June, 2013 | Volume 33 – Issue 6 Smart Investors Must Learn What to Buy and What to Avoid Finding quality stocks that are selling at a good low price is a big reason why The CHEAP Investor has been so successful over the years. While the Buy Low/Sell High mantra makes sense, it goes against human nature to buy when everyone else is selling. Most investors want to be part of the pack buying the hot stock, which has just hit a new high and presumably is going higher. It takes courage to buy a stock when no one else seems to want it. However, that’s where our subscribers have made some very impressive profits. A key to successful investing is to specialize in one area, learning the characteristics of stocks that are good investments and those warning signs for stocks to avoid. Looking at both sides of the equation – the positive and negative factors – before buying can dramatically increase your profits and reduce your losses. We’ve written numerous editorials on what to look for when buying a stock. Now it’s time to learn the type of stocks to avoid. Several years ago we dabbled in some low-priced Chinese stocks. While they initially performed well, they started to fall when the SEC investigated irregularities. Since then we’ve avoided most foreign stocks, and that’s worked well for us. In November 2008, we decided to avoid OTC Bulletin Board and Pink Sheet stocks after analyzing how they performed and determining that they weren’t the best investments. Most are too undercapitalized and resort to selling more and more shares to stay in business. That dilutes shareholder value – just the opposite of what we want. Now the vast majority of stocks we recommend are listed on the NYSE, NYSE Mkt (formerly the AMEX) and NASDAQ stock exchanges. Our stock record since then has been exemplary. Another red flag is the potential for a reverse stock split. While we’ve seen a few that have worked, the majority are disastrous for investors. In most cases, the stock price will plunge 40 to 50% after a reverse stock split. All too often a company is forced into a reverse stock split because of NASDAQ’s rule that if a stock trades under $1 for about a year, the stock will have to either execute a reverse stock split to remain on the NASDAQ or be delisted to the OTC Bulletin Board. A couple months ago we reviewed a stock trading at $0.85 per share. It had been trading under $1 for about nine months and had 345 million shares outstanding – all the ingredients for a reverse split. We decided it was too risky. This past month it announced a one for three reverse split and it plummeted from $0.85 to about $0.38. This past month several of our stocks hit new 52-week highs. Supreme Industries (STS) was up 57% from our Buy in the December issue. Pain Therapeutics (PTIE) hit $5.57, up 111% from our January recommendation. DURECT (DRRX) shot up 126% from our July Buy to $1.85. Nautilus (NLX) is our superstar, soaring 465% from our buy in January 2012 at $1.54 to $8.70. EnterMedics (ETMC) moved up 33% from our buy last month. Bill Mathews
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June, 2013 | Volume 33 – Issue 6
Smart Investors Must Learn What to Buy and What to Avoid Finding quality stocks that are selling at a good low price is a big reason why The CHEAP Investor has been so successful over the years. While the Buy Low/Sell High mantra makes sense, it goes against human nature to buy when everyone else is selling. Most investors want to be part of the pack buying the hot stock, which has just hit a new high and presumably is going higher. It takes courage to buy a stock when no one else seems to want it. However, that’s where our subscribers have made some very impressive profits.
A key to successful investing is to specialize in one area, learning the characteristics of stocks that are good investments and those warning signs for stocks to avoid. Looking at both sides of the equation – the positive and negative factors – before buying can dramatically increase your profits and reduce your losses. We’ve written numerous editorials on what to look for when buying a stock. Now it’s time to learn the type of stocks to avoid.
Several years ago we dabbled in some low-priced Chinese stocks. While they initially performed well, they started to fall when the SEC investigated irregularities. Since then we’ve avoided most foreign stocks, and that’s worked well for us.
In November 2008, we decided to avoid OTC Bulletin Board and Pink Sheet stocks after analyzing how they performed and determining that they weren’t the best investments. Most are too undercapitalized and resort to selling more and more shares to stay in business. That dilutes shareholder value – just the opposite of what we want. Now the vast majority of stocks we recommend are listed on the NYSE, NYSE Mkt (formerly the AMEX) and NASDAQ stock exchanges. Our stock record since then has been exemplary.
Another red flag is the potential for a reverse stock split. While we’ve seen a few that have worked, the majority are disastrous for investors. In most cases, the stock price will plunge 40 to 50% after a reverse stock split. All too often a company is forced into a reverse stock split because of NASDAQ’s rule that if a stock trades under $1 for about a year, the stock will have to either execute a reverse stock split to remain on the NASDAQ or be delisted to the OTC Bulletin Board. A couple months ago we reviewed a stock trading at $0.85 per share. It had been trading under $1 for about nine months and had 345 million shares outstanding – all the ingredients for a reverse split. We decided it was too risky. This past month it announced a one for three reverse split and it plummeted from $0.85 to about $0.38.
