First a note on the markets: I want to be clear that the markets need to stabilize first but that once we rise up in the markets, we could easily get the opposite market reaction that we have now... that is to say that fear of losing on the long side could quickly turn to short-covering fear and fear of 'missing the rally'. While bull markets are often accompanied with greed and complacency bear markets are driven by fear BOTH when the market declines and when it goes up. Right now bulls are certainly scared and bears, while always worrying about a short-squeeze, may be getting complacent.
I used to try to fit the stock market into some kind of a scientific context based on fundamentals but I have learned in this market especially that you cannot underestimate sentiment. It is HUGE.
A stock may be cheap at 100 one day and expensive at 100 shortly thereafter. How does this work? The reason for this is that, as mentioned before, stocks value is comprised of two factors: intrinsic value and extrinsic value. Intrinsic value comprises of the dividend and recoverable book value. For most stocks this is close to zero. Extrinsic value is the value people are willing to pay because they think the stock will go up. This portion makes up the majority of stock price and is largely determined by sentiment. It is also determined by availability of money or in this case credit. I would really like to go into a very concise analogy of this on another post.
The point here is that once sentiment gets low enough and investors/traders keep taking long positions and getting stopped out people begin to believe that stocks won't appreciate. The extrinsic value drops... as does stock price...... until at one point the price drops so low that the extrinsic value, at least in the short-term, has nowhere to go but up. At that point any good news and reverse in sentiment drives up stocks because the extrinsic value has nowhere to go but up.
The way people feel right now I believe that we are nearing this situation. It is time to be on the lookout, in my opinion, for a turning point, for the market to rally on no news or poor news and sustain this for a bit, and to be ready to go with quality names and ideas for when a rally occurs. This is not to advocate buying early... but mostly staying neutral with ideas and cash ammo ready to go for when sentiment turns...
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Now for the original post..... HGSI CMED MYGN ALXN
HGSI
Just Reported earnings that beat expectations guided higher.
Upgraded by analysts
Yet the stock sold off with the medical names... overall market sentiment the key here
More on HGSI
Positives:
Gov contract for Abthrax
Exciting pipeline with phase III trials due this year for several of them
Partnerships with major Pharma
Reduction of Debt and increase in revenue
Low market cap for revenue potential
Negatives: Still has debt... normal for biotechs but an issue in this credit negative earnings but narrowing losses
High institutional ownership
Low inside ownership
Drugs:
Abthrax is better than a vaccine, which must be taken before exposure and requires booster shots or it will not protect. Better than antibiotics because antibiotics destroy the bacteria but once the toxin is in the blood it does no good. This is the first and only drug on the market that can defeat anthrax after the toxin is already in the body. Anthrax is lethal and a terrorist threat via inhalation. This drug uses antibodies (a type of protein) to block anthrax toxin's ability to destroy cells... hence saving lives... vaccines will also be used to prevent anthrax infection but only this drug can provide protection after exposure. Government contracts already signed.... helps with cash flow
Albuferon------- Hep C drug Albumin (protein) plus interferon (antiviral agent) combined . Goal is to attack chronic disease... HUGE global market for this. However, there is already a drug on the market that works differently and this may work better but the disadvantage is that interferon makes people feel terrible... is the drug more effective than current treatment and will it be adopted if it is? These are big questions but if the clinical trials prove very positive the drug could have a revenue base in the 750 to 800 million region according to analysts. Anticipation for the trials could be a catalyst in the proper market. Clinical phase III trial results due in March
Lymphostat B--------- Lupus drug Lupus is an autoimmune disorder. There is no viable treatment at the moment and the drug HGSI is presenting 'stops' -'stat' B lymphocytes (B cells). These produce antibodies (immune response). This drug specifically reduces the activity of B cells that create antibodies that attack the body (autoantibodies)... hence potentially reducing autoimmunity. Clinical Phase III trials are due in May and July (2 trials). Collaboration with Glaxosmithkline in place for distribution/marketing. 5 million people worldwide and 1.5 million in US could benefit if drug is safe/works Lymphostat B also being researched for other autoimmune disorders including Rheumatoid Arthritis Multiple Schlerosis
These trials are not as far along but have gone through phase 2... huge market
HGSETR1----------------------------- Apoptosis inducing anticancer drug HGSETR2----------------------------- Apoptosis inducing anticancer drug
Very exciting science... first one is in phase II clinical trials and second one in phase I ... uses the TRAIL antibody receptor pathway... Enormous potential... if work
Royalty payments from Glaxosmithkline Two drugs in Phase 3 clinical trials... if effective, royalty paid to HGSI
Darapladib---------------- Lipoprotein Associated Phospholipase 2 inhib... heart dz
Syncria------------------ Diabetes drug to control blood sugar and appetite. If effective reduces number of injections needed but would have to be substituted for current leader in the field (Byetta? )... not certain if this will happen but again clinical 3 trial data can always shake things up with stocks.
