Month: June 2013

By Profit Confidential

Back in April, I said gold was looking bad on the chart and that as long as the stock market continued to advance higher, the prospects for gold were dim. (Read “Is Gold’s Near-Death Crisis Over-Exaggerated? Concerns of a Market Meltdown May Not Be.”)

Fast-forward two months, and while stocks have been in a minor correction, there continues to be distaste for holding gold.

The reality is that inflation is benign and will likely stay that way for a few years. The world’s central banks continue to drive easy money into the system and investors are looking elsewhere to make money, ignoring the precious metals, especially gold, traditionally a safe-haven investment.

The problem now is that there’s really no need for a safe haven at this juncture.

Gold is down 36% from its peak of $1,920 in September 2011, and it’s not looking good.

I even feel that gold is vulnerable to $1,200 on the chart. Take a look at the long-term chart of spot gold featured below. The lower support appeared to be in place until the slide on Wednesday to the $1,224 level. The threat now is that gold could continue to break down and make a move toward $1,200. If this happens, we could actually see a move down to the $1,100 level, based on my technical analysis.

Chart courtesy of www.StockCharts.com

Of course, the futures market appears to be betting on a rally. The contracts all the way out to December 2018 show the spot price above $1,200, but I have seen this more positive sentiment before, and it subsequently failed to pan out.

Even if gold holds, the upside over the next several years appears to be limited. The highest level is $1,407 for the December 2018 contract.

My view has not changed. I have little confidence in gold as an investment. You could make some money trading the commodity on weakness and selling on a rebound, but in my opinion, the bear market in gold is here to stay—at least for the immediate future.

Of course, some gold bugs talk about the fact that the ore is a limited commodity based on what is in the ground, but this supply needs to be found and extracted.

Also, India and China may be major buyers of gold, but both of those countries are facing some serious growth issues; I don’t see the demand surging to levels where it will impact prices.

For now, I just don’t see the heavy demand that could spark gold to another rally, so I’d suggest you stay out of the yellow metal unless you’re a trader. Holding gold for the long term isn’t going to make you rich.

Article by profitconfidential.com

By Profit Confidential

Something a little different for my Profit Confidential family of readers today…

My colleague and resident gold bug, Robert Appel, BA, BBL, LLB, is the smartest guy I know when it comes to understanding and explaining what’s happening with precious metals. Robert recently penned this commentary/forecast on the yellow metal and he was kind enough to give me permission to share it with my readers. Listen carefully:

“With additional damage seen in gold and the mines, the gold wars continue.

For the record, and this is easily verified on any one of a number of sites, gold prices held Tuesday overnight in Asia, but suddenly Wednesday morning they entertained massive selling the moment London opened.

London is the ‘home’ of the original ‘Gold Fix.’ We are not making that name up. They actually use that term. In prior reports we have shared with readers ‘leaked’ minutes of discussions among the London traders (usually from the late 90s, there is always a time lag) when they discuss among themselves the importance of using their bourse to keep the price down.

That was then. This is now.

This phase of the Gold Wars is like nothing we have seen. It is more astonishing than 1975. More astonishing than 1980. And more astonishing than 1999 (the last time an all-out assault on gold was launched, and a time when, like now, the mining sector seemed dead).

It is record-breaking. We are seeing long-term gold bulls simply give up. This is astonishing.

We’ve attached an updated chart on Comex gold inventories. We realize that some reporters will tell you that such charts are meaningless, and the Comex can snap its magic fingers and find new gold whenever they need it.

Chart copyright Lombardi Publishing Corporation, 2013;
Data source: CME Group Inc. web site, last accessed June 27, 2013.

Balderdash.

Other, wiser commentators have noted (look at the chart) that a potential default on delivery was looming in April and was no doubt directly responsible for the April take-down, aided and abetted by the media, your hard-working government, and Goldman.

This all may be too much for some readers. We understand.

But our stance has not changed. If anything, the value at the bottom will be even greater—when the bottom is hit.

Understand that with paper gold trading BELOW THE COST OF PRODUCTION very little new gold will be entering the market unless there is a turnaround.

We give the gold manipulators great credit for creating an environment of fear where even long-term bulls are wondering if they have made the mistake of a lifetime.

And wondering if indeed we have ushered in a great new era of prosperity and wisdom where gold has no value but the words of politicians, on the other hand, can be taken to the bank…?

But overall nothing has changed.”

Michael’s Personal Notes:

Sales of new homes in May were recorded at a seasonally adjusted annual rate of 476,000. That was 29% higher over the same period a year ago and an improvement of 2.1% over the previous month. (Source: U.S. Census Bureau, June 25, 2013.)

The S&P/Case-Shiller index of home prices in the U.S. housing market increased 12.1% in April from a year ago. This was the biggest increase since March of 2006. In the prior month, March, the index showed home prices in the U.S. housing market climbed 10.9%. (Source: Bloomberg, June 25, 2013.) This index has been showing a robust increase since early 2012.

Can the housing market keep improving at this pace?

Dear reader, home prices increasing in the housing market is just one step in the right direction, but it’s not the destination. As it stands, I see home prices getting derailed from their upward trajectory before long.

Keep in mind that these housing market statistics are actually from the past. Consider that the S&P/Case-Shiller index is actually a three-month average and that its April numbers were strongly influenced by data compiled in February and March.

On June 19, a lot changed for the housing market’s future—the Federal Reserve said it will pull back on its bond purchases.

As a result, the U.S. bonds saw their yields skyrocketing. This phenomenon led to hikes in the mortgage rates. For example, 30-year fixed mortgage rates have gone up more than 32% since the beginning of May alone, and they appear to be continuously increasing. The 30-year mortgage rates were hovering around 3.4% in early May, and now they are beyond 4.5%. (Source: Bankrate.com, last accessed June 26, 2013.)

On a recent note; the Mortgage Bankers Association (MBA) reported that the number of mortgage applications filed in the U.S. housing market declined three percent for the week ended on June 21 from the previous week. In the same period, it also reported a decline of 67% in home refinance applications—the lowest level since July 2011. (Source: MarketWatch, June 26, 2013.)

Not only do rising mortgage rates mean homes will be less affordable for already struggling Americans, but it may also drive away new buyers from entering the housing market.

I still remain skeptical about the rise in home prices in the U.S. housing market. I continue to stand by my belief: easy money and investors rushing to buy in bulk have made thee U.S. housing market look “hot.”

But in reality, first-time home buyers—those who buy a house to live in it—are the actual indicator of real recovery in the housing market. If you think you missed out on the homebuilder stocks and are thinking of getting into them now, I’d think twice about it. The Dow Jones U.S. Home Construction is down 18% since mid-May, while the broader market is down only 2.5% during the same period. The homebuilding stocks themselves are telling us something is up in the housing market, adding credence to my skepticism of the so-called “housing recovery.”