This past month several of our stocks hit new 52-week highs. Supreme Industries (STS) was up 57% from our Buy in the December issue. Pain Therapeutics (PTIE) hit $5.57, up 111% from our January recommendation. DURECT (DRRX) shot up 126% from our July Buy to $1.85. Nautilus (NLX) is our superstar, soaring 465% from our buy in January 2012 at $1.54 to $8.70. EnterMedics (ETMC) moved up 33% from our buy last month.
Bill Mathews
The Cheap Investor Newsletter – June 2013 2
Synacor, Inc NASDAQ Stock Symbol – SYNC Price: $3.59
Synacor, Inc. provides startpages, TV Everywhere solutions, Identity Management services, and various cloud-based services for cable, satellite, telecom, and consumer electronics companies in the United States, the United Kingdom, and the Netherlands. The Company also offers authentication and aggregation solutions for the delivery of online content. Its technology facilitates customers to package online content and services with their high-speed Internet, communications, television, and other offerings. The Company’s startpages features comprise startpage design and development, unified registration and login, billing integration, personalization, video delivery capability, content management system, household management, toolbar, and television listings. It also provides search and display advertising services.
In addition, Synacor offers subscriber-based services, including email and calendar solutions; security services, such as anti-virus, firewall and intrusion detection, pop-up blocker, parental controls, and automatic updates; TV Everywhere that enables subscribers to watch free television online or utilize its authentication functionality to authorize them to watch television online; and variety package that combines content from various Internet subscription and entertainment products into a single package. Further, its subscriber-based services also comprise sports plus package, which combines access to various sports-related content providers; portable and non-portable music services, including download-to-own, download-to-rent, and streaming music from its content providers’ libraries; games and GamesSomnia package that includes subscriptions to online gaming services and gaming-related news sources; and Learning Edge package that combines various educational products.
Synacor has certainly been a volatile stock in its short existence as a public company. It went public in February 2012 at $6.00. The price fell to $4.75 and soared to $18 by July 2012. Since then the price has fallen to a low of $2.58. Insiders own about 65% of the total 27.2 million shares outstanding, and 60 institutions own about 13% of the float. The Company has good financials with $40.1 million ($1.47 per share) in cash, a book value of $1.89 and total debt of $3.2 million. The major negative is revenues and earnings are in a downward trend. The Company’s results for the first quarter ended March 31 are shown below.
Buy Recommendation
First Quarter 2013 2012 Revenues $29,143,000 $30,670,000
Net Income 27,000 1,174,000
Net Income Per Share --- 0.07
Weighted Avg. Shares Outstanding - Basic 27.2 Million
"We are pleased that we delivered on our expectations for the first quarter," said CEO Ron Frankel. "I am excited about both our customer and product pipelines. From a new customer perspective, our pipeline has never been stronger, and we are beginning to invest in the requisite resources to win and deliver. We are also strengthening our positioning in the mobile space with new products we will be launching throughout this year and next. We remain confident in the long-term prospects for the company as we transition through 2013."
Synacor, Inc.
The Cheap Investor Newsletter – June 2013 3
Based on information available as of May 7, 2013, the company is providing financial guidance for the second quarter and fiscal 2013 as follows:
Q2 2013 Guidance: Revenue for the second quarter of 2013 is projected to be in the range of $26.5 million to $27.5 million. For the second quarter of 2013, the company expects to report adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization) of $0.8 million to $1.2 million.
Fiscal 2013 Guidance: Revenue for the full year of 2013 is projected to be in the range of $122.0 million to $126.0 million. For the full year of 2013, the company expects to report adjusted EBITDA of $8.0 million to $10.0 million.
On May 14, the Company announced it will demo Cloud ID Social Login with Google+ and advanced TV Everywhere technologies in the Developer Sandbox at Google I/O, May 15-17, Moscone West Convention Center in San Francisco, Calif. Developers and technologists will discuss with Synacor how Social Login, recently named as a TMC Cable Spotlight Product of the Year, was built to break down TV Everywhere barriers, and how they can integrate similar technologies for their customers.
"See you in the Sandbox! Synacor couldn't be more proud than to accept Google's invitation to demo our Cloud ID Social Login and TV Everywhere innovations during Google I/O 2013," said Michael Bishara, Vice President and General Manager of TV Everywhere, Synacor. "And we're excited Synacor's kiosk will display the special designation Google+ Badge, as we leverage the Google+ platform in our Social Login capability for consumers to access their favorite pay-TV shows, movies, music and more, providing a fun, friction-free TV Everywhere experience."
