average compared to a 1% gain for the S&P 500 SPDR ETF (SPY). The biggest gains came from the smallest companies in the index – Caraco Pharma (CPD) was up 40% while Javelin Pharma (JAV) increased by 19% in the past week and has more than doubled since I first wrote about it in early December. [more]
The accompanying table [web link below] includes the Top 10 rated companies among a total of 82 which are included in the ETF Innovators [ETFI] Scandinavian Select Nordic Region Index. This index tracks the performance of companies in the Nordic Region with market caps over $1B U.S. Dollars, with the Top 35 Rated companies chosen as active components for a new semi-active ETF idea with quarterly rebalancing. [more]
On my stock A-List of stock buys today are defensive picks from tobacco and healthcare, including Altria (MO) and AMAG Pharma (AMAG). [more]
As an alternative to the pair of investment vehicles tracking the price of carbon, AirShares Carbon Fund (ASO) and iPath Global Carbon ETN (GRN), Climate Exchange (CXCHF) is poised to profit from the global expansion of the exchange-based trading of carbon credits. [more]
After trading up to nearly 16 bucks this morning on an upgarde, Altria (MO) is back on sale at 15 bucks as MO has lost about 30% of its market value since spinning off the international tobacco operations into a separate public company as Philip Morris International (PM), resulting in a dividend yield of 8.5%. Altria declared its quarterly dividend of 32 cents last week, with an ex-dividend date of 12/22/08 which is payable on 1/9/09. [more]
With the launch of AirShares (ASO) Carbon Commodity Pool Fund today, investors now have two easily accessible choices for carbon trading with the iPath Global Carbon ETN (GRN) already on the market since early July. Below are links to my articles on carbon trading over the past four months: [more]
With good returns so far since I profiled Caraco Pharma (CPD) as a defensive growth stock at a value price, a related company in the ETF Innovators [ETFI] Global Healthcare Cost Containment Index with similar value parameters is Home Diagnostics (HDIX) – which makes affordable blood glucose monitoring systems and disposable testing supplies [web link to HDIX product page] under its own brand names (such as TRUE and Prestige) and co-branded partnerships with leading retail pharmacies such as Rite Aid (RAD), Walgreen (WAG), and CVS Caremark (CVS) as value-priced, store-branded products. [more]
The AirShares (ASO) Carbon Fund [web link to product home page] is set to begin trading on Monday 12/15/08 for XShares. The AirShares website contains details on the fund's structure and holdings, as well as information on climate change and carbon investing – including a multimedia resource center which is a compilation of videos, white papers and news articles designed to be a leading online reference for carbon investing information. [more]
Updated FDA Calendar: Buying Cypress Bioscience
[web link to updated FDA calendar of 71 decision dates] [more]
Nine for '09: Stock Picks for the New Year Below are nine stock picks for 2009, which are taken from the 1,000 company database of ETF Innovators [ETFI] Indexes, and which I own in my personal brokerage account. Given my cautious stance toward the economy and stock market, the picks have a defensive theme favoring the healthcare sector as a source of defensive growth companies.
1.) Consumer Staples – Tobacco: Altria Group (MO) has lost about 30% of its market value since spinning off the international tobacco operations into a separate public company as Philip Morris International (PM), resulting in a dividend yield of 8.5% with a stock price near 15 bucks as of today. Altria declared its quarterly dividend of 32 cents today, with an ex-dividend date of 12/22/08 which is payable on 1/9/09.
2.) Consumer Staples – Packaged Food: Kraft Foods (KFT) is trading with a historically high dividend yield over 4% since losing about 23% of its market value in the past year. Profit margins will expand thanks to falling commodity prices, but Kraft will face headwinds from the move by consumers to buy cheaper, generics such as store brand equivalents. However, Kraft has lost 12% in market value since it started trading in mid-2001 which shifts the risk/reward in favor of buying at current low levels.
