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Hello Readers,
Since the last Newsletter, we closed four positions, three for gains and one for a loss.
NAUTILUS (8/20/11). Closed position 1/30/12 at $2.53 for a 51% GAIN.
CELLDEX THERAPEUTICS (9/20/11). Closed position 1/27/12 at $4.53 for a 68% GAIN.
TRANS1 (1/5/12). Closed position 1/27/12 at $2.93 for a 57% GAIN.
APPLIED ENERGETICS (7/5/08). Closed position 1/25/12 at 10 cents for a 94% LOSS.
Nautilus got a very nice lift due to a strong earnings forecast. Several news items about various clinical trials, along with a brokerage house upgrade, sent shares of Celldex Therapeutics on a nice run. We have no clue as to what made TranS1 pierce our 50%-plus threshold, but, considering it was in the Current Portfolio for less than a month, we’ll take it. And, we finally closed Applied Energetics for a nasty loss.
We have just seen the first January in modern times when there were not any billion-plus share trading days on the NYSE, except for the last day. Yet, the markets had a pretty good run. So, if there wasn’t any great volume driving the market up, then, what did? Surely not the small investor who has been absent for several months. The answer seems to lie with the ETF and hedge funds, which, obviously, have money to burn. What lies ahead? Be careful of February because the month has historically been temperamental , and there still are many issues overhanging the markets, namely Europe and the fact that the economy is not growing as it should. Why else would Chairman Ben and the Fed say that rates will stay at near-zero for the next three years?
Our Current Portfolio, while looking at little healthier, is still climbing out of the carnage from late last summer. Remember, it takes small stocks much more time to recoup from sell-offs than it does for mid and big caps.
Here are the headlines from the last Newsletter about companies in the Current Portfolio; dates in parentheses are when we first recommended them. We are not giving updates about companies on the “Endangered List” unless we feel the news to be highly significant.
A123 Systems (AONE)(1/20/12). Raising $25.4 million in below-market stock deal, which we hate to hear. Cuts 2011 revenue outlook. And yet, the stock did drop as much as it could have.
Dry Ships (DRYS)(12/20/11). Unit signs $52 million drilling contract.
NuPathe (PATH)(12/20/11). Announces allowance of additional U.S. patent application for its migraine patch.
Nexxus Lighting (NEXS)(12/5/11). Array LED R30 light bulbs gain full ENERGY STAR qualification.
BioMimetic (BMTI)(9/20/11). Cuts 25% of workforce amid FDA delay.
Glu Mobile (GLUU)(9/5/11). Sets earnings call for February 7.
Synthesis Energy Systems (SYMX)(8/20/11). Sets earnings news for February 10.
Antares Pharma (AIS)(8/5/11). Enters licensing agreement with Daewoong Pharmaceuticals for Oxybutynin Gel 3% in South Korea.
Opnext (OPXT)(6/20/11). Sets earnings call for February 7. Expands product family with new high power 660nm Red Laser Diode featuring built-in monitor photo diode capability.
On Track Innovations (OTIV)(6/20/11). Receives initial $6.9 million contract to supply electronic immigration control system in Panama. To present at Merriman investor conference on February 1, the day we post this Newsletter. Silk Investment raises stake in company to 12.2% from 10.8%. Receives U.S. patent for contactless smart SIM.
Idera Pharmaceuticals (IDRA)(6/5/11). Announces favorable data from Phase 1b study of IMO-2055 in combination with Tarceva and Avastin in patients with advanced non-small cell lung cancer.
Neostem (NBS)(5/20/11). Subsidiary enrolls first patient in PreSERVE Phase 2 trial for Acute Myocardial Infarction. Upgraded by WBB Securities.
MediciNova (MNOV)(5/20/11). Collaborates with the University of Colorado on potential novel therapy for traumatic brain injury.
Energy Recovery (ERII)(5/5/11). Sets earnings call for March 8. Granted record-setting number of new patents.
Biostar Pharmaceuticals (BSPM)(4/20/11). Selected by the FMMU to cooperate in research and product development.
GSE Systems (GVP)(4/20/11). Announces $10.1 million in new orders.
ThermoGenesis (KOOL)(4/5/11). Chooses new CEO; eliminates positions. KOOL’s system will be part of the Canadian blood bank.
Jamba, Inc. (JMBA)(3/20/11). Expands presence into 26th state with store opening in Kentucky.
Oculus Innovative Sciences (OCLS)(3/5/11). Sets earnings call for February 2, the day after we post this Newsletter.
Biodel (BIOD)(2/20/11). European medical board recommends orphan designation for company’s stabilized Glucagon for treating congenital hyperinsulinism.
Network Engines (NEI)(2/5/11). Although revenues fall, earnings rise; balance sheet still looks good.
Sprint Nextel (S)(1/5/11). The usual several dozen articles and releases. Nothing that we can see that would case the stock to move.
PixelWorks (PXLW)(11/20/10). Quarterly results could have been better; balance sheet still looks okay.
Inovio Pharmaceuticals (INO)(10/20/10). Says it has moved closer to ‘universal’ influenza vaccine by demonstrating protective immune responses against multiple H3N2 and Type B strains in animal studies.
Rexahn Pharmaceuticals (RNN)(7/20/10). Publishes new preclinical data for Quinoxalinyl-Piperazine compounds. Secures approval in Europe to conduct a first-in-human trial of RX-3117 in solid tumors. Provides key goals for 2012.
NovaBay (NBY)(4/20/10). Prepares to launch global Phase 2b ophthalmic study of NVC-422.