Having been an industry first, Social Login gives Synacor customers the flexibility to offer subscribers access to online pay-TV content with their favorite social accounts, like Google+, Facebook and Twitter, while simultaneously authorizing with the subscriber's pay-TV provider or billing account. Through the award-winning Cloud ID Management Platform, Synacor brings the convenience of Social Login to TV Everywhere consumers with the trust of entitlement verification for TV authorization. Additionally, TV Everywhere users have the option to install their MVPD's TV Everywhere Android app over-the-air after they sign in with Google+, making it more convenient than ever to access content wherever they are.
Synacor is a speculative, low-priced stock that has some interesting technology and a good balance sheet. The stock certainly has the potential of moving at least 50% just because it’s so volatile. If the Company turns around its revenues and earnings, the stock could move significantly higher. Synacor could also be an acquisition target. The stock can be followed daily through Internet quote services. For more information contact: Synacor, Inc., 40 La Riviere Drive, Suite 300, Buffalo, New York 14202 or call 716-853-1362. The fax number is 716-332-0081. The Website: http://www.synacor.com.
AVEO Pharmaceuticals, Inc. NASDAQ Stock Symbol – AVEO Price: $2.38
AVEO Pharmaceuticals, Inc., operates as a cancer therapeutics company. The Company engages in discovering, developing, and commercializing targeted cancer therapies using its Human Response Platform. Its principal product candidate is tivozanib, for which AVEO has filed a new drug application with the U.S. Food and Drug Administration (FDA) as a proposed indication for the treatment of patients with advanced renal cell carcinoma (RCC).
The Company’s product pipeline also comprises TAURUS, which is in a Phase II clinical study for the treatment of RCC. In addition, its product pipeline includes Biomarker Assessment of Tivozanib in ONcology program, such as BATON-RCC, a Phase II exploratory biomarker study in patients with advanced RCC; BATON-CRC, a Phase II clinical trial for the first-line therapy in patients with advanced metastatic colorectal cancer; and BATON-BC, a Phase II clinical trial for the treatment of patients with locally recurrent or metastatic triple negative breast cancer.
Further, the Company has a pipeline of monoclonal antibodies, including Ficlatuzumab, a hepatocyte growth factor inhibitory antibody, which is in Phase II clinical stage for the treatment of non-small cell lung cancer; and AV-203, a monoclonal antibody that targets the ErbB3 receptor and is in Phase I clinical trial for the treatment of solid tumors. AVEO Pharmaceuticals, Inc. has strategic partnerships with Merck & Co., Inc; OSI Pharmaceuticals, Inc.; Kyowa Hakko Kirin; Astellas Pharma Inc.; and Biogen Idec, Inc.
AVEO Pharmaceuticals was an IPO (Initial Public Offering) in March 2010, when the Company sold 9 million shares raising $81 million. By December 2011, the price shot up to a high of $17.20. More recently it’s been trading between $5 and $8. On May 2, AVEO Pharmaceuticals received negative news on its kidney drug, tivozanib, causing the price to plunge from a close on April 21 of $8.27 to a low of $2.66 on May 2. With the price so low, we decided to take a look at AVEO.
The Company has an excellent balance sheet with $192 million ($3.88 per share) in cash, a book value of $2.86, and debt of just $26 million. Insiders own about 6% of the 49.3 million total shares outstanding, and 101 institutions own 72% of the float (shares in public hands). Institutions have purchased 9.6 million more shares than they sold for the quarter ended March 31, 2013. Much of that buying was in January, when the
Company sold 7.6 million shares at $7.50 per share in an AVEO public offering. Buy Recommendation
The major negative is the FDA news that caused the stock to plunge. In addition, there are several shareholder lawsuits, which is not unusual for a company that has a large amount of cash when its stock price plunges.
The news that caused the price to plummet was the announcement on May 2 that the FDA’s Oncologic Drugs Advisory Committee (ODAC) voted that the application for investigational agent tivozanib did not demonstrate a favorable benefit-to-risk evaluation for the treatment of advanced renal cell carcinoma (RCC) in an adequate and well-controlled trial (13 to 1, 0 abstentions).
On May 23, after the stock market closed, AVEO announced in an 8K filing with the SEC that, “May 17, 2013 AVEO Pharmaceuticals, Inc. (the Company) was informed by its partner, Astellas Pharma Inc., that Astellas no longer intends to submit a Marketing Authorization Application to the European Medicines Agency for tivozanib for the treatment of patients with advanced renal cell carcinoma. Astellas also informed the Company that is does not intend to fund any future trial(s) in RCC under its strategic collaboration with the Company.