3.) Healthcare – Generic Drugs: Caraco Pharma (CPD) is still undervalued despite the gain of nearly 36% today as the pending tender offer for Taro Pharma (TAROF) by India's Sun Pharma (Bombay: 524715) implies a fair value of over 10 bucks for Caraco.
Trends in favor of the global generic drug industry include the following: nearly $70B in brand name drug sales with looming generic competition through 2012, a push to increase generic substitution rates from 65% of all prescriptions dispensed to over 70% to save money for the consumers and the government (through Medicare Part D spending), continued industry consolidation of small and mid-caps by industry leaders such as Teva Pharma (TEVA) and Mylan Labs (MYL), and the potential for legislation next year regarding generic versions of high-cost biological agents
4.) Healthcare – Biotech: A World Health Organization [WHO] report released this week estimates that cancer will overtake heart disease as the top cause of death in the world by 2010, which is part of an overall trend that predicts global cancer cases and deaths will more than double by 2030. Celgene (CELG) is a leading cancer biotech which offers an excellent entry point now below 50 bucks with a PEG ratio below one.
5.) Healthcare – Diagnostics: China Medical (CMED) is trading near its IPO levels of August 2005 despite excellent growth prospects and is a buy around 20 bucks with a dividend yield of 2.5% as uncertainty over a large $345M acquisition has spooked some investors, sending the stock down sharply by over 50% in the past three months. The acquisition provides CMED with a molecular diagnostics platform for HPV, including strains that cause cervical cancer – which is an estimated $700M market in China alone along with expansion plans in the huge U.S. and European markets, pending regulatory approvals.
6.) Speculative: Javelin Pharma (JAV) has nearly doubled from its intraday low last Friday of 40 cents after reporting positive Phase 3 results for Dyloject, which will support an application for FDA approval in 2H09. Dyloject is already on the market in Europe and the Company is engaged in partnership discussions for the product, along with another late-stage pipeline candidate Ereska. Insiders continue to buy the stock over the past six months and given the tremendous decline in market value over the past year a buyout may be more likely than a partnership in 2009.
7.) Transports – Railroad: Kansas City Southern (KSU) is a regional rail transport play near its 52-week lows which is poised to benefit from a recovery in the housing market and continued demand for coal transport to power the energy grid. The CEO of KSU, Michael Haverty, appeared on CNBC in late October, stating that rail transport was showing continued strength in the transport of coal, chemicals, and grains with weakness in the transport of consumer goods and housing related commodities.
8.) Healthcare – Biogenerics: Momenta Pharma (MNTA) and Novartis (NVS) expect to launch a generic version (M-Enoxaparin) of the injectable blood thinner Lovenox in 2009, pending approval of their ANDA by the Generic Division of the FDA – which does not issue decision deadlines. Despite Momenta's stock price surge of 33% in the past five days; it is still well below the yearly high of 20 bucks and an approval for M-Enoxaparin would be a significant catalyst since Lovenox posted sales of about $4B in the last year for Sanofi-Aventis (SNY).
While other companies such as Teva (TEVA) and Watson Pharma (WPI) also have pending applications for generic Lovenox, it is encouraging the researchers from Momenta contributed to determining the cause of the tainted heparin earlier this year. Also notable is the move by Merck (MRK) announced yesterday to expand into generic biotech drugs as a key growth division for the future, which may have something to do with the major up-trend in shares of Momenta.
9.) Technology: Apple (AAPL) is a stock I suggested as a replacement for GM in the Dow 30, which is a technology bellwether and stock market leader, soaring over 1,000% in the past 10 years and its iPhone is outselling Motorola (MOT) and Research In Motion (RIMM) while its Mac and iPod brands continue to gain market share. Apple creates products and brands that people want with a trendy image, illustrated by the commercials comparing it to the bland PC market portrayed by Microsoft (MSFT). [more]
India's largest generic drug company [web link to analysis of this market] by market cap, Sun Pharma (Bombay: 524715), and Israel-based Taro Pharma (TAROF) have one month to reach agreement on an outstanding tender offer of $7.75 per share by Sun Pharma to acquire its smaller rival or the Israel Supreme Court will decide on the case. In early 2007, Taro agreed to the deal as it was struggling to survive and Sun invested $60M as part of a private placement to resolve Taro's liquidity issues. [more]
Look For Laggards After Latest Market Rally
With the S&P 500 SPDR (SPY) trading to the upside by more than 10% in the last five days on the prospects for a short-term $15B rescue package for U.S. auto makers to prevent rising unemployment rates from skyrocketing into double digits, Caraco Pharma (CPD) and Altria Group (MO) represent two laggards from defensive industry groups.