Article by profitconfidential.com

By Profit Confidential

Sales of new homes in May were recorded at a seasonally adjusted annual rate of 476,000. That was 29% higher over the same period a year ago and an improvement of 2.1% over the previous month. (Source: U.S. Census Bureau, June 25, 2013.)

The S&P/Case-Shiller index of home prices in the U.S. housing market increased 12.1% in April from a year ago. This was the biggest increase since March of 2006. In the prior month, March, the index showed home prices in the U.S. housing market climbed 10.9%. (Source: Bloomberg, June 25, 2013.) This index has been showing a robust increase since early 2012.

Can the housing market keep improving at this pace?

Dear reader, home prices increasing in the housing market is just one step in the right direction, but it’s not the destination. As it stands, I see home prices getting derailed from their upward trajectory before long.

Keep in mind that these housing market statistics are actually from the past. Consider that the S&P/Case-Shiller index is actually a three-month average and that its April numbers were strongly influenced by data compiled in February and March.

On June 19, a lot changed for the housing market’s future—the Federal Reserve said it will pull back on its bond purchases.

As a result, the U.S. bonds saw their yields skyrocketing. This phenomenon led to hikes in the mortgage rates. For example, 30-year fixed mortgage rates have gone up more than 32% since the beginning of May alone, and they appear to be continuously increasing. The 30-year mortgage rates were hovering around 3.4% in early May, and now they are beyond 4.5%. (Source: Bankrate.com, last accessed June 26, 2013.)

On a recent note; the Mortgage Bankers Association (MBA) reported that the number of mortgage applications filed in the U.S. housing market declined three percent for the week ended on June 21 from the previous week. In the same period, it also reported a decline of 67% in home refinance applications—the lowest level since July 2011. (Source: MarketWatch, June 26, 2013.)

Not only do rising mortgage rates mean homes will be less affordable for already struggling Americans, but it may also drive away new buyers from entering the housing market.

I still remain skeptical about the rise in home prices in the U.S. housing market. I continue to stand by my belief: easy money and investors rushing to buy in bulk have made thee U.S. housing market look “hot.”

But in reality, first-time home buyers—those who buy a house to live in it—are the actual indicator of real recovery in the housing market. If you think you missed out on the homebuilder stocks and are thinking of getting into them now, I’d think twice about it. The Dow Jones U.S. Home Construction is down 18% since mid-May, while the broader market is down only 2.5% during the same period. The homebuilding stocks themselves are telling us something is up in the housing market, adding credence to my skepticism of the so-called “housing recovery.”

Article by profitconfidential.com

By Profit Confidential

More earnings are hitting the market and the news is as mixed and confusing as the U.S. economy these days. But they are showing a trend that smart investors can take advantage of.

Lennar Corporation (LEN), one of the U.S. market’s largest new homebuilders, bounced higher on the stock market after reporting solid financial growth.

The company reported revenues from home sales grew 58% in the second quarter of 2013 to $1.26 billion, way up from $796.4 million comparatively. The company experienced a 39% increase in the number of home deliveries and a 13% increase in the average sale price of homes delivered.

Management said that fundamentals in the homebuilding industry are being driven by affordability, favorable monthly payment comparisons to renting, and supply shortages.

Earnings before income taxes (Lennar had a major tax-related gain in last year’s second quarter) were $162.3 million compared to earnings before income taxes of $52.1 million.

Lennar’s order backlog grew to 6,123 homes, up 55% over the second quarter of 2012. In terms of dollar value, the company’s backlog was up 76% to $1.9 billion.

So if Lennar is any indication, there is definitely continued recovery in new homebuilding.

But earnings for retail giant Walgreen Co. (WAG) disappointed. The company improved its bottom line over last year, but the number fell short of Wall Street consensus.

In its fiscal third quarter of 2013 (ended May 31, 2013), Walgreen’s company revenues grew 3.2% to $18.3 billion. Customer traffic in comparable stores fell 3.9%, while prescription sales (63% of total revenues) grew 3.4%.

The company’s generally accepted accounting principles (GAAP) net earnings grew 16.2% to $624 million, or 4.8% to $0.65 earnings per share. Excluding some items, the company earned $0.85 a share with the consensus estimate of $0.91.

Walgreen’s cash balance and shareholders equity jumped significantly.

Similar to first-quarter earnings season, the numbers so far are coming in light, but there continues to be improvement in the overall health of larger corporations.

Barnes & Noble, Inc. (BKS) said its quarterly revenues fell 7.4% to $1.3 billion. Net loss doubled to $118.6 million, compared to $56.9 million last year.

Today, some important brand-name companies report their earnings results. This includes McCormick & Company, Incorporated (MKC), NIKE, Inc. (NKE), ConAgra Foods, Inc. (CAG), and Winnebago Industries, Inc. (WGO). (See “One Company, Two Vital Themes for Investors to Consider.”)

There has being a repositioning of global expectations when it comes to interest rates and monetary policy, but I still feel that what is most important is what a company says about its business. Central banks are the arbiters, but companies are the players.

What is clear in the numbers so far this year is that balance sheets are improving and dividends are going up. According to FactSet, aggregate dividends per share for the S&P 500 grew 15.1% year-over-year. Within this index, 409 companies paid a dividend over the last 12 months—a 14-year high, according to the data.

If a company isn’t growing but cash balances are rising, dividends and share buybacks go up. Corporations don’t want to invest in new plants, equipment, or employees, and equity shareholders are the beneficiaries.

Last quarter, NIKE impressed with its earnings results. We’ll see if the company can do it again.

Article by profitconfidential.com

By Profit Confidential

We all know that interest rates are eventually heading higher. It might be in 2014, but more likely not until 2015, when the unemployment rate can decline to 6.5% as the Federal Reserve believes.

But one thing for sure is that interest rates are headed higher. (Read “Small-Cap Stocks the Place to Be—If Economic Growth Is Real.”)

The best way for an investor to take advantage of the situation is to concentrate on big bank stocks.

According to FactSet, the financials will lead the pack in the upcoming second-quarter earnings season, with earnings expected to rise a healthy 17.7%. (Source: “Earnings Insight,” FactSet Research Systems Inc. web site, June 21, 2013.)

The reason why the bank stocks will fare well when rates rise is that they will be able to generate higher revenues from loans as the interest rate-spread widens. That’s how bank stocks make money.

And once the bank stocks return to their original routine of paying out good dividends, they will attract more retail and institutional investors.

And don’t be afraid; bank stocks are much stronger now following the cleaning up and restructuring of the banking sector after the sub-prime credit crisis. Bank stocks can once again be added as long-term holdings.

