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July 29, 2011 – Comments (12) | RELATED TICKERS: ANAC , CUR

Is the long-awaited serpent's egg finally hatching? Or is this another summer doldrum soon to be reversed and new highs achieved? I've watched with amazement as the markets shook off the housing crisis, the financial crisis, the European crisis, and the tsunami/nuclear crisis despite the continuing dependence of our fragile economic recovery on rampant deficit spending. I benefited to a large degree but also waved goodbye to tens of thousands in hedges. Now of course, with my hedges wiped out, we can finally revisit the disaster of early 2009. But all is not lost - I've been liquidating heavily over the last month and I have a substantial cash hoard to attack with should valuations once again become absurdly low. Towards that end I've identified two new stocks for the GBMB watchlist.

Anacor (ANAC) - market cap 164M, share price 5.84. Cash 77M, debt 9M, quarterly burn 8-14M. This company only IPO'd eight months ago which makes them a little easier to analyze, yet more difficult to predict. I liked what I saw the first time I checked out the pipeline of novel boron-based small molecule drugs, but the stock has flailed while IPO peers Pacira, Endocyte, and Ventrus have soared. Compounds in clinical trials include topical PDE4 inhibitors AN2728 and AN2898 for plaque psoriasis and atopic dermatitis, fungal tRNA inhibitors AN2690 and AN2718 for onchomycosis, and GSK2251052 anti-Gram negative antibiotic. Upcoming catalysts include phase II data for AN2728 and AN2898 in mild-to-moderate atopic dermatitis and completion of enrollment in two phase III trials of AN2690 in onchomycosis in H2 2011. Meanwhile, Glaxo has initiated phase IIb trials of GSK2251052 in UTI and intra-abdominal infections. I expect the most recent weakness in the stock relates to unimpressive phase IIb data for AN2728 in psoriasis, which was discouraging but not a death blow for the compound. The Glaxo compound alone would seem to justify the 100M enterprise value I expect to see when earnings are next reported. I would consider a GBMB buy below 5.5, as long as we're also seeing stabilization in the share price and the broad market.

Neuralstem (CUR) - market cap 56M, share price 1.15. Cash 9M, debt 0, quarterly burn 3-5M. Stinky bottom alert! This stock could go to 0 someday. Neuralstem has now come full circle to the share price it traded at two years ago, after a steady run over 3 and a steady march back downward. The peak came after the company initiated dosing in a clinical trial of spinal stem cells in ALS, but the downward spiral has come despite respectable progress in the trial. Having completed lumbar stem cell injections in 12 patients, the company is now seeking FDA authorization for cervical cord injections. Meanwhile, the company plans a new trial of spinal stem cells in spinal cord injury and has initiated phase I trials of hippocampal neurogenesis inducer NS-189 for major depression. All the stem cell stocks are sketchy, but Neuralstem seems to be the most reasonably priced since they haven't actually failed at anything yet and they're still in the early, optimistic stage of development. This is a higher risk and therefore lower priority GBMB buy below 1.1.

12 Comments – Post Your Own

#1) On July 30, 2011 at 3:11 PM, TSIF (99.96) wrote:

Hi ZZ, great stuff as always.

RE: CUR. It looks like they are getting at the point where a cash raise will be needed.  They are also approaching that $1 share price.  It would seem that the financing will drive them below the $1 and then we have the dreaded reverse split cycle to meet listing requirements.   Do you think that is depressing the stock even furhter??  The bogus lawsuit with STEM also seems to crop back up on a regular basis. Hopefully STEM will give up at some point and stop draining resources of both companys'.  Do you see any catalysts that may help them in the next quarter or two before they need more funds??

RE: CytRx (CYTRI thought I left you a message on your last blog, but the goat on the tightwire must have eaten it!  You commented on the stability of their stock price and then it tanked further!  Perhaps someone was "in the know".  It seems the financing at $0.52 per share for 39 Million shares caught the market off guard. It's no unusual for an equity's price to drop to or slightly below an offering price, but the $0.42 it's trading at now seems very low.  The $20 Million should cover them for a year which should have encouraged the market.   I'm often interested in a "penny stock" to play with, do you think this one has more promise or less promise after the stock cratered???!!!

As always, I appreciate your insight and the time you spend sharing!!!!

TSIF

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#2) On August 01, 2011 at 12:23 AM, EvilEmpire (29.55) wrote:

Any thoughts on ANDS?

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#3) On August 01, 2011 at 2:00 PM, zzlangerhans (99.85) wrote:

You won't lure me into cheerleading either one of those stocks. Maybe it was Oxigene that finally disgusted me into lowering my standards looking for that huge score. Kind of like the guy who figured out the ugliest girl in school gave great ... well never mind.