“The Company is currently evaluating the effect of Astellas’ decision on the clinical and regulatory path forward for tivozanib in RCC.”
After this announcement, the stock fell and closed at $2.38 in aftermarket trading. This news certainly makes the stock more speculative. AVEO Pharmaceuticals is the typical development-stage biotech. It has little revenues ($323,000) and a large loss ($33.5 million) for the quarter ended March 31, 2013. However, this small biotech does have some interesting products in FDA trials and licensing agreements with several major pharmaceutical companies. We also like the large amount of institutions that have been buying shares at much higher prices.
We think the stock has the potential to move at least 50% over the next year or two. It could move significantly higher if positive news is released about any of its drug candidates as they complete the various FDA trials on the way to bringing the drug to market.
AVEO Pharmaceuticals, Inc.
The Cheap Investor Newsletter – June 2013 5
The stock can be followed daily through Internet quote services. For more information contact: AVEO Pharmaceuticals, Inc., 75 Sidney Street, Cambridge, Massachusetts 02139 or call 617-299-5000. The fax number is 617-995-4995. The Website: http://www.aveopharma.com.
DURECT Corporation NASDAQ Stock Symbol – DRRX Price: $0.89
DURECT Corporation, a specialty pharmaceutical company, develops pharmaceutical systems technologies based on its proprietary drug delivery technology platforms. It focuses on the development of products for the treatment of various chronic and episodic disease areas, such as pain, central nervous system disorders, cardiovascular disease, and other chronic diseases. The company manufactures and sells ALZET osmotic pumps used in laboratory research; and a range of LACTEL standard and custom biodegradable polymers and excipients used as raw materials for pharmaceutical and medical device clients.
Its product pipeline includes REMOXY, an oral oxycodone gelatin capsule for chronic pain, which has received a complete response letter from the U.S. Food and Drug Administration (FDA); POSIDUR, a Phase III clinical trial release formulation of bupivacaine for the treatment of post-surgical pain; ELADUR, a Phase II transdermal bupivacaine patch intended to provide delivery of bupivacaine; and TRANSDUR, a Phase II transdermal sufentanil patch intended to provide delivery of sufentanil.
The Company’s products pipeline also comprises ORADUR-based opioids, including hydrocodone and hydromorphone for the treatment of pain, which are in Phase I clinical trial; oxymorphone, an ORADUR-based opioid for which IND has been accepted by the FDA; ORADUR-ADHD, a drug candidate in Phase I clinical trial for the treatment of attention deficit hyperactivity disorder; and Relday, an injectable risperidone product in Phase I clinical trial used to treat the symptoms of schizophrenia and bipolar I disorder. It is also involved in developing various biologics programs/research programs in other therapeutic categories. DURECT Corporation has strategic agreements with Hospira, Inc., Nycomed Danmark ApS; Pain Therapeutics, Inc.; Zogenix, Inc.; and Pfizer Inc.
Buy Recommendation
Recommended in the July 2012 issue at $0.82, and this past month DURECT hit a recent high of $1.85 (+126%). The stock had a wild ride with its REMOXY product. On April 30, its partner, Pfizer (PFE), announced it was in talks with the US health regulators to find a way forward on the Companies’ painkiller REMOXY. In response DURECT’s price soared from $1.26 to a new high of $1.85. Then on May 10, Pfizer announced it may not pursue further development of REMOXY, and the price plunged that day from $1.59 to close at $1.05. It continued to fall to its current $0.89 level.
DURECT is a very speculative development-stage biotech stock. As such, it has little revenues and large losses. For the first quarter ended March 31, DURECT had revenues of $4.2 million with a loss of $5.2 million.
Insiders own 15% of the 101 million total shares outstanding, and 61 institutions own 45% of the float. The Company has a fair balance sheet with $24.5 million ($0.25 per share) in cash, a book value of $0.33 per share and no debt. The negative factor is the price is still in a downward trend, and the Company has a small cash position.
“We were pleased to announce on April 16 that we had submitted the New Drug Application (NDA) for POSIDUR™ and look forward to the FDA's review," stated James E. Brown, D.V.M., President and CEO of DURECT on May 2. "The FDA's recent decisions to allow updated labeling for opioids that demonstrate abuse-deterrent properties and not to allow generics against the original OxyContin® are positive developments for REMOXY®. Pfizer recently stated that they had a productive meeting with the FDA in late March and we note the recent additional patent issuance extending coverage of REMOXY in the U.S. to at least 2031. Another positive event during the first quarter was our collaborator Zogenix reporting positive results from the Relday™ Phase 1 study and rapid expansion of that study to include a higher dose, which today also reported positive results."