Recall the bank stress tests by the Federal Reserve earlier this year. As a result of the stricter requirements, bank stocks are more defensive to risk and much improved as far as their balance sheets, liability, and vulnerability to dire market conditions.

The stress test assumed the worst-case scenario for banks and in all, 14 of the 18 banks managed to pass with conditional approval, with The Goldman Sachs Group, Inc. (NYSE/GS) and JPMorgan Chase & Co. (NYSE/JPM) expected to also be approved by September.

Now we’ll see if some of the banks will be allowed to raise their dividends back above two percent. If this happens, we could see a corresponding rise in the demand for bank stocks.

The reality is that the bank stocks have so far provided excellent leadership this year.

The other area that you should watch in spite of higher interest rates is the industrials sector.

Take a look at some of the companies in the Dow Jones Industrial Average, such as The Boeing Company (NYSE/BA) and General Electric Company (NYSE/GE).

Article by profitconfidential.com

London Gold Market Report
from Adrian Ash
BullionVault
Frid 28 June, 09:10 EST

GOLD and SILVER both bounced in London trade Friday, only to slip back again after recording new 34-month lows overnight.

Asian stock markets closed higher but European equities slipped.

 The major currencies held steady, and government bonds were flat overall, as were commodities.

“[Mining] is not sustainable…where the gold price is at the moment,” said Nick Holland, CEO of Gold Fields – the 8th largest gold miner in 2012 – yesterday.

 “We’re going to need at least $1500 an ounce to sustain this industry in any reasonable form.”

Updating its “buy gold at $1360” recommendation of two weeks ago, “We expect gold prices around present levels to be the cyclical lows for gold,” New York consultancy CPM Group said Thursday.

 “[But] we are expecting another leg down on a short-term basis, most likely in the period from now through August.”

“Massive technical damage has been inflicted” on the gold price charts, reckons Ronni Stöferle, now producing his In Gold We Trust report for asset managers Incrementum in Leichtenstein rather than Erste Bank in Austria.

 “We are convinced that repairing the technical picture will take some time,” says Stöferle, moving his gold price target for 1 year’s time to $1480 per ounce – some 23% above Friday’s price.

Gold dealers in Dubai are meantime struggling to meet demand, according to local press reports. But Chinese and Indian households – the world’s two heaviest consumer markets – are delaying gold purchases, says the Wall Street Journal.

 “There’s no sense of a bottom for gold,” the WSJ quotes analyst Yvonne Wang at Beijing Antaike. “People don’t know when the price will stop falling.”

 Last month’s surging physical demand from China and India “more than offset continued sales by ETF funds in the Western economies,” says trade association the London Bullion Market Assocation.

 For May, its market-making members report a 17% jump in the volume of gold dealt through London, the world’s primary hub, to hit the greatest level in 12 years.

 By value, the daily average of gold bullion changing hands rose more than 11% – despite a 4% drop in the average gold price – reaching its highest level since the market peaked in August 2011.

On the supply side, “There’s going to be significant rationalizing in the gold industry,” Gold Fields’ Holland told Bloomberg on Thursday.

 “You can’t keep mines producing if they’re losing money.”

Market-development organization the World Gold Council yesterday issued new guidance on “all in” and “all-in sustaining” gold mining production costs.

 To help analysts and investors better judge the value of gold miner shares, the guidance is “intended to provide further transparency into the costs associated with producing gold,” says the Council, which is owned and funded by the world’s largest gold producer companies.

 “Sustaining costs” relate directly to current production, whilst “all-in” also includes new exploration, permitting and capital expenditure.

 The new methodology would put average gold mining costs around $1400 per ounce, the BBC reports. Gold miner shares have now fallen 40% this year, according to Bloomberg data, with major producers now slashing costs and writing down the value of mine projects acquired at sharply higher gold prices.

 Adrian Ash

BullionVault

Gold price chart, no delay | Buy gold online

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver in Zurich, Switzerland for just 0.5% commission.

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

By HY Markets Forex Blog

The yellow metal fell to its lowest level in almost three years, dropping as low as $1,179 per ounce. Gold fell after the US Federal Reserve hinted it could cut back its stimulus program.

Gold futures fell 0.83 percent standing at $1,201.25 an ounce at 8.04am GMT, while the silver futures rose 1.70 percent trading at $18.700 an ounce at the same time.

The precious metal has dropped more than $100 over the past week, with beginning the week at $1,301.55 an ounce.

With Gold prices weighing down with more than 25% this quarter, the largest gold-backed exchange-traded fund, were trading with the same rate at 969.50 tonnes on Thursday.

The gold prices in the past years have been driven by the uncertainty of the surrounding the global economic condition after the financial crisis in the eurozone.

The US dollar Index rose 3.06% standing at 82.940, since the announcement from the Federal Reserve (Fed) last week regarding the possible cut back in the $85 monthly bond-purchase program.

Fed’s Chairman Mr Ben S. Bernanke said its might adjust the $85 billion quantitative easing (QE) program if the US economy is t move later this year.

The soaring house price, durable foods and the solid confidence numbers are expected to pick next year to ease off the QE stimulus program.

The Personal Consumption Expenditures (PCE) Price Index rose to 1.0% in May from0.7% in previous month.

The post Gold drops below $1,200, while still negative appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

By HY Markets Forex Blog

The European stocks were trading slightly lower as investors await US reports on consumer prices from the region’s major economies. The market processed the previous session’s optimism over a deal on the region’s future bailout regulation.

The Stoxx 50 tumbled 0.40% to 2,609.47 as of 10.40am GMT, while Germany’s DAX lost 0.18% to 7,976.23 at the same time. The British FTSE 100 lowered by 0.11% to 6,236.80 and the French CAC 40 declined 0.48% at 3,744.09.

In France, the French Consumer Spending increased by 0.5 in May. While the German’s consumer prices data is expected to be released in the session, as well as Italy’s inflation data.

According to reports, the Japanese Industrial output rose by 2% in May. In Europe, Germany’s retail sales rose by 0.4% in May on a year-on-year basis, according to data released by the Federal Statistical Office (Destatis).

The University of Michigan Consumer Confidence report and the US Chicago manufacturing Purchasing Managers’ Index are expected to be released later in the day.

Leaders of the Eurozone European Union have agreed to proceed with establishing who would foot the bill when the banks in the bloc collapse in the future.

Small companies holding with uninsured deposits worth over 100,000 euros will suffer the consequences if a bank would require an emergency top-up.

Losses could go as high as 8% of a bank’s total liabilities, according to officials.