I'm not convinced Neuralstem will be announcing a large capital raise soon.They seem to be going the route of stealth dilution and their cash position didn't drop between the last two PR's. If they are a real self-respecting stem cell outfit, they'll spin FDA approval for cervical injections into a cure for all human disease and then sell shares.

Then again, maybe they'll be like CytRx and announce a seemingly unnecessary large dilutive financing at a two year low in share price with potential positive catalysts just around the corner. Why did CytRx do it? Who knows? Welcome to micro cap biotech, and be glad you dodged that bullet (if you did). I would not buy CytRx now, but I strongly doubt a straight line to 0. I'd wait for hard numbers on the new share count, market cap, and cash position after the next earnings statement and consider it as a cash play. The company obviously doesn't think as highly of their pipeline in practice as they claim in their PR's. 

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#4) On August 01, 2011 at 4:27 PM, TSIF (99.96) wrote:

 Looks like I missed a chance at CUR from a CAPs perspective while worrying about the $1 price point.  The $0.22 spike today was on half normal volume and no news, so it looks suspicious.

 No, I didn' have any skin in CytRX. I had it on my watch list and saw the 50% drop on the financing.  I appreciate your points that the financing seemed excessive at this point if management had any confidence in good news that would have spiked it before financing.  It didn't get a bounce in three days a the half price off sell, so it appears sentiment is definitely against it.  I see a cycle of reverse split which usually causes another sell off, but maybe it's worth checking in on occasionally to see if sentiment changes. 

I think the guy who figured out about the ugliest girl in school made out better than some of these biopharm plays. At least things get better when you turn the lights out.....  ;)

Thanks!

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#5) On August 10, 2011 at 6:25 PM, rojostyle (72.33) wrote:

Sorry.  As this is completely unrelated to your article, but I know you have liked DYAX in the past.  It's closed at 1.28 today.  I have followed the company for a couple years now and they never impressed me mainly because I feel like it's never moving forward or progressing or really doing anything at all... but at this price do you start thinking maybe it's worth the risk?

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#6) On August 10, 2011 at 7:48 PM, WallstreetKnight (44.03) wrote:

Zzlanger,

Do you have an opinion on SVNT?  Any thoughts?

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#7) On August 11, 2011 at 12:55 AM, zzlangerhans (99.85) wrote:

Dyax and Savient are both way too speculative for the current tone of the baby biotech sector. Dyax has the unique approach of enticing investment by projecting 2016 revenues. Meanwhile, the commercial viability of Savient's Krystexxa is in question after a second weak quarter of sales. I think when pessimism is extremely high and market caps are being crushed, I would look towards short-term catalysts and cash. With respect to major catalysts I'd look at Regeneron, Incyte, Alimera, Biosante, Pacira, Siga, and NuPathe. For companies whose cash is larger than market cap keep an eye on Transcept, Vanda, Orexigen, and Insmed. In this market I would be looking for run-ups and rebounds, not stocks that have been taking well-deserved beatings. The key is to pick the stocks that have the greatest chance to outperform in a recovery, such as Dendreon or Human Genomic or Keryx did in 2009.   

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#8) On August 11, 2011 at 2:03 PM, rojostyle (72.33) wrote:

Much appreciated.  Thanks for the knowledge zz.

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#9) On August 11, 2011 at 10:52 PM, WallstreetKnight (44.03) wrote:

Just out of curiousity, did you ever buy SVNT for the GBMB, and if so, are you holding it or dumping the shares?

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#10) On August 12, 2011 at 12:44 AM, zzlangerhans (99.85) wrote:

Regretfully I bought 2000 shares, just under 10 if I remember correctly. I think everything is oversold right now so I'm not selling anything. I expect I'll hold through at least another quarter since I find it so hard to believe that there aren't enough refractory gout patients to sell this drug.

I'd add another category of stocks to look at closely in the current market - successful companies with marketed drugs that are being beaten downward despite improving revenues and good prospects. Salix and Biomarin are two good examples.

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#11) On August 13, 2011 at 2:12 PM, Kvedarna (99.54) wrote:

About a week ago I came to the conclusion that in Risk Off mode, and agreeing with you that most everything is oversold, I bought your space.  That is, I bought most everything you like, and gladly credit you with the gain should it emerge.  It's a sector oversold bet.  Thx.

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#12) On August 13, 2011 at 5:01 PM, zzlangerhans (99.85) wrote:

Thanks, just don't expect compensation for the loss.

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