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Hello Readers,
As we have often observed, these things seem to come in bunches as we closed another seven positions since the last Newsletter; five for some nice gains and two for losses.
EPOCH BIOSCIENCES (1/20/02). Closed position 9/25/03 at $3.68 for a 63% GAIN.
MECHANICAL TECHNOLOGY (3/5/02). Closed position 9/23/03 at $6.32 for a 104% GAIN.
TUTS SYSTEMS (9/5/03). Closed position 9/23/03 at $6.12 for a 75% GAIN.
MILLENNIUM CELL (9/20/02). Closed position 9/18/03 at $4.00 for a 70% GAIN.
SEQUENOM (6/5/03). Closed position 9/17/03 at $4.17 for a 57% GAIN.
RIGEL PHARMACEUTICALS (7/20/02). Closed position 9/17/03 at $14.08 for a 36% LOSS.
INSITE VISION (4/20/01). Closed position 9/17/03 at 67¢ for a 68% LOSS.
Last Thursday, 9/25, Epoch BioSciences made a huge run. At the time, we did not know why, until the next day. Seems there were high expectations for EBIO to snare a DOD contract, which never came through, but we’ll take the gain. Mechanical Technology went absolutely bonkers on news that it had formed an strategic alliance with Gillette. TUTS Systems, in the Current Portfolio for less than a month, made a nifty runup for reasons unknown, and with a 75% gain, we don’t care. We also haven’t a clue as to what drove Millennium Cell, which was in the Portfolio for exactly 364 days. News that Nuvelo had assigned patents to Sequenom gave the stock a nice boost over our 50% threshold. We thought it was time to close Rigel after it made a $4.00 run in a five-day span; too bad they did that 1 for 9 reverse split. As for Insite Vision, the stock never really caught an updraft from this current monster rally and so it was time for it to go.
In the last Newsletter, we cautioned about a possible pause or downturn, and it happened. Regardless of the reasons you heard as to why, there is only one logical one – people wanted to take some profits. Now, barring unforeseen global or domestic events, we sense that this October could become one of the best ever. Good to great earnings reports and better-than-expected economic numbers should pour even more fuel onto this fire.
Here are the headlines since the last Newsletter about companies in the Current Portfolio. Dates in parentheses are when we first recommended them.
DOR BioPharma (DOR) (9/20/00). Closes on $5.4 million private placement.
Arotech (ARTX) (6/5/01). Receives $405,000 in orders from California Highway Patrol and VA police. To offer backup power for emergency use. Will demonstrate zinc-air hybrid bus on 11/6/03. Electric bus program awarded new $1.5 million cost sharing funding from Federal Transit Administration. Signs letter of intent to acquire military battery company.
ViroLogic (VLGC) (7/20/01). UCLA study demonstrates utility of VLGC co-receptor tropism and replication capacity assays as predictors of HIV progression.
Orthovita (VITA) (12/20/01). Granted U.S. patent for catheter based minimally invasive delivery system for injection of restorative materials in bone repair.
Superconductor Technologies (SCON) (1/5/02). Files cross-appeal in ‘215 patent infringement lawsuit.
Airspan Networks (AIRN) (1/20/02). Grupo Sinos of Brazil selects AIRN’s wireless DSL technology. Company will deploy WipLL in Florida.
VASCO Security (VDSI) (2/5/02). Partners with Network Engines to create two-factor authentication solution.
Catalyst (CLYS) (3/20/02). Wins total solution provider award. Lowers total cost of ownership in Sargento Food’s supply chain. On “Endangered List”.
Generex (GNBT) (8/5/02). To present four research studies at Hong Kong symposium 10/3 -10/5. Granted European patent for “Aerosol Formulations for Buccal and Pulmonary Application”. Commences Phase 2 -B trial of Oralin.
Titan Pharma (TTP) (11/20/02). Claims Probuphine study yields positive results for treating opiate addiction. Announces results from study of Gallium Maltolate in patients with Advanced Paget’s Disease.
Jacada (JCDA) (6/20/03). Releases version 5.0 of Jacada Terminal Emulator.
Caliper (CALP) (7/5/03). Coverage initiated by UBS Piper Jaffray – better late than never.
Diedrich Coffee (DDRX) (7/20/03). FY2003 results not great but not bad.
Paradyne Networks (PDYN) (7/20/03). Announces special “Pizza Box” DSLAM offer.
Art Technology (ARTG) (8/5/03). Forms alliance with WHITTMANHART to offer portal and content publishing solutions to large and mid-size enterprises. Announces availability of ATG 6.1.
NIC (EGOV) (8/5/03). More press releases concerning Idaho, Maine, and Alabama.
Sunrise Telecom (SRTI) (9/20/03). Updates business outlook; sees 3rd QT sales between $11M – $12M.
Proton Energy (PRTN) (9/20/03). Stock got a nice lift when Arnold mentioned the company in his energy policy. Now, let’s see what happens to the stock if he gets elected.
Hauppauge Digital (HAUP) (2/5/01). Announces support for Microsoft’s Windows XP Media Center Edition 2004.
Our picks for this issue are another biotech and another software company, both trading on the NASDAQ.