The post European stocks falls before U.S economic reports appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

Source: George S. Mack of The Life Sciences Report (6/27/13)

http://www.thelifesciencesreport.com/pub/na/15406

Canadian portfolio manager Hugh Cleland of BluMont Capital has chosen an interesting niche. He invests in stocks too small for mutual funds and major institutions, which allows him to get in on the ground floor and capture huge gains when the companies begin to mature. He actively participates in each company’s destiny, much like a venture capitalist. In this interview with The Life Sciences Report, Cleland discusses his “core four” and tosses in a handful of speculative tiny-cap companies that investors with enthusiasm for diligence should investigate.
The Life Sciences Report: You manage two funds at BluMont—the BluMont Northern Rivers Innovation RSP Fund and the BluMont Innovation PE Strategy (BIPES) Fund I. Describe these funds and their differences from a very high-up perspective.

Hugh Cleland: Both funds focus on the tech and healthcare sectors and invest in publicly traded small- and micro-cap companies, with a few private investments sprinkled in. The Innovation PE Strategy Fund takes a private equity approach to investing, meaning it is a six-year fund with no redemptions. In the latter half of the fund’s life, we distribute the proceeds of sales to our investors. But as far as our private equity approach, we are more hands-on, helping companies in a variety of ways, including working with existing management to ensure appropriate skill sets are represented on boards and in management, and helping to raise money and develop analyst coverage. I even sit on a few boards.

TLSR: The BIPES fund sounds more like venture capital (VC), no?

HC: It is a bit of a misnomer to call it private equity. It’s really VC—late-stage VC to be more precise.

TLSR: There are times in the life cycles of some public companies when you can actually buy them for less than you could have put them together as private equity. Is that the idea here?

HC: Absolutely. I often find that valuations in the publicly traded sub-$100 million ($100M) market cap world are lower than for comparable companies in the private world.

TLSR: How has your fund performance been last year and year-to-date?

HC: The BIPES Fund is up about 20% since inception, which was Jan. 31, 2011. We were doing much better than that at one point—up 50%—but then Neptune Technologies & Bioressources’ (NTB:TSX; NEPT:NASDAQ) production plant in Sherbrooke, Quebec, Canada, blew up on Nov. 8, 2012. Neptune was, and continues to be, one of my largest positions.

In addition, we’ve experienced a serious headwind with the unwinding of the resource bubble. The TSX Venture Exchange, where most of my companies are listed, is down almost 60% in the same two-and-a-half year period that the BIPES Fund has been in existence. The market environment has been one heck of a headwind for the stocks of companies in the fund.

TLSR: You don’t own resources, do you?

HC: I do not, but many investors who own speculative small-cap tech and healthcare companies in Canada have been overweight in the resource area for the last 5–10 years. As they have been watching their resource stocks fall by 50–90%, they seem to have been—understandably—panicking and often getting out of all their small-cap investments, including healthcare and technology investments.

TLSR: Go ahead with Neptune. Is it still a core position for you?

HC: Yes, it is. The company was on a very dramatic upward growth trajectory until last November, when the explosion occurred. It had just raised $35M to fund a significant plant expansion before that tragic event.

The company has now come forward with plans to get production going again. It is taking a different tack, with partnerships, joint ventures and outsourcing deals becoming an important part of its strategy. The company addressed the new strategy in its last conference call, and gave guidance that by Q1/14, it would have internal production capacity of about 150,000 kilograms (150kg) per year of its Neptune Krill Oil (NKO) product. The company has been talking to three different potential outsourcing partners and expects to make a decision on those by August. By the end of September, I believe that we’ll have visibility on how Neptune can have NKO production capacity in the 600K–1M kg/year range, but I don’t think the market has put that together yet. The market will be looking at this company in a much different way soon.

TLSR: I understand the company has received its first insurance payment from the accident. But if you look at the news flow from Neptune, it’s impossible not to see how many class-action lawsuits have been filed against it. This is a small company with a $182M market cap. How does it withstand such a legal assault?

HC: That was one of the pieces of very good news that came out in the company conference call on May 23. All of the suits have been dismissed. It’s over. There is no more risk from the lawsuits.

TLSR: Hugh, I know many people are familiar with krill oil, but explain to me briefly why it is better than fish oil as a cardiovascular agent.

HC: Krill is a small crustacean, not a fish. The phospholipid omega-3 oil derived from krill is increasingly being cited by many experts—both in the world of “pop health” and in the world of serious scientific work—as being superior to other sources of omega-3, including fish oil. Krill oil has four primary ingredients—eicosapentaenoic acid (EPA), docosahexaenoic acid (DHA), astaxanthin and phospholipids—compared to fish oil’s EPA and DHA. It appears that—similar to fish oil—krill oil has a very important lowering effect on triglycerides, but in contrast to fish oil, it also seems to lower low-density lipoprotein (LDL) and raise high-density lipoprotein (HDL). It is believed that the fact that the EPA and DHA in krill oil are chemically bonded to phospholipids is one of the primary reasons for the positive LDL and HDL effects. The astaxanthin is also bonded to the phospholipids. The fact that the EPA, DHA and astaxanthin in krill oil are all bonded to phospholipids makes them more bioavailable as they are metabolized in the body.

Acasti Pharma Inc. (ACST:NASDAQ; APO:TSX), Neptune’s pharmaceutical subsidiary, is one of my four largest holdings as well. We’ve been waiting for phase 2, open-label trial (NCT01516151) results for its drug candidate CaPre (a purified extract from krill oil). The company announced a few weeks ago that it finished enrolling the trial, and we expect to see results this summer. I expect the stock will have a nice run-up into those results. My expectation is that the results will demonstrate that Acasti has, at the very least, a best-in-class “fish oil drug” and may, in fact, be in possession of a blockbuster. I’m awaiting those results with some excitement and optimism. The market caps of both Neptune and Acasti are currently a fraction of where they will be if the trial results are good, and it’s been encouraging to see Acasti recently set new all-time highs on the TSX.V in Canada (it also trades on NASDAQ under the symbol ACST).

TLSR: You said the phase 2 trial with CaPre is open label. How do you get definitive, share-moving data from an open-label trial?

HC: There are actually two phase 2 trials underway right now, and the placebo-controlled double-blind phase 2 trial (NCT01455844) results are expected in Q1/14. But the open-label results are coming up shortly—likely in July.

It’s Dr. Harlan Waksal’s opinion that the open-label results will be significant enough to move the needle and will be sufficient to initiate discussions with big pharma on either partnering or a sale. Waksal was a co-founder of $7 billion ($7B) takeout ImClone Systems Inc., and today he is executive vice president for business and scientific affairs at Acasti. He also sits on the Neptune board.