They have more drugs also under Glaxo but these are not at late stage clinical trials
Summary: We have a company with a market cap of 250 million with late stage clinical trial products that could yield revenue in the billions, or at least a billion, in the coming years if trials go well. The Abthrax provides guaranteed government spending. The company still has significant debt, though the numbers on yahoo are outdated, and is not generating positive cash flow at this time. Additionally, it is unclear whether the drugs in clinical trial will be effective and in some cases even if they are effective if they will supplant competitor's products. Still, with the kind of potential catalysts in place and the better balance sheet it has to be thought that the sell off to these levels was at least partly due to fear of insolvency (much less of a threat now than 6 months ago) and the overall market conditions. At these prices, an upturn in the market and/or any kind of positive news from the drugs could send these shares soaring.
Of course, any further talk of debt burden or major failure in clinical trials could hit this name... which is why it would be wise to book profits and use stop losses should you be in this stock and this name rise. Exciting co... and quite liquid... remember that this company has been around for a while by biotech standards and traded as high as 7 earlier this year and over 100 during the tech boom... biotech companies are probably the only ones that can have their stocks fall from 100 to 2 and still have tremendous prospects... please do your own DD if you are interested. I also want to disclose that I have a very small position long at this time and look to add more potentially
Additional Articles of Value
HGSI sees revenue surge and reduces cash burn
How Abthrax works video
Minyanv on the convertible bonds and the company
Syncria milestone pmnt
Novartis Hep C drug (designed by HGS) clears phase II clinical trials
CMED
I have been following this company for a long time. They sold HIFU and are now a pure diagnostics company. This is a very well run company with major ties to the best universities in China. They have always beat or matched earnings in the past and have had ridiculously good margins. The PEG is also unbelievable. Still the stock keeps getting sold off. Part of this is that many Chinese stocks have been sold. Another part may be that unlike medical care in the US many people pay out of pocket for care in China. Although the government is in the process of implementing broader health coverage it remains to be seen if the downturn in China will affect earnings of this company.
Long term this company, aong with Potash, Petrobras, Mastercard, and others remain among my favorites for secular growth. However, stocks are not companies and I do not advocate any long-term holds in this market... however... there may be some great short-term plays as long as earnings hold up and the market sentiment turns up... with CMED there may be a gem here but it may be a good idea to see how earnings look first.
Earnings are this Monday at 8am Eastern
MYGN
This Salt Lake City biotech company is acting like there is no recession. It keeps blowing away its earnings estimates and its stock has doubled over the past year. Like CMED it is a diagnostics company. It has some very important diagnostic tests and also has drugs in late stage clinical trials. The chart is starting to turn down from RSI 70 and may fill a gap... so it may be a good idea to wait for a better technical set up to go long here... actually from a purely technical standpoint it looks like a good short... though it is always risky and the best method may be to buy after pull back
ALXN
Nice revenue growth... worth a look... has only one major drug, Soliris, but that drug is the only one that is patented for PNH (as far as could be determined). I am not overly familiar with this company but I know a little bit about it. Good for future research.
"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.
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