DURECT is a speculative, low-priced biotech with several drug candidates in FDA trials. There is a lot of information on the Company, so make sure you read recent news releases before buying the stock. The main negative is the Company’s cash position, and with the stock selling under $1 and 101 million shares outstanding, there’s always a chance of a reverse stock split. Despite these negatives, we think DURECT has the potential to move at least 50% from this low point over the next year. Good news on any of its FDA drug trials could send the stock significantly higher.
The stock can be followed daily through Internet quote services. For more information contact: DURECT Corporation, 10260 Bubb Road, Cupertino, California 95014-4166 or call 408-777-1417. The fax number is 408-777-3577. The Website: http://www.durect.com.
EnviroStar, Inc. NYSE Mkt Stock Symbol – EVI Price: $1.57
EnviroStar, Inc. distributes commercial and industrial laundry equipment, dry cleaning equipment, and steam and hot waters boilers in the United States, the Caribbean, and Latin America. It also supplies replacement parts and accessories, as well as provides maintenance services. The company distributes commercial and industrial laundry equipment, such as washers and dryers, tunnel systems, and coin-operated machines; finishing equipment, including sheet feeders, flatwork ironers, automatic sheet folders, stackers, and rail systems, and hot water/steam systems; dry cleaning machines comprising garment presses, finishing equipment, sorting and storage conveyors, and accessories; and boiler products consisting of low emission steam boilers, steam systems, and hot water systems that are used in the laundry and dry cleaning industry for temperature control, heating, pressing, and de-wrinkling, as well as in the healthcare industry, food and beverage industry, and other industrial markets for sterilization and product sealing.
In addition, it owns the worldwide rights to the name DRYCLEAN USA, which the Company franchises and licenses to retail drycleaners. EnviroStar, Inc. sells its commercial and industrial laundry equipment and boilers to laundry plants, hotels, motels, cruise lines, hospitals, hospital combines, nursing homes, government institutions, distributors, and specialized users; and dry cleaning equipment to independent and franchise dry cleaning stores, chains, and higher-end hotels.
We are recommending to buy EnviroStar because the Company has a good balance sheet with $6.2 million ($0.90 per share) in cash, a book value of $0.36 per share and no debt. Insiders own about 69% of the 7
million total shares outstanding and 7 institutions own about 1% of the float. The negative factor is this little-known stock does not trade many shares, so don’t chase the stock.
EnviroStar’s results for the third quarter and nine-month periods ended March 31 are shown below.
Buy Recommendation
Fourth Quarter Year End 2012 2011 2012 2011 Revenues $6,580,694 $5,119,488 $19,539,517 $16,409,609
Net Earnings 249,887 73,684 526,881 322,578
Net Earnings per Share 0.04 0.01 0.07 0.05
Avg. Shares Outstanding 7 Million
Venerando J. Indelicato, Chief Financial Officer of EnviroStar Inc., stated, “Due to customer delays in obtaining governmental construction permits, only a small portion of the Company’s scheduled backlog was shipped during the first nine months of fiscal 2013. Despite these delays, the Company managed to achieve increased revenues and profits for both periods when compared to last year. However, we are pleased to announce that these construction permits were finally obtained in early April 2013 and therefore, shipments have begun and are scheduled to be substantially completed before the end of our fiscal year.”
EnviroStar is one of the leaders in the its industry, and it reported good growth in its revenues and earnings. If the Company continues its growth trend, the stock has the potential to move at least 50% over the next year or so. With a market cap of only $11 million it could be an acquisition candidate.
The stock can be followed daily through Internet quote services. For more information contact: EnviroStar, Inc., 290 N.E. 68th Street, Miami, Florida 33138 or call 305-754-4551. The fax number is 305-751-4903. The Website: http://www.drycleanusa.com.
Nautilus, Inc. NYSE Stock Symbol – NLS Price: $7.90
Nautilus, Inc. is a global fitness products company providing innovative, quality solutions to help people achieve a healthy lifestyle. With a brand portfolio including Nautilus ®, Bowflex ®, TreadClimber ®, Schwinn ®, Schwinn Fitness™ and Universal ®. Nautilus markets innovative fitness products through Direct and Retail channels.
Nautilus continues to be one of our more successful stocks because the Company grows its revenues and earnings each quarter. This past month, Nautilus’ stock hit a new 52-week high of $8.70. That’s +465% from our $1.54 buy in January 2012, and +239% from our $2.52 buy in October 2012. The price hit its new high after Nautilus released excellent first quarter financials for the period ended March 31, as shown below.