The accompanying one-month chart [click to enlarge] illustrates a highly correlated sell-off in Caraco and another small generic drug company, Hi-Tech Pharmacal (HITK), with HITK recently rallying to cut its one-month loss to 20% from a 45% decline at the low. However, the market value of Caraco has been cut in half over the past month and shares have failed to rally by any significant amount despite the overall market rally in the past five days.
Along with the deep value parameters for Caraco and potential to resolve a FDA warning letter, the bounce in HITK from its lows would translate into a share price in the mid-$5 range for Caraco in the near-term if they continue to follow each other's trading patterns.
Altria Group (MO) has lost one-sixth of its market value in the past month, resulting in a dividend yield of 8.5% as investors flock to more high-octane trades such as companies in the ETF Innovators [ETFI] Global Maritime Transport Index of 61 companies – with DryShips (DRYS) soaring by over 50% yesterday ,but still osing about 90% of its market value in the past year on the back of declining commodity prices and the global economic slowdown.
For other potential opportunities in the ETFI Emerging Biotech and Pharma Index, below is a list of companies currently trading with a negative enterprise value, less than $10M in debt, less than 50M shares outstanding, and enough cash to fund operations for at least one year – providing a starting point for more research to determine if there is a reason to buy or if the market has it right by assigning no value to the following four companies:
1.) Achillion Pharma (ACHN): Article on its HCV Pipeline
2.) Icagen (ICGN)
3.) Adolor (ADLR)
4.) Acadia Pharma (ACAD) [more]
Shipping Stocks: Global Economic Barometer & Good for Trading[web link to index stats and all 61 Cos.]
The accompanying table [click to enlarge] includes statistics for the 61 companies included in the ETF Innovators [ETFI] Global Maritime Transport Index, which must have market caps of at least $100M. The index has lost about 64% over the past year on an equally-weighted basis, compared to declines of about 29% for the iShares Dow Transports ETF (IYT), 42% for the S&P 500 SPDR (SPY), and 62% for the Claymore/Delta Global Shipping ETF (SEA) – with SEA launched only recently in early September just before the global economic slowdown and credit/equity market turmoil gained momentum.
As an example of the extreme valuations placed on shipping stocks at both the top and the bottom, DryShips (DRYS) has lost over 90% of its market value in the past year with an astounding stock price range of $3-$116 and is now trading for around 5 bucks, mirroring the precipitous decline in the Baltic Dry Index and day rates that maritime transport companies receive for their services. Only one stock managed to post a stock price gain over the past year, Nordic American Tanker (NAT), which enjoys a strong balance sheet with no debt.
The bottom line for investors and traders is to watch the shipping stocks because they are excellent trading vehicles with extreme volatility and also provide a proxy for the condition of the global economy, in conjunction with monitoring commodity prices, the Baltic Dry Index, and day rates. [more]
Have Your Say on Healthcare Reform Visit the Change.gov website to submit your ideas on healthcare reform as the new Obama-Biden administration prepares for their inauguration on January 20, 2009. Tom Daschle will serve as Secretary of Health & Human Services and is encouraging the nation to share their healthcare experiences and suggestions to improve and reform healthcare in the U.S.
A key feature of the plan is making health insurance coverage possible for all Americans using the existing network of insurers and providers. The plan relies on tax credits for small businesses and eligible individuals to help pay the cost of health insurance premiums. Also, large employers which do not offer health insurance benefits would be required to contribute a percentage of their payroll toward the cost of healthcare for their employees.