I think part of the reason Dr. Waksal believes in the product is that there is a deep body of knowledge around omega-3s. The existence of this body of knowledge should mean that, if the open-label data are good enough, potential partners and investors won’t need to see the double-blind data before getting excited. Also, both of Acasti’s phase 2 trials have an unusually large number of patients (274 in the open-label trial and 429 in the placebo-controlled trial), which means there should be a higher degree of confidence than in most phase 2 trials. The bottom line is that—if the data are as good as I am expecting—the open-label study itself, in the context of the huge body of clinical data around fish oil, should be enough to catapult this stock to a whole new level.

TLSR: How much of Acasti does Neptune own?

HC: More than 60%.

TLSR: Even though Neptune owns more than 60% of Acasti, these stocks have not traded in sync. Over the last 12 months, Neptune is down 17%, while Acasti is up 37%. From my cursory view, it appears that Acasti does give some support to Neptune, which could have been hurt a lot more with these events.

HC: It’s the sum-of-the-parts underlying support to Neptune from Acasti. There were a few months after the explosion where investors could essentially get everything in Neptune—even part of Acasti—for free, meaning that for a short while Neptune’s market cap was lower than the value of its percentage ownership in Acasti. Some investors panicked out after the explosion. But for some sophisticated investors, it presented a great opportunity, and the stock is now up nicely from its December-January lows. Perceptive Advisors LLC, a very respected biotech investment group in New York City, is a 9.9% owner of Neptune. Perceptive Advisors has continued to be a key part of the shareholder base, and I think its circle has been among the buyers of the stock since the plant exploded. Perceptive Advisors clearly see the potential for dramatic gains in Neptune’s share price over the coming months and years.

TLSR: Go to your next idea.

HC: My funds own almost 13% of IntelGenx Corp. (IGXT:OTCQX; IGX:TSX.V). I cannot believe the stock is trading where it’s at, considering its achievements in the last 12 months. Its drug Forfivo (bupropion extended-release), for major depressive disorder, has been approved by the U.S. Food and Drug Administration (FDA). Forfivo is now being marketed by IntelGenx’s partner Edgemont Pharmaceuticals LLC (private).

In December 2011, a partnership with Par Pharmaceutical Companies Inc. (PRX:NYSE) was announced, and we’re expecting a regulatory filing for that drug sometime soon. The name of the drug and the details are confidential for competitive reasons. IntelGenx’s CEO has continued to emphasize the size and importance of this project without being specific.

If you look at a research report from Ram Selvaraju, who is head of equity research at Aegis Capital, you’ll see he hasn’t given this unnamed product any value whatsoever, but he still has a $3 target price on the stock, which is more than a 400% implied return from IntelGenx’s current price ($0.60). I’m expecting Ram will raise his target quite significantly after we see the filing for that undisclosed product. It should be a significant catalyst for the stock, as investors see what a large drug we’re dealing with.

Then there is the company’s thin-film rizatriptan migraine drug. This drug is being developed in partnership with RedHill Biopharma (RDHL:NASDAQ). The FDA accepted the new drug application(NDA) filing for this drug on June 18, and we now have Feb. 3, 2014, specified as the Prescription Drug User Fee Act (PDUFA) date.

Prescription migraine drugs have global sales of over $5B per year. Maxalt, the drug that IntelGenx has ported to a thin film, had sales of well over $600M in 2012, so this is not a small opportunity, although I get the sense that the Par project has significantly more upside.

Somehow, with this great pipeline and all this success, we are talking about a company with a market cap of $30M. A table-pounding buy, in my view.

TLSR: Why have IntelGenx’s shares been weak over the past month?

HC: It got hit fairly hard the last few days of May; a small overhang of warrants remains from a financing a few years ago. I expect that will get chewed through shortly, and we’ll have that cash on the balance sheet.

TLSR: Hugh, you’ve made a specialty in your professional career out of the 505(b)(2) regulatory pathway, haven’t you?

HC: Yes, I really like it. I’ll tell you about a second company utilizing the 505(b)(2) pathway: Cynapsus Therapeutics Inc. (CTH:TSX.V; CYNAF:OTCPK). It is another holding in my two funds. The company is developing a sublingual form of the injectable Parkinson’s disease drug apomorphine, which counters the debilitating “freeze-up” episodes common in Parkinson’s patients. It has made huge strides sinceyou and I spoke last November, including closing a financing of $7.3M, which greatly reduces the financing risk I have referenced. The company has also received funding from the Michael J. Fox Foundation. Have you seen the research initiation report from Senior Biotechnology Analyst Jason Napodano of Zacks Investment Research? It has everything in it.

TLSR: I’ve had one analyst tell me recently that the phase 1 bioequivalence study, for which results are expected in Q3/13, is going to be a needle-moving catalyst for Cynapsus stock. The study is in healthy volunteers, and the idea is to show that appropriate blood levels can be achieved with Cynapsus’ product, APL-130277 (sublingual apomorphine), a proposed rescue therapy for “off episodes” in Parkinson’s disease. We already know that apomorphine works for Parkinson’s patients if it gets into the bloodstream. Do you agree that the phase 1 results will be a catalyst?

HC: Yes. Bioequivalence studies are a key part of the 505(b)(2) pathway, and as such this phase 1 bioequivalence study will move the needle. It’s not going to be the biggest value creation milestone, but it’s an important milestone that—if successful—derisks the story and should create value in the shares.

TLSR: As you are well aware, this stock is up more than 25% just over the past few weeks, probably due in part to the Zacks initiation report on the company. Are there any other factors?

HC: The company raised money earlier this year, and it was very encouraging to see a specialty pharma company (Dexcel Pharma Ltd. [private]) as the lead investor, taking a 19.6% stake in Cynapsus and putting two directors on the board. But after that financing occurred, the shares were just drifting down on very little volume. The stock had, very frustratingly, drifted all the way down to $0.30/share. Then the Zacks report came out, and that has grabbed a lot of attention. The stock almost hit $0.50/share. I think that as more people become aware of the Zacks report, and as the company begins to hit its milestones, we’ll see the stock move into a sustainable uptrend.

The companies I have talked about so far are what I consider core positions, with Neptune, Acasti and IntelGenx each comprising more than 10% in the portfolios I manage, and Cynapsus being much smaller—more like 2.5%. What I will talk about now are either companies I am looking at and have not yet purchased for the two portfolios I run, or stocks that I have handled more as trading positions than as core positions thus far. My view on these stocks has been, and so far continues to be, that the risk is too high to treat them as core positions. But these stocks could represent, at least, opportunities for good trades over a 6- to 12-month time horizon. As always, investors need to do their own due diligence.

TLSR: Go ahead with another idea, please.