Update – Do Not Buy
First Quarter 2013 2012 Net Sales $59,214,000 $51,262,000
Net Income 5,159,000 2,522,000
Net Income Per Share 0.17 0.08
Avg. Shares Outstanding 30.9 Million
Bruce M. Cazenave, Chief Executive Officer, stated, “We are pleased to report a solid start to fiscal 2013. We continued to build on the strong momentum established last year and delivered strong growth in revenue, gross margin, and profitability in the first quarter this year. Our Direct business continued to perform very
well, reflecting both the steady growth of our existing products, as well as the initial success of our new products, including the Bowflex® UpperCut™. As anticipated, our Retail business was impacted by the continued soft overall Retail environment for fitness equipment. Given the recent margin and sales challenges we have faced in Retail, we are encouraged by the margin improvement in the first quarter. As previously communicated, we have been focused on the development and successful placement of a new lineup of cardio products for shipment during the next Retail planning and sales cycle starting this fall. These products appear to be receiving a favorable reception thus far, although it is much too early to determine to what extent preliminary indications may lead to improvement in Retail results.”
Mr. Cazenave continued, “The business is achieving momentum and is beginning to realize the financial benefits from our team’s successful execution on key areas of focus, including establishing an expanded and more diversified product portfolio and improving gross margins. In order to further expand consumer awareness of our most recently launched products, we will continue to prudently invest in our sales and marketing efforts with a constant eye on building a strong foundation for continued long-term profitable growth. ”
The Company ended the first quarter of 2013 in a strong financial position. As of March 31, 2013, Nautilus had cash and cash equivalents of $28.7 million and no debt, compared to cash and cash equivalents of $23.2 million and no debt at year end 2012. Working capital was $31.1 million as of March 31, 2013, compared to $25.4 million at year end 2012. Inventory as of March 31, 2013 was $13.7 million, compared to $18.8 million as of December 31, 2012 and $13.5 million at the end of the first quarter of 2012. The Company tightly manages inventory levels, and the reduction in the first quarter was planned and reflects the seasonal nature of its business.
We like Nautilus for the longer term, and if the Company continues to grow its revenues and earnings, the price should move up accordingly. Investors should consider taking some profits off the table, or at least entering a stop loss to protect profits.
The stock can be followed daily in some major newspapers or through Internet quote services. For more information contact: Nautilus Inc., 17750 SE 6th Way, Vancouver, Washington 98683 or call 360-859-2900. The fax number is 360-694-7755. The Website: http://www.nautilusinc.com.
Pain Therapeutics, Inc. NASDAQ Stock Symbol – PTIE Price: $2.86
Pain Therapeutics, Inc., a biopharmaceutical company, develops novel drugs. Its lead drug candidate is REMOXY (oxycodone) Extended-Release Capsules CII, an investigational drug with a controlled release formulation of oxycodone for patients with moderate-to-severe chronic pain. (REMOXY is licensed from DURECT Corporation (DRRX). The Company’s other product candidates comprise hydromorphone, hydrocodone, and oxymorphone, which are abuse-resistant opioid product candidates. Pain Therapeutics, Inc.
has strategic alliance with Pfizer, Inc. Update – Buy at Lower Price
Pain Therapeutics was recommended in the January issue at $2.64 and this past month the stock hit a new high of $5.57 or +111%. On April 30, its partner, Pfizer (PFE), announced it was in talks with the US health regulators to find a way forward on the Companies’ painkiller REMOXY. In response Pain Therapeutics’ price soared from $3.27 to a high of $5.57. Then on May 10, Pfizer announced it may not pursue further development of REMOXY, and the price plunged that day from $5.32 to close at $2.68.
Durect developed REMOXY and licensed it to Pain Therapeutics. Pfizer now holds a sublicense from Pain Therapeutics. Pain Therapeutics and Durect said Friday that Pfizer has told them it is evaluating its options on the drug, and if it decides to continue development, it will not file a new marketing application with the Food
and Drug Administration until mid-2015 at the earliest.
We continue to like Pain Therapeutics because it has a decent cash position of $54.3 million ($1.20 per share). The main reason we are not recommending the stock right now is because REMOXY is Pain Therapeutics’ major product in FDA Phase III trials. The other three drug candidates are in FDA Phase I trials. We would hold off buying the stock until the price falls to the $2 level.
The stock can be followed daily through Internet quote services. For more information contact: Pain Therapeutics Inc., 7801 N Capital of Texas Highway, Suite 260, Austin, Texas 78731 or call 512-501-2444. The fax number is 512-614-0414. The Website: http://www.paintrials.com.