Insurance companies would be required to cover pre-existing conditions and the insurance market will be reformed to eliminate anti-competitive practices, including the creation of a National Health Insurance Exchange with a variety of affordable health insurance options. Investments in health information technology [Health IT] will be made to encourage e-prescribing and electronic recordkeeping to reduce the incidence of medical errors and encourage the portability of health information.
The plan would also promote the use of generic drugs through increased substitution rates for higher cost brand names where feasible and prevent lawsuits which delay or block competition from generics. Other areas of focus include required coverage of preventive medicine services such as cancer screenings and increased funding for state and local governments to prepare for bio-terrorism and natural disasters.
Below are links to new ETF Innovators [ETFI] healthcare indexes and ETF ideas which are poised to benefit from the pending healthcare reform:
Global Health IT: A small and mid-cap index of companies which provide e-prescribing and healthcare information systems to reduce medical errors and improve health outcomes through the application of technology, including companies such as Allscripts-Misys (MDRX), Cerner (CERN), and Eclipsys (ECLP).
Global Healthcare Cost Containment: Includes generic drug and product companies such as Teva Pharma (TEVA) and Perrigo (PRGO) as well as pharmacy benefit managers such as MedcoHealth Solutions (MHS) and Express Scripts (ESRX) which share a common theme of promoting the use of generic equivalents to lower healthcare costs.
Preventive Medicine: Vaccine makers such as Emergent BioSolutions (EBS) could benefit from increased government sales of its bio-defense products such as BioThrax while diagnostics and clinical lab services companies such as Genomic Health (GHDX), Sequenom (SQNM), and Genoptix (GXDX) are set to experience increased demand for diagnostic screening tests and lab services to guide treatment for complex diseases such as cancer. [more]
Stock Ideas from ETF Innovators New Indexes Below is a list of 14 stock opportunities from various ETF Innovators [ETFI] indexes, which includes a database of over 1,000 companies. The companies are chosen across a full spectrum of market cap and risk level from a variety of industry groups.
From the ETFI Highly Defensive PerformIdex, I believe Altria Group (MO) and Pfizer (PFE) are defensive dividend, value buys at current levels as each company currently pays a dividend of $1.28 per share annually – resulting in historically high dividend yields for both companies of 8.5% and 7.7%, respectively. Another pick from this group is Celgene (CELG), which is starting to make a move up from the $50 level at the low end of its trading range, but offers the best growth prospects among large-cap biotechs with a PEG ratio still below 1X and leading cancer drugs.
The Healthcare Cost Containment Index offers Caraco Pharma (CPD) as a way to play India's largest generic drug company by market cap, Sun Pharma, through their distribution agreement. Caraco believes it has addressed the issues raised in the FDA warning letter completely, which provides a potential upside catalyst upon resolution. Caraco has lost an astounding two-thirds of its market value in just the past month and over three-quarters of value in the past year despite the fact the Company has enough cash on hand ($33.6M) to buy back almost its entire float of 11.3M outstanding shares at current prices.
Another opportunity from this group is Momenta Pharma (MNTA), which expects to launch a generic version (M-Enoxaparin) of the injectable blood thinner Lovenox in 2009 along with Novartis (NVS), pending approval of their ANDA by the Generic Division of the FDA.
From the Preventive Medicine Index, China Medical (CMED) is trading near its IPO levels of August 2005 despite excellent growth prospects and is a buy below 20 bucks with a dividend yield of 2.5% and market cap of $540M as uncertainty over a $345M acquisition has spooked some investors, sending the stock down sharply by over 50% in the past three months. The acquisition provides CMED with a molecular diagnostics platform for HPV, including strains that cause cervical cancer – which is an estimated $700M market in China alone.