HC: I’ve locked in a good return on iCo Therapeutics (ICO:CVE), but I’m hopeful that phase 2 data for iCo-007, when released, will indicate strong potential for the drug candidate. Diabetic macular degeneration is the condition targeted by iCo-007, and the company just guided that the data will be out early in 2014. The study size is 208 patients, and some of the patients are being treated with a combination of iCo-007 + ranibizumab (Lucentis; Genentech, a unit of Roche Holding AG [RHHBY:OTCQX]) or laser photocoagulation.

TLSR: This stock has been weak. Are you still positive on this company?

HC: I am still positive on it, and I should mention that I do not believe that the decline in the stock is a reflection of a decreased likelihood of a successful phase 2 trial. The stock has been beaten up because, unfortunately, the company wasn’t able to come up with the nondilutive financing it expected from the JDRF (formerly the Juvenile Diabetes Research Foundation), and had to go back to the market to raise money to complete the phase 2 trial. If the results of the study are as good as the company expects, we will have a quite spectacular return from the current price. Biotech speculators should do well to accumulate a position over the summer and early fall.

TLSR: Do you have some other speculative ideas—food for thought—for investors who want to do some of their own research and digging?

HC: How about Bellus Health Inc. (BLU:TSX; BLUSF:OTCPK), which has a phase 3 asset but is trading below its cash per share, despite the fact that the company is fully funded to completion of the phase 3 study. The drug is Kiacta (eprodisate), a first-in-class proposed therapy for a terminal kidney condition known as AA amyloidosis.

The knock on this company is that the phase 3 trial won’t be fully enrolled until mid-2014, and the results won’t be out until 2017, so there would appear to be a lack of near-term catalysts. If Bellus is successful in the acquisition of Thallion Pharmaceuticals Inc. (TLM:TSX) (announced June 18), the catalyst problem will be somewhat solved, because Thallion is in the midst of a phase 2 trial with much nearer-term catalysts.

Apparently, the deal Bellus struck with Thallion actually nets Bellus $1M in cash, as well as the clinical assets, but I need to do more work to understand both the phase 3 asset and the new potential acquisition before I buy the stock for my funds. Bellus looks very interesting as a long-term value play; with the Thallion acquisition, if it goes through, there may be nearer-term catalysts that can move the stock, too.

A stock that I am revisiting after having made money on it in the past is Verisante Technology Inc. (VRS:TSX.V). Verisante, after years of development, has begun selling the Verisante Aura, a best-in-class noninvasive technology (based on Raman spectroscopy) to assist in detection of skin cancers. The Aura is approved for sale in Canada, Europe and Australia, and the company is pursuing additional approvals in Mexico and Brazil, as well as FDA approval. FDA approval should be a major catalyst for sales and for the stock.

A company that I’ve liked for a while is GeneNews (GNWSF:OTCPK; GEN:TSX), whose most immediate opportunity is with its blood test/screen for colorectal cancer, which doesn’t require stool sample collection. The underlying platform technology has numerous other diagnostic applications. The fact that David Sable, portfolio manager of Special Situations Fund in New York City, is on the GeneNews board gives me comfort that the technology is of significant value, and that the company will continue to move in the right direction.

Tekmira Pharmaceuticals Inc. (TKMR:NASDAQ; TKM:TSX) also has a platform technology and multiple shots on goal. The company uses lipid nanoparticle (LNP) technology to deliver siRNA (small interfering RNA) as well as other nucleic acids in the treatment of disease. Tekmira is developing its own RNA interference (RNAi) product candidates, including TKM-PLK1, which has completed an early-stage, first-in-humans phase 1 trial in neuroendocrine cancer.

Since its inception, Tekmira has fostered collaborative or partnership agreements with other companies in the RNAi field, including Alnylam Pharmaceuticals Inc. (ALNY:NASDAQ), Bristol-Myers Squibb Co. (BMY:NYSE), Takeda Pharmaceutical Co. Ltd. (TKPYY:OTCPK), and the U.S. government’s Transformational Medical Technologies (TMT) Program. Having made a very profitable trade in this company based on what turned out to be a correct view on the outcome of a lawsuit with Alnylam, I need to dig deeply into the Tekmira pipeline. The fact that Doug Loe of Byron Capital Markets in Toronto has afavorable view on this company is encouraging.

Isotechnika Pharma Inc. (ISA:TSX) is a $0.03 stock with a market cap of less than $6M. The company is taking its immunosuppressant compound ISA247 (voclosporin), which was originally developed for organ transplantation, and applying it to lupus. The reason I’m revisiting this stock is because Richard Glickman, formerly the CEO of Aspreva Pharmaceuticals Corp. (acquired by Galenica Group in October 2007 for $915M), is heavily involved in Isotechnika as it reconstitutes itself as a lupus drug company. I am revisiting it with an eye to participating in a recently announced financing.

TLSR: I look forward to speaking with you again in the future, Hugh.

HC: Thanks so much, George. It’s always a pleasure.

Hugh C. Cleland is an executive vice-president and portfolio manager at BluMont Capital Corp., based in Toronto, Canada. BluMont Capital acquired Northern Rivers Capital Management, which was co-founded by Cleland in May 2001, in January 2010. Cleland currently manages two funds for BluMont: the BluMont Northern Rivers Innovation RSP Fund and the BluMont Innovation PE Strategy Fund I, which takes a private equity approach to the management of publicly traded small- and micro-cap technology and healthcare stocks. Cleland worked at Interward Capital Corp. from 1998 to 2001, originally as an analyst and later as associate portfolio manager specializing in technology equities. In 1997–1998 he was research associate to the senior telecom services analyst at Midland Walwyn Inc. Cleland earned a bachelor’s degree with honors (1997) from Harvard University, and earned his CFA designation in 2001.

Want to read more Life Sciences Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

DISCLOSURE:

1) George S. Mack conducted this interview for The Life Sciences Report and provides services to The Life Sciences Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of The Life Sciences Report:Cynapsus Therapeutics Inc., Verisante Technology Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Hugh Cleland: I personally and/or my family own shares of the following companies mentioned in this interview: Neptune Technologies & Bioressources, Acasti Pharma Inc., IntelGenx Technologies Corp. I personally am and/or my family is paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent.

5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer.

6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Streetwise – The Life Sciences Report is Copyright © 2013 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part..

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

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Source: Zig Lambo of The Life Sciences (6/27/13)

http://www.thelifesciencesreport.com/pub/na/15404

Breakthrough therapies with billion-dollar market potential are what every biotech company seeks—and what every investor wishes for. Narrowing choices and focusing on opportunities with multibagger potential is the goal of every investor, and few do it better than Chen Lin, author of the popular stock newsletter What Is Chen Buying? What Is Chen Selling? In this interview with The Life Sciences Report, Lin focuses his analytical expertise on the biotech sector and names companies with blockbuster promise.

