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Hello Readers,
Since the last Newsletter, we have closed another six positions; five for gains and one for a loss.
SUNRISE TELECOM (9/20/03). Closed position 10/27/03 at $4.25 for a 70% GAIN.
TITAN PHARMACEUTICALS (11/20/02). Closed position 10/17/03 at $3.98 for a 89% GAIN.
PARADYNE NETWORKS (7/20/02). Closed position 10/17/03 at $3.72 for a 73% GAIN.
NIC, INC. (8/5/03). Closed position 10/16/03 at $5.57 for a 59% GAIN.
GTC BIOTHERAPEUTICS (8/20/03). Closed position 10/16/03 at $3.66 for a 52% GAIN.
CATALYST INC. (3/20/02). Closed position 10/16/03 at $1.35 for a 55% LOSS.
Sunrise Telecom took us by surprise as the stock soared on better than expected revenue numbers. In the last Newsletter, we said it would only a be a matter of days before we would close Titan, Paradyne, NIC, and GTC; and we did just that. We closed Catalyst, which had been on the “Endangered List”, because it appeared to be out of gas.
Our sentiments for the markets are those of an unabashed raging bull. As we have repeatedly said over the last several months, the only thing that can slow it down are unforeseen domestic or foreign disasters. The big question now must be is how high can the markets climb in 2004? Does anyone have a clear crystal ball?
Here are the headlines since the last issue about companies in the Current Portfolio. Dates in parentheses are when we first recommended them.
Genetronics (GEB) (10/5/00). Meets clinical and regulatory milestones and receives final tranche from $15.67 million financing. Announces option for a license agreement with Vical.
CE Franklin (CFK) (5/5/01). Announces profit for the third quarter.
Arotech (ARTX) (6/5/01). Stock gets a nice jump despite a lawsuit that ARTX says is “without merit”. Company bags another $1.65 million in new contracts.
Superconductor Technologies (SCON) (1/5/02). We thought we would have closed this a few weeks ago, but stock fell off a little bit. Company released eye-popping quarterly numbers and balance sheet still looks solid.
Airspan Networks (AIRN) (1/20/02). Announces new range of 802.16 OFDM products.
VASCO Security (VDSI) (2/5/02). Signs new leading distributors in Germany, UK, Spain, France, Austria, Italy and Ireland. Comes out with pretty good quarterly revenue numbers and balance sheet looks better.
Argonaut (AGNT) (4/20/02). Quarterly figures a mixed bag, but balance sheet still appears healthy.
Diomed (DIO) (7/5/02). We’ve given up here, almost, as we place this one on the “Endangered List”.
Hemispherx (HEB) (7/5/02). Completes $4.14 million in private placement.
Generex (GNBT) (8/5/02). Reports details of studies for diabetes and prostate cancer treatments.
Viewpoint (VWPT) (11/20/02). Do we dare hope for this one that’s on the Endangered List? Company inked a new technology pact with AOL, so, perhaps there is a glimmer of light.
Interactive Intelligence (ININ) (12/5/02). To offer advanced speech recognition capabilities; patents pending. Quest will enhance disaster recovery capabilities using ININ technology. Receives Miercom’s NetWORKs As Advertised certification. New analyst rankings. Record revenue for 9-month period. Launches new IP Telephony product line. This one’s looking better.
Misonix (MSON) (5/20/03). First QT of FY2004 shows increased revenues and earnings versus a year ago, and balance sheet still looks very good.
Jacada (JCDA) (6/20/03). Reports very good 3rd QT with software license revenue up 25% and total revenue up 14% year-over-year; balance sheet still appears to be in very good shape.
Allos Therapeutic (ALTH) (6/20/03). Durus Life Sciences to settle claims with Allos.
Art Technology Group (ARTG) (8/5/03). Quarterly results disappointing; but balance sheet still looks to be healthy. Delivers new power to Dennis Kirk online channel.
Marimba (MRBA) (8/20/03). Introduces “Mirimba Six”. Turns a profit for a third quarter and balance sheet improves a little.
Targeted Genetics (TGEN) (10/5/03). 3rd QT results not bad and balance sheet seems to have strengthened.
MetaSolv (MSLV) (10/5/03). Quarterly numbers not good but not bad; balance sheet still looks okay.
Nuvelo (NUVO) (10/20/03). Quarterly numbers typical for a small biotech.
Our selections for this issue are two more small biotechs, both trading on NASDAQ.