A trio of companies expect FDA decisions for abuse-resistant pain drugs before year-end, including Pain Therapeutics (PTIE) + King Pharma (KG) for Remoxy and Alpharma (ALO) for Embeda. Now that Alpharma has accepted King Pharma's buyout bid, KG reflects a way to trade both decisions in a single stock for twice the chances of approval. The Alpharma acquisition diversifies King's business mix, as ALO derives the majority of its sales from animal health in addition to offering pharmaceutical products such as Kadian and Flector.
From the Global Health Innovators Index, Thoratec (THOR) posted strong data on Friday for its HeartMate II pump among heart failure patients who are not eligible for a transplant. The positive data came much earlier than expected and allows Thoratec to apply for approval of the device during 1H09. THOR traded near all-time highs on Friday on over 3X average trading volume on favorable prospects for approval of the device during the first half of 2010.
From the Global Transportation Index, the airline industry looks promising next year despite the global economic slowdown thanks to a drastic reduction in jet fuel costs and reduced capacity through grounded planes and M&A. JetBlue Airways (JBLU) and Southwest Airlines (LUV) are both well positioned to benefit from these trends while Kansas City Southern (KSU) is a regional rail transport play near its 52-week lows which is poised to benefit from a recovery in the housing market and continued demand for coal transport to power the energy grid. Among the major rail transports, Norfolk Southern (NSC) currently has the highest dividend yield at 2.8%.
For less well-known and higher risk/reward opportunities, the Emerging Bio-Pharma space offers Javelin Pharma (JAV) and InSite Vision (ISV), which have the following bullish factors in their favor:
1.) differentiated products which are already approved in either the U.S. or Europe (Dyloject – JAV and AzaSite – ISV) and are poised to gain market share
2.) late-stage clinical pipelines with pending pivotal Phase 3 results and the potential for licensing agreements to generate upfront cash, milestone payments, and future royalties
3.) raised cash before the credit and equity market turmoil began
4.) recently announced cost-cutting programs to conserve resources toward high-priority R&D and marketing efforts [more]
Allergan (AGN) – Received an approval recommendation today from a FDA advisory panel for Latisse (bimatoprost solution 0.03%) as a cosmetic medicine treatment which would represent the first and only FDA-approved product to enhance eyelashes (making them darker, longer, and thicker). Latisse would be packaged with a special applicator to apply the drops on the edge of the eyelid as compared to the current use of bimatoprost as Lumigan, which is already on the market as a treatment for glaucoma to lower eye pressure. [more]
FDA Calendar: A Weekly Update
[web link to updated FDA calendar of 73 decision dates] [more]
Javelin Pharma (JAV) looks like a spec buy today as a victim of forced liquidation as the Company now trades at the same market cap as its cash balance of $36.5M, along with zero debt + insider buying over the past year at much higher prices. I bought shares earlier today at 44 cents and view the current price as a call option trade which never expires unless the company goes under, which is unlikely given the cash hoard and pipeline/product prospects.
Nice move this afternoon for Javelin Pharma today representing major capitulation down to 40 cents - now up over 20% on the day at 60 cents on over 10X average volume with pending Dyloject Phase 3 results before year-end to support NDA filing with the FDA for US approval next year. Javelin recently announced a 15% workforce reduction to conserve cash and the Company is actively negotiating for deals for its late-stage pipeline of pain drugs. [more]
AMAG Pharma (AMAG) more than doubled on word that the FDA accepted its complete response for a NDA of iron-deficiency anemia drug ferumoxytol in patients with chronic kidney disease and will issue a final ruling before year-end. The news is a major relief for AMAG as no new clinical trials were required and the quick decision deadline before year-end is encouraging for the approval prospects of ferumoxytol. [more]
A More Focused Highly Defensive Index
[web link to stats for 36 Cos., index, and benchmark ETFs] [more]
Generic Cardio Drugs Equal Brands - JAMA
[web link to index stats & Top 10 Rated Cos.] [more]
Caraco Pharma (CPD) offers a compelling value at its current price of $3.30 per share and I bought some shares today, as the stock has lost an astounding two-thirds of its market value in just the past month and over three-quarters of value in the past year. [more]