Richmont Mines, Inc. NYSE Mkt Stock Symbol – RIC Price: $1.77
Richmont Mines has produced over 1.3 million ounces of gold from its operations in Quebec, Ontario and Newfoundland since beginning production in 1991. The Corporation currently produces gold from the Island Gold Mine in Ontario and the Beaufor Mine in Quebec and is advancing two gold projects, the W Zone project and the Monique Gold project. With extensive experience in gold exploration, development and mining, the Corporation is well positioned to cost-effectively build its Canadian reserve base through a combination of organic growth, strategic acquisitions and partnerships.
We recommended Richmont Mines in the March issue at $2.59. We thought it was an interesting speculation since its price has fallen from $12.50 a year ago. Unfortunately gold prices continued to fall and so has the stock. The Company reported disappointing financial results, which is not surprising considering gold prices.
The results for the first quarter ended March 31 are shown below. Update – Buy at Lower Price
First Quarter 2013 2012 Revenues $23.398,000 $28,104,000
Net Earnings (Loss) (2,240,000) 2,030,000
Net Earnings (Loss) Per Share (0.06) 0.06
Avg. Shares Outstanding 39.6 Million
Mr. Paul Carmel, President and CEO of Richmont Mines commented: “Our 2013 budget was calling for a modest first half and stronger second half with increased forecast grades at our mines. As such, our first quarter results are essentially in line with our expectations, with the exception of higher costs at our Beaufor Mine that were due to lower than expected grades. To rectify this, we will be looking at adding a second shift in several higher grade room and pillar stopes to increase production from those areas. Our W Zone and Monique Gold projects are both on time and on budget, and we expect to be milling bulk samples from both these projects at our Camflo Mill during the second quarter. Our Island Gold operation was similarly on budget in the first quarter, and we are pleased to announce that we have begun the Island Gold Deep ramp with a view to accessing the C Zone in the fourth quarter of 2014.”
He continued: “In light of the current gold price environment, a review of our capital allocation programs is being carried out with a focus on prudent cash management and maintaining our sound financial position. To this end, we are in the fortunate position of having flexibility when it comes to the ongoing development of our Island Gold Deep project. Specifically, we are able to significantly lower our capital budget for this project from $35 million to $17 million in 2013.”
After reviewing the Company’s disappointing financials and the continuing downward trend in gold prices, we think Richmont will get cheaper. We would be a buyer if the price fell to the $1.20 to $1.25 level after we review the Company.
The stock can be followed daily through Internet quote services. For more information contact: Richmont Mines Inc., 161 Avenue Principale, Rouyn-Noranda, QC J9X 4P6, Canada or call 819-797-2465. The fax number is 819-797-0166. The Website: http://www.richmont-mines.com.
EnteroMedics, Inc. NASDAQ Stock Symbol – ETRM Price: $1.08
EnteroMedics is a medical device company focused on the development and commercialization of its neuroscience based technology to treat obesity and metabolic diseases. EnteroMedics' proprietary technology, VBLOC® vagal blocking therapy, delivered by a pacemaker-like device called the Maestro® Rechargeable System, is designed to intermittently block the vagus nerves using high-frequency, low-energy, electrical impulses. VBLOC allows people with obesity to take a positive path towards weight loss, addressing the lifelong challenge of obesity and its co-morbidities without sacrificing wellbeing or comfort. EnteroMedics' Maestro Rechargeable System has received CE Mark and is listed on the Australian Register of Therapeutic
Goods. Update – Buy at Lower Price
We issued a buy recommendation last month at $0.85 and EnteroMedics had a nice one-month move up to $1.13 (+33%). The price shot up because the Company announced it completed a pre-PMA (Premarket Approval) application meeting with the U.S. Food and Drug Administration (FDA) on May 15, 2013 regarding the Maestro® Rechargeable System's VBLOC® vagal blocking therapy as a treatment for obesity. In the meeting, the FDA indicated that, subject to acceptance of the application and validation and detailed review of the submitted data by the FDA, the Company can anticipate presenting the PMA before a future FDA Advisory Committee panel. The Company expects to submit a PMA for the Maestro Rechargeable System, based on the ReCharge Pivotal Trial, in the second quarter of 2013.
"We had a very open and productive meeting with the FDA and look forward to submitting our PMA, as anticipated, this quarter," said Mark B. Knudson, Ph.D., EnteroMedics' President and Chief Executive Officer.
EnteroMedics also released first quarter financials. It’s a typical development-stage company with no revenues. For the three months ended March 31, 2013, the Company reported a net loss of $6.6 million, or $0.14 per share. Research and development expenses were $2.7 million and general and administrative expenses were $3.6 million. Operating expenses were primarily associated with the cost of supporting multiple ongoing clinical trials, including the ReCharge Study, the Company's international commercialization efforts, and the continued development of VBLOC® vagal blocking therapy delivered through its Maestro® Rechargeable System. On March 31, 2013, the Company's cash, cash equivalents, restricted cash and short-term investments totaled $29.6 million.