The Life Sciences Report: When you first spoke withThe Life Sciences Report last August, you explained why you decided to diversify your recommendations and holdings to include both resource and biotech investments. How has that been working out for you?

Chen Lin: So far, biotech has been great for me. At the time of the last interview, Sarepta Therapeutics (SRPT:NASDAQ) was doing extremely well. Later, it went on for a huge run and became the No. 1 biotech in 2012. If you check top biotechs in the past 52 weeks, published by Forbes, it’s still No. 1 or No. 2.

Neptune Technologies & Bioressources (NTB:TSX; NEPT:NASDAQ), unfortunately, suffered a tragic fire last November that stopped production and knocked down the share price. Now it’s climbing back to last year’s level. Without that event, Neptune’s stock would have done a lot better.

TLSR: Although they operate in totally unrelated industries, junior resource companies and junior biotech companies are similar in that they usually have to spend a lot of money up front and over a long period of time, often making big bets before they see positive cash flow. Is playing a biotech similar to betting that a resource company makes a big hit on a mineral property?

CL: There are a lot of similarities in the two sectors, but each trades at its own rhythm. One sector can get very hot and the other can get very cold. That’s where we are right now. Biotech is red hot, and resources are very cold. From a trader’s standpoint, I calculate the risk-reward and take advantage of the market swings.

TLSR: For some smaller biotechs, one drug can be a company maker or breaker. With all the challenges and costs associated with developing, testing and getting U.S. Food and Drug Administration (FDA) approvals, how do you decide which companies have a decent shot at becoming big winners?

CL: I always look for market leaders, and make sure a drug candidate is advancing the company cause. If the drug candidate has no competition, that’s even better. Most important, investors want to buy the best candidate in its own space. That’s the most important factor I look for.

TLSR: Some biotech stocks trade back and forth based on news, just like resource stocks. How do you decide on a good entry point?

CL: I usually go for the company that has not been discovered by the market. An investor should try to get in when the market is not paying attention. Then, hopefully, that investor can take a profit later and reduce risk.

TLSR: Do you think that playing the swings on the same stock is a good strategy, or do you look for one shot to get in and get out?

CL: I do some swings, but usually I hold on to a core position. Biotech stocks often swing wildly.

TLSR: The current market hasn’t been kind to resource companies trying to raise capital for developing properties. How is it treating biotech companies that are in the research and development (R&D) phase and need to raise capital for continuing R&D activities?

CL: We’ve seen a dramatic change in the biotech sector in the past 12 months.

There have been quite a few initial public offerings and secondary offerings this year. In general, I think the biotech market is healthy. However, it was very difficult to raise money last year and even before that—just like where we are with the resource sector now. Now money is rushing into the sector and a lot of biotechs are taking off like crazy.

TLSR: One of the big considerations surrounding drugs being developed for diseases and conditions affecting very small populations is the ultimate cost of the drug to the user. Do you consider insurance coverage in your investment research?

CL: Some of the drugs targeting these rare or orphan indications cost $200,000 ($200K), $300K or $500K per patient per year. It depends on the drug. In life-and-death situations, an insurance company usually has to cover the therapy. I’ve seen some pushback, mainly in Europe, when the cost gets significantly over $500K per year per patient.

However, especially for a magic drug that can cure a specialty disease, insurance companies seem more than happy to pay half-a-million dollars per patient per year. The Patient Protection and Affordable Care Act (Obamacare) can also help, because it brings more patients into the insurance pool, and insurance companies cannot reject patients because of preexisting conditions. Having more patients who need treatment in the pool can actually help biotech companies a lot.

TLSR: Getting back to the two companies you have already mentioned—Sarepta and Neptune—can you give us a little more detail on what’s been going on with them over the past 10 months?

CL: Sarepta has done extremely well. It is one of the top performing biotech stocks. When I researched the stock, what really moved the needle for me was a video on the Internet of a boy who was given eteplirsen, the company’s treatment for Duchenne muscular dystrophy (DMD), and started walking again. He can run and do sports. That was the “wow” that made me buy a lot more of the stock. I also bought sizable call options of the stock before the final results came out last year, and they earned me a twelve bagger when the stock hit $40/share. I’m still holding a core position of the stock.

We are living in the Internet age. Small investors can take advantage of the market opportunities like this, getting ahead of the crowd instead of always being the last ones to know. They can even get ahead of some of the big funds.

Sarepta’s stock has very high short interest now; close to 30%. Institutions own 60%. Personally, I believe it’s a very dangerous situation for the shorts. The company is going to meet with the FDA in the next quarter. If accelerated approval for eteplirsen is recommended, I believe we’ll see a huge short squeeze, and this stock can be the Tesla Motors Inc. (TSLA:NASDAQ) of biotech.

TLSR: Give us a little detail on what exactly Sarepta’s drug does.

CL: It helps the muscles of DMD patients grow. The disease causes muscle degeneration, and typically patients are in wheelchairs by their teens and often die in their 20s. The tests so far show that with eteplirsen, the patients stabilize. Some even improve. The company has announced results after 84 weeks of study, and the kids in treatment are doing very well. This is one of those magic drugs that changes people’s lives and helps patients live longer. The company has already completed phase 2b tests, and is working with the FDA for potential accelerated approval.

TLSR: When might that happen?

CL: I believe the company will meet with the FDA in Q3/13, and that is when it will decide whether to go for accelerated approval. With that very high short interest, if eteplirsen gets accelerated approval, watch out for the upside.

TLSR: Did these shorts come in at a much higher price, or are investors just now betting that the company is not going to get approval?

CL: I think the shorts came in at the current or a lower price. Those investors are already out of the money, and are probably betting the company won’t get approval and that the stock will go back to the $20 per share range, where they can cover. But if they’re wrong, the upside is huge, because those investors will be forced to cover at a much higher price. We saw the huge rise of Tesla. I think that’s the example for the shorts in Sarepta.

TLSR: So what about Neptune?

CL: Neptune stock was down because of the fire, which resulted in the deaths of several employees and multiple injuries. As I said, the stock has recovered nicely lately, and I’m looking for phase 2 results on Neptune’s krill oil derived medical product, produced by its subdivision Acasti Pharma Inc. (ACST:NASDAQ; APO:TSX), this summer. Krill oil shows promise as a treatment for hypertriglyceridemia. Also, the company plans to restart its production. Right now it’s in a holding mode.

TLSR: What has the stock done since we last talked?

CL: It was down sharply after the fire, which destroyed Neptune’s only manufacturing facility. It was $3–4/share before. Today, it’s about $3/share.

TLSR: So the facility is back online, or will be back online?

CL: Neptune is rebuilding the facility with insurance money.

TLSR: What is the closest catalyst?

CL: The next catalyst will be the phase 2 results for the Acasti product, expected this summer.