TARGETED GENETICS CORP. (NASDAQ: TGEN) – $2.60. Twelve-month hi-low has been $4.43 – 25 cents. Located in Seattle, WA, with about 170 employees, this biotech has 58.4 million shares outstanding, $25.3 million in total current assets, $62.3 million in total assets ($31.6 million is goodwill), and $35.98 million in total liabilities of which $20.53 million is long-term debt. Institutional ownership is around 7%. One analyst rates the stock a “strong buy” and another as a “hold”. http://www.targen.com
Time to put another biotech into the Current Portfolio, and, from first appearances, the balance sheet on this one looks to be just plain ugly. However, we think that the number of patents owned by Targeted Genetics Corp. far outweighs their eye-popping debt figure.
Public since 1994, Targeted Genetics bills itself as a leader in developing gene therapy products and technologies for treating both acquired and hereditary diseases. The company’s product candidates are designed to treat diseases by correcting cellular function at a genetic level. This involves inserting genes into target cells and activating the inserted gene in a manner that provides the desired effect. TGEN focuses its product development efforts on treatments for diseases with significant markets such as cystic fibrosis, rheumatoid arthritis, and AIDS. TGEN carried out the first human clinical trials of what are known as AAV vectors, which is the company’s main technology platform and contain no viral genes, thus minimizing the probability of undesirable host cellular immune response. The company is also developing synthetic vectors which have different properties that make them the preferred vector for diseases in which short-term gene expression is desired.
To date, TGEN has over 350 patents and patent applications covering genes, viral and synthetic vectors, formulations, and use for therapy and processes for making and purifying vectors. A few weeks ago, Targeted Genetics received Deloitte and Touche’s Technology Fast 50 award. In August, biotech powerhouse Biogen pumped $4.5 million into TGEN through equity funding. TGEN also has collaborative pacts with Celltech, IAVI, and Wyeth.
TGEN is typical of a small biotech in that it has hefty losses, due mainly to R&D. For FY2002, ending 12/31/02, revenue was $19.33 million with $23.77 million in losses. During the first six months of this FY, ending 6/30/03, revenue was $7.69 million with $7.75 million in losses.
Biotech stocks have been sizzling for reasons too numerous to cite here, but a kinder and gentler FDA has been a main factor. TGEN has a vast arsenal of proprietary technology in the pipeline that is supported by some major biotechs. The stage seems to be nicely set for the stock to have a nice run.
Our 20-month target for the stock is $5.00 to $6.00.
For more information, call TGEN at 206-623-7612.
METASOLV, INC. (NASDAQ: MSLV) – $2.20. Twelve-month hi-low has been $2.89 – 83 cents. Based in Plano, TX, with about 650 employees, this software provider has 38.3 million shares outstanding, $83.19 million in total current assets, $122 million in total assets, little debt, and $41.83 million in total current liabilities. Institutional ownership is around 44%. Two analysts have the stock as “hold”. http://www.metasolv.com
Believe it or not, there still are some small tech stocks that appear to have more juice left in them, and one of those could be MetaSolv, Inc., which has nifty technology and a very good-looking balance sheet.
Founded in 1992, MetaSolv claims to be a leading global provider of operational support system (OSS) software solutions that help communications providers and businesses manage their next-generation communications networks and services. Traditional software systems have difficulty managing such complex services as high-speed data over next-generation technologies, as well as traditional voice and data services, delivered over a diverse network spanning multiple service providers. Basically, the company offers solutions to remedy these complexities. Its varied customer base includes Allegiance Telecom, ALLTEL, BellSouth, Brazil Telecom, British Telecom, Cable & Wireless, KVH (Japan), Mobilkom (Australia), Qwest, SBC, Saudi Telecom, Sprint, Verizon, and Vodafone.
Many of MetaSolv’s current solutions came from recent acquisitions. In February, 2002, the company bought certain OSS assets from Nortel, which extended its product portfolio so as to offer communications service providers a comprehensive suite of OSS solutions available for wireless, IP, data and traditional networks and services. Then, at the end of 2002, MSLV acquired London-based Orchestream, a leader in IP service activation software solutions for wireline and mobile carriers. This acquisition also extended its global customer base, adding such firms as Orange, France Telecom, and Sonera.
Recently, in September, BridgeCom selected MetaSolv’s Network Resource Management (NRM) solution for efficient delivery of IP-based services. Also, last month, Cox Communications extended its use of the same NRM capabilities to support advanced business communications services.
For FY2002, ending 12/31/03, revenue was $91.2 million with $66.8 million in losses (that’s a big ouch!), however, we suspect much of that loss stemmed from acquisitions cost. For the six months of this FY, ending 6/30/03, the red ink appears to be thinning with revenues of $42.95 million and $9.3 million in losses.
As we said above, this company seems to have a lot of juice left in it, and you have to like its balance sheet.
Our 20-month target for the stock is $4.00 to $4.50.
For more information, contact MSLV’s Ed Bryson at 972-543-5117; ebryson@metasolv.com
Look for the 10/20/03 issue to be posted on 10/16 or 10/17.
Thank you,
George