INSMED, INC. (NASDAQ: INSM) – $3.05. Twelve-month hi-low has been $3.74 – 39 cents. Based in Glenn Allen, VA, with about 20 employees, this biotech has 38.3 million shares outstanding, $22.47 million in total current assets, $22.57 million in total assets, little debt, and $4.5 million in total liabilities. Institutional ownership is around 14%. http://www.insmed.com
Our two-year love affair with small biotechs is no secret and we have been gobbling them up like Halloween candy, particularly those like Insmed, Inc. that has an attractive balance sheet and some interesting proprietary technology. Trading on Nasdaq since 2000, Insmed focuses on developing drug candidates for treating metabolic diseases and endocrine disorders. The company hopes to correct these metabolic defects by replacing key regulatory molecules in physiologically relevant fashion. It currently has two product candidates in internal development, one of which was featured in BioWorld.
The first candidate, rhlGF-l/rhlGFBP-3, also known as SomatoKine, has received Orphan Drug Designation from the FDA and the EMEA in GHIS. This novel drug delivery composition of lGF-l regulates essential metabolic and anabolic (growth promoting) processes, including glucose and tissue regeneration. It is currently in clinical development for growth hormone insensitivity syndrome (GHIS) and both Type 1 and Type 2 diabetes. Insmed initiated a pivotal Phase 3 clinical trial for GHIS this past June.
Insmed’s other drug candidate is rhlGFBP-3, a biotherapeutic, that it is developing as an anti-tumor agent, i.e. for breast cancer. The appealing aspect of this drug is that it is a naturally occurring compound and may not possess the undesirable effects characteristic of most cancer therapies. The company expects to begin a clinical trial sometime in the first half of next year.
In July, Insmed reported that recent studies of SomatoKine exhibited single agent and/or combinatorial anti-tumor effects in three solid tumor models and no signs of toxicity were noted in these animal studies. Also, in July, the company raised $12 million in private placement of common stock through Wells Fargo Securities.
As we have said so often over the years, small biotechs usually have lousy P&L numbers and Insmed is no exception. For example, during the first six months of the FY, ending 6/30/03, revenues were $96,000 with $5.45 million in net losses. We suspect there is more here than meets the eye. Cancer treatments are still barbaric by most standards, but Insmed may have the potential therapies to make them more bearable. Wells Fargo may have had the same thoughts when it ponied up that $12 million.
Our 24-month target for the stock is $5.75 to $6.50.
For more information, contact INSM’s Baxter Phillips at 804-565-3041; bphillips@insmed.com
A.P. PHARMA, INC. (NASDAQ: APPA) – $2.35. Twelve-month hi-low has been $3.15 – 61 cents. Located in Redwood City, CA, with about 35 employees, this biotech has 20.6 million shares outstanding, $13.9 million in total current assets, $15.9 million in total assets, little debt, and $2.3 million in total liabilities. Institutional ownership is around 29%. http://www.advancedpolymer.com Yes, even another biotech! And we pick A.P. Pharma, Inc. for basically the same reasons we chose all those other small biotechs over the years: good-looking balance sheet and potentially money-making drug candidates. Also, APPA already garners revenues from treatments now in the marketplace.
Trading on Nasdaq for over ten years, A.P. Pharma is a specialty pharmaceutical company that develops prescription pharmaceuticals using its proprietary polymer-based drug delivery systems. The company’s focus is on developing and selling bioerodible injectable and implantable systems under the trade name Biochronomer; it has also developed a second family of polymers under the trade name of Bioerodimer. Targeted areas for APPA’s technologies include pain management; anti-inflammatory, oncology and ophthalmology applications; device coatings, and DNA delivery.
APPA’s main thrust is on advancing its Biochronomer platform, which is designed to release drugs over a period of hours, days, weeks or even months. These systems can be fabricated from solid strands to free-flowing gels which erode as they deliver the drug. The first Biochronomer product application, APF112, targets the market for post-surgical pain and is designed to minimize the use of morphine-like drugs which are used in the majority of surgeries to reduce pain. The company plans to soon initiate Phase 2 trials with APF112 for treating pain in patients following hernia operations.
The company currently funds its product development programs from cosmetic products, namely Retin A-Micro, which is used for treating acne – kids call it “zit cream”. APPA receives royalties from Ortho Neutrogena, the J&J company, which is the marketer of Retin-A Micro. APPA also gets royalties from Dermik Labs, an Aventis company, on sales of Carac, which is a topical treatment for Keratoses, a precancerous skin condition caused by overexposure to the sun. In September, the patent covering Carac was extended to 2021.
For FY2002, ending 12/31/02, revenue was $5.8 million with $3.8 million in net losses compared to FY01 revenues of $4.38 million and $2.52 million in losses. During the first six months of this FY, ending 6/30/03, revenue was $2.2 million with $1.93 million in losses.
Here is a small biotech, or biopharma, that is able to sit on both sides of the fence. It receives royalties from the sales of widely-used established products while developing new candidates that could have major potential in the future.
Our 20-month target for the stock is $4.00 to $5.00.
For more information, call APPA’s Gordon Sangster at 650-366-2626.
The November 20, 2003 issue should be posted on 11/17 or 11/18.
Thank you,
George