TLSR: Are there any new names that you’d like to discuss?

CL: One is AcelRx Pharmaceuticals, Inc. (ACRX:NASDAQ), which did extremely well this year. It is designing a new therapy that replaces intravenous (IV) morphine after surgery. We all have been with or seen people who recently have had surgery. Patients usually have needles stuck in their arms to inject morphine. It takes usually two nurses to double check and make sure that the right amount of morphine is being injected with a standard IV. But still, one in every nine IVs has an error. That has created a lot of potential liability for hospitals and is also bad for the patients. In addition, as a patient, placing an IV is a very uncomfortable process, and it can be hard to move around with an IV.

AcelRx has developed a revolutionary delivery product—basically a tiny tablet you put under your tongue. The tablet, part of AcelRx’s nanotab technology, is preprogrammed. This takes away potential liability and work for the hospital. The phase 3 test results were fantastic. The company will apply for approval very soon. We’ve already seen very strong insider buying. The stock tripled this year, so it’s been a winner for me.

TLSR: What do you see for upside on the nanotab, assuming it does get approval?

CL: It depends on how fast hospitals adopt this new product. The most bullish analyst reports see AcelRx as a $60/share stock, but we put a $15 target on it to be conservative. It’s a potential billion-dollar per year market. The company’s market cap right now is about $323M. I see the company as a huge success if it gets FDA approval for its technology. There is much more upside.

TLSR: When would you expect possible approval?

CL: The product should get final approval next year and then go into production.

TLSR: Are there any other new companies you’d like to discuss?

CL: There are two more companies I’d like to mention. One is Vanda Pharmaceuticals Inc. (VNDA:NASDAQ). It’s developing a therapy for totally blind people to help regulate their circadian rhythms. Our human bodies are on an internal clock that runs on a 24.5-hour cycle. With normal sight, we can adjust our clocks with daylight, but blind people cannot. This condition, known as non-24-hour disorder, turns out to be very painful for the blind. Vanda just filed for a new drug application with the FDA for tasimelteon, which has had very successful phase 3 test results. If it gets approved, tasimelteon will be the first and only drug in its class to treat non-24-hour disorder.

Vanda is a very telling stock. The stock was trading below cash three months ago. It has quadrupled in three months, making it one of the hottest stocks this year. That tells you how hard the biotech sector was hit last year. There were many who tried to short the stock because it ran too fast, but those shorts were burned badly. It’s the same thing for other sectors I’m following closely, like energy and mining. When the table turns, the upside profits can be huge.

TLSR: So are you still positive on Vanda even though it has had this run?

CL: Yes, I’m still very positive. I’m still holding the stock. I took some profit but am still holding the stock.

TLSR: How much more upside do you see from here?

CL: If tasimelteon gets approved, there’s a lot more upside. The market cap is still very cheap. It’s a potential billion-dollar company with a $214M market cap now, and $120M in cash. It’s an amazing stock.

TLSR: So you have another one you want to talk about?

CL: The last is a company called Apricus Biosciences Inc. (APRI:NASDAQ). The company makes an erectile dysfunction (ED) drug, like a Viagra (sildenafil citrate; Pfizer Inc. [PFE:NYSE]). Viagra is orally administered and can only help 50–55% of the population because people cannot take Viagra if they have a heart condition or diabetes, etc. Apricus’ drug, Vitaros, can cover the rest because it is a cream that is applied locally. Major pharmaceutical companies like Abbott Laboratories (ABT:NYSE) andNovartis AG (NVS:NYSE) have already licensed this product, signing for milestone payments of almost $100M plus additional double-digit royalties, in most cases.

But the company’s market cap is still tiny. It’s still around $85M. One day, one of the big pharmas will say, “Why do I need to pay hundreds of millions in royalties when I can buy the company for the same price?”

I like the company’s new management, because it just got rid of the poison pill (shareholders’ rights agreement) that opened it to a bidding war. Recent stock weakness was due to the company doing a secondary offering. I believe once the shares go to stronger hands, the stock can make a major move. It just got European Union (EU) approval for Vitaros. It will find new partners and get new milestone payments. For the next 6–12 months, we could have a dozens of positive catalysts. I believe the stock will move much higher. This is the only biotech stock that didn’t go parabolic for me this year, but I think it could be the next to move.

TLSR: Where is it trading now?

CL: Around $2.50. With an $85M market cap and an ED drug that has billion-dollar per year potential, Apricus can be worth billions. And the company has already received EU approval. So Vitaros can be on the market in 6–12 months.

TLSR: How would this product be priced relative to something like Viagra, Cialis (tadalafil; Eli Lilly and Co. [LLY:NYSE]) or other competitors?

CL: It is up to the company’s partners to price it. I think Vitaros will be priced similarly, if not higher, than other ED drugs because the company is trying to help certain patients who cannot take Viagra or Cialis.

TLSR: What’s your recommended strategy for investors who want to play biotech stocks at this point, considering that they seem to be in a bull market rather than a bear market?

CL: I believe biotech is in the first leg of what could be a multiyear bull market. Right now, there is a lot of low-hanging fruit. I would look for companies with unique products that are best in class, and that have no or little competition. Usually, those kinds of companies are very hard to find later in a bull market.

All the companies I talked about, with the exception of Sarepta, have market caps far below $1 billion, and have at least a few billion dollars’ potential. They are low-hanging fruit. All are well financed and have the great upside.

TLSR: I suppose a lot of these are probably potential takeover targets at some point, too.

CL: I believe many, if not all, are takeover candidates by big pharmas that need to replace pipelines and are looking for new drugs.

TLSR: It was good talking with you again, Chen.

CL: Thank you, Zig. I appreciate the opportunity to talk with you.

Read Chen Lin’s recent interviews in The Gold Report and The Energy Report.

Chen Lin writes the popular stock newsletter What Is Chen Buying? What Is Chen Selling?, published and distributed by Taylor Hard Money Advisors, Inc. While a doctoral candidate in aeronautical engineering at Princeton, Lin found his investment strategies were so profitable that he put his Ph.D. on the back burner. He employs a value-oriented approach and often demonstrates excellent market timing due to his exceptional technical analysis.

Want to read more Life Sciences Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

DISCLOSURE:

1) Zig Lambo of The Life Sciences Report conducted this interview and provides services to The Life Sciences Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of The Life Sciences Report: None. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Chen Lin: I own or my family owns shares of the following companies mentioned in this interview: Apricus Biosciences Inc., Vanda Pharmaceuticals Inc., AcelRx Pharmaceuticals Inc., Sarepta Therapeutics Inc., Neptune Technologies and Bioressources Inc. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent.

5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer.

6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Streetwise – The Life Sciences Report is Copyright © 2013 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part..

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