"EnteroMedics remains well funded to support our regulatory efforts for commercialization of the Maestro ReChargeable System in the United States, with a PMA application on track to be submitted to the Food and Drug Administration in the second quarter of 2013," said Greg S. Lea, Senior Vice President, Chief Financial Officer and Chief Operating Officer. Mr. Lea noted, "In addition to our focus on US regulatory milestones, we continue to advance our ex-US strategy by pursuing reimbursement in Australia and applying to strengthen our CE Mark in Europe to include diabetes and hypertension. Our current cash, which includes a financing completed in the first quarter, gives us the necessary resources to execute on these pivotal regulatory and commercialization activities into 2014."
We like EnteroMedics for the longer term and would be a buyer if the price fell back to the $0.85 level. The stock can be followed daily through Internet quote services. For more information contact: EnteroMedics Inc., 2800 Patton Road, St Paul, Minnesota 55113 or call 651-634-3003. The fax number is 651-634-3212. The Website: http://www.enteromedics.com.
DARA Biologicals, Inc. NASDAQ Stock Symbol – DARA Price: $0.70
DARA is a specialty pharmaceutical company focused on the development and commercialization of oncology treatment and supportive care products. In June 2012, DARA launched its first product, Bionect®, a topical treatment for skin irritation and burns associated with radiation therapy. DARA increased its focus in oncology through its January 2012 acquisition of Oncogenerix, Inc., which holds the exclusive U.S. marketing rights to Soltamox®, a novel oral liquid formulation of tamoxifen citrate, which is widely used in the treatment and prevention of breast cancer. Update – Do Not Buy
DARA is also developing a cancer-support therapeutic compound, KRN5500, for the treatment of chronic chemotherapy-induced peripheral neuropathy (CCIPN) in patients with cancer. This product is an excellent fit with DARA's strategic oncology focus, has successfully completed a Phase 2a clinical trial, and has been designated a Fast Track Drug by the FDA.
Recommended in the September issue at $0.69, the stock doubled to $1.38. Since the price has fallen back to the $0.70 level, we wanted to take another look. We found that for the first quarter ended March 31, 2013, DARA reported a net loss attributable to controlling interest of ($2,522,588), or ($0.11) per share as compared to a net loss attributable to controlling interest of ($1,983,876), or ($0.29) per share for the first quarter ended March 31, 2012. The increase in loss was primarily a result of the costs incurred in the establishment of a sales and marketing, distribution and regulatory infrastructure to support the promotion of the Company's oncology and oncology supportive care products offset by a decrease in general and administrative expenses primarily as a result of a reduction in audit and tax fees as well as the absence of merger related costs in the first quarter of 2013. As of March 31, 2013, cash and cash equivalents totaled $7,299,984.
DARA believes that its currently available funds, together with projected sales of Soltamox®, Gelclair® and Bionect® in 2013 will enable the Company to fund its planned operations and to meet its obligations through December 31, 2013.
David J. Drutz, MD, chief executive officer and chief medical officer stated, “The past year has been one of transition and integration of the new team in implementing our new strategy, building a commercial infrastructure and launching three FDA-approved products: Bionect, Soltamox and Gelclair. Our first quarter sales results for Soltamox were disappointing, but we believe we understand why we didn't achieve better results and have taken immediate action in making the necessary adjustments to ensure we achieve the expectations we have for this product. Importantly, the adjustments we are making to our Soltamox sales and marketing plan have the potential to positively impact the performance of our other supportive care programs. In fact, early signs indicate good initial uptake for Gelclair which was launched in late April. We believe there is a significant market opportunity for each of our three products as well as longer-term growth opportunities to in-license additional supportive care products.”
In May, 2010, the Company executed a 1 for 16 reverse stock split. On March 31, 2012, it had 6.8 million shares. By September 2012, when we issued our buy recommendation, the shares had grown to 10.1 million. However in the last six months those shares have ballooned to 23 million. With the stock selling under $1 per share, the Company could be forced to execute another reverse stock split to remain listed on the NASDAQ.
Even though we like DARA and its products, we don’t like the huge increase in shares outstanding. At this time we would not buy more shares. We will continue to monitor the Company’s situation.
The stock can be followed daily through Internet quote services. For more information contact: DARA BioSciences, Inc., 8601 Six Forks Road, Suite 160, Raleigh, North Carolina 27615 or call 919-872-5578. The fax number is 919-861-0239. The Website: http://www.darabiosciences.com.
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