Cytokinetics (CYTK)(2/5/10). To release earnings on February 2, the day after we post this Newsletter.
Qualstar (QBAK)(10/20/09). Recent numbers seem disappointing; balance sheet still looks good.
Our picks for this Newsletter are another small biotech and a software developer for mobile devices, both NASDAQ-listed.
GERON CORPORATION (NASDAQ: GERN) – $1.98. Twelve-month hi-low has been $5.24 – $1.70. Based in Menlo Park, CA, with about 170 employees, this biotech has 131.47 million shares outstanding, $147.3 million shares outstanding, $147.3 million in total current assets, $188.4 million in total assets, and $13.2 million in total liabilities, of which $3.2 million is long-term debt. Institutional ownership is around 30%. One analyst rates the stock a “strong buy”, two as a “buy”, and three as a “hold”. www.geron.com
We have a soft spot for beaten-down biotechs such as Geron Corporation, which has an eye-popping balance sheet and a variety of various developing treatments for a variety of cancers in the hopper.
Founded in 1990, and public for over 15 years, Geron is developing cancer treatments for chronic degenerative diseases, including spinal cord injury, heart failure, and diabetes. It develops a range of anti-cancer therapies based on telomerase inhibitors and telomerase vaccines; and diagnostics based on telomerase detection, as well as intending to develop products using telomerase as a marker for cancer diagnosis, prognosis, patient monitoring, and screening. Some of Geron’s research uses stem cells, but, from what we have been able to find, these seem to be from umbilical cords. However, due to some recent setbacks with its stem cell therapies, the company may soon abandon most of its stem cell efforts.
Geron develops Imetelstat (GRN163L), which is in Phase I clinical trial for treating chronic lymphoproliferative diseases, solid tumors, multiple myeloma, and non-small cell lung cancer. GRN163L is also in Phase I/II clinical trial to treat breast cancer. The company also develops GRNVAC1 that is in Phase II clinical trial for treating acute myelogenous leukemia. It also develops GRNOPC1, which is in Phase I trial for treating spinal cord injury; and GRNCM1 that is in preclinical stage to treat heart disease and screening. Geron has licensing agreements with Merck to develop telomerase cancer vaccine, which is in Phase I clinical trial for treating prostate and solid tumors; and with Sienna Cancer Diagnostics to develop a preclinical stage product for treating bladder cancer. The company also has a collaboration with the University Campus Suffolk to develop human embryonic stem-cell derived chrondrocytes for treating cartilage damage and joint disease.
In mid-December, 2011, Geron initiated a Phase 2 clinical trial to evaluate GRN1005 in patients with brain metastases arising from breast cancer. GRN1005 is the company’s lead LRP-directed peptide drug conjugate that consists of the cytotoxic drug paclitaxel.
Geron is pretty typical of most small biotech R&Ds in that it has little revenue and mega-losses. For example, during the quarter ending 9/30/11, revenue was $220,000 with $19.52 million in losses.
This is one of those biotechs with what appears to be a lot in the hopper, along with a pretty hefty balance sheet. And, the stock is trading near its twelve-month low.
Our 24-month target for the stock is $3.50 to $3.75.
For more information, contact GERN’s Anna Krassowska at 650-473-7765; investor@geron.com
SMITH MICRO SOFTWARE, INC. (NASDAQ: SMSI) – $1.81. Twelve-month hi-low has been $13.79 – $1.12. Based in Aliso Viejo, CA, with about 540 employees, this application software developer has 35.76 million shares outstanding, $73.23 million in total current assets, $89.78 million in total assets, and $16.36 million in total liabilities. Institutional ownership is around 46%. Two analysts rate the stock a “strong buy” and eight as a “hold”. www.smithmicro.com
If ever there was a company that fell asleep at the wheel, it was probably Smith Micro Software, Inc. The bet here it that the company has awakened, and, with some new product ideas and a solid balance sheet, may be able to resuscitate itself.
Founded in 1982, and public for over sixteen years, Smith Micro develops and sells software products and services primarily for mobile computing. It operates in two business segments: Wireless and Productivity & Graphics. Its portfolio of wireless software products and services includes a range of software solutions, including its QuickLink family of products. This segment’s main focus is to develop mobile connectivity, mobile information management and mobile security solutions. The Productivity & Graphics segment hones in on developing software for the consumer, prosumer, and professional markets. The company’s mobile communications portfolio also includes solutions for Push-To-Talk, Visual Voicemail, mobile device management, and video.
The company took a major hit in 2011 as it continued to see a decline in its base connection management business, primarily due to the transition to mobile hotspot technologies as a growing way to connect to mobile broadband networks. So, Smith Micro is developing new products to address this changing landscape, such as its new Mobile Network Director, which is Smartphone-based software allowing customers to alleviate traffic congestion on their networks by off-loading data to Wi-Fi and enabling seamless handovers between 3G, 4G, and Wi-Fi networks.
For FY2010, ending 12/31/10, revenue was $130.5 million with $12.34 million in net income. During the first nine months of FY2011, ending 9/30/11, revenue was $46.52 million with $150.1 million in net losses (ouch!), with most of the loss attributed to write-offs such as goodwill.
We’ll be blunt. This one looks to be a “Hail Mary”, but our thinking is that the company has been in business for over 20 years, and, given the strength of its balance sheet along with promising new products, it may be able to pull off a turnaround.
Our 24-month target for the stock is $3.25 to $3.50.
For more information, contact SMSI at 949-362-2300.
Look for the February 20, 2012 Newsletter to be posted on 2/16 or 2/17.
Thank you,
George