Month: July 2013

By MoneyMorning.com.au

Tick.

Tick.

Tick.

No, we’re not ticking off a checklist. That’s the steady beat of an important event that’s about to hit the world.

Unfortunately, most people can’t hear it. The noise of day-to-day life muffles the noise of the demographic time bomb. But in time the blast will echo throughout society.

Nearly three decades of unprecedented credit expansion (1980 to 2007) created (abnormal) expectations about economic growth. Rob Arnott and Denis Chaves wrote in the Financial Analysts Journal:

‘Until recently 3-4% growth in real GDP was considered "normal." So it should come as no surprise that the economic performance of the past few decades has strongly influenced expectations about economic growth. However, when optimistic expectations get detached from reality we risk creating a significant expectations gap – a disconnect between what we take for granted given our recent experiences and what we should anticipate given simple arithmetic.‘

‘Recentism’ is the extrapolation of recent past events into the future. If markets have been down for a long period, then the consensus view is that the depressed conditions will continue, and vice versa.

The boffins charged with treasury computer models (that politicians and senior bureaucrats rely on) factor in 3-4% real GDP growth because that’s the 30-year average. The name for this is ‘rear view mirror’ forecasting.

But the economic drivers of the past 30 years aren’t relevant to what lies ahead.

Baby boomers (the largest demographic in western society) were ‘long and strong’ credit funded consumption – homes, furniture, luxury goods, travel etc. The boomers consumption ethos is best summed up as, ‘We bought things we didn’t need, with money we didn’t have, to impress people we didn’t like or know.’

Don’t Bank on Gen X & Y Bailing Out the Economy

The debt crisis that confronts the world is largely (but not entirely) due to boomer consumers, boomer bankers, boomer bureaucrats and boomer politicians.

This ‘boomer’ generation is an apt name, because that’s the sound you’ll hear when the demographic time bomb explodes.

After the GFC, the central banker mandate has been to raise the needle on the economic tachometer back to the 3-4% range.

The Fed, ECB, POBC, BoJ, BoE, RBA et al have all stepped on the gas as they try to rev up the economic engine. They’ve supplied an abundance of fuel in the form of printed money, but the tachometer barely moves.

Anyone with even the most basic knowledge of the combustion engine knows that spark plugs must ignite the fuel. And therein lies the problem. The boomers credit-fuelled consumption spark is gone.

And the economy can’t rely on Gen X & Y. Tax bills and high housing costs are burdening them. They’ll never get to take up where the boomers left off.

The purring V8 of the past 30-years is now a coughing and spluttering Morris 1500.

Worsening demographics are destined to produce vastly different outcomes in the coming years.

Rob Arnott and Denis Chaves identified Australia along with the US, Canada, Britain, France, Germany, Italy, Japan, India, Russia, China, Brazil – all boosted GDP growth by at least 1% per annum (over the past 60 years) due to the power of demographics.

Boomers moving from consumption to retirement are about to throw the global economy into reverse.

The Demographic Nightmare Revealed

The ‘Dependency Ratio’ is the number of non-workers (children and elderly) compared to the number of workers. The lower the ratio the better.

The following chart shows from 1980 to 2010 (the same period as The Great Credit Expansion) the numbers were all going in the right direction.

Click to enlarge

From 2010 (the first wave of boomer retirees) onwards, the Dependency Ratio goes in the wrong direction.

You can see the difference between the next 30 years (to 2040) and the last 30 years.

The other major negative to consider is the level of welfare entitlement built into the system over the past 30-years of credit-fuelled prosperity.

With boomers going from taxpayers to tax receivers (via health and pension entitlements), you don’t have to be a whiz with a calculator to work out that the numbers don’t add up…

What’s that noise? Tick, tick, tick goes the demographic time bomb.

Based on the demographic shift in the Dependency Ratio, Rob Arnott and Denis Chaves produced the following chart on forecast economic growth:

Click to enlarge

If Arnott and Chaves are right, the economic tachometer for all 12 countries goes into negative territory for the next 40 years.

Real GDP growth of 3-4% will be nothing more than a freaky period in history – one at which future economic students will shake their heads in disbelief.

Negative economic growth colliding with a larger number of retirees living longer is more than a policymaker’s nightmare. It will profoundly change the administration and distribution of age pensions and other welfare entitlements.

This demographic time bomb is ticking, but its real impact is still at least a decade away.

In the meantime huge amounts of newly printed dollars, yen, euro, yuan and pounds are hiding the truth that’s embedded within our societal structure.

This deception will work…until it doesn’t. But by then the majority of boomers will have become a victim of the demographic time bomb they helped construct.

Vern Gowdie
Editor, Gowdie Family Wealth

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From the Archives…

Quantam Computers – Why It’s Time to Believe the Unbelievable
12-07-2013 – Sam Volkering

Red Alert: Why This Stock Market Rally is a Trap
11-07-2013 – Murray Dawes

Why Oil Could be the One Commodity to Defy the Doom…
10-07-2013 – Dr Alex Cowie

Gold Breaks A Record
9-07-2013 – Dr Alex Cowie

Time to Plan for the Year-End Stock Rally?
8-07-2013 – Kris Sayce

Article by Investazor.com

Chart: eBay Inc. Weekly

In almost 4 years eBay Inc. gained about 480%, rallying from 10$ per share all the way to 58 dollars per share, having an all-time high around 59 bucks. From the first day of 2013 the price started to consolidate itself in a rectangle.

This price pattern was drawn right above the rejection line of an ascending channel. Until now the buyers did not have enough force to drive the price through the key resistance and now it will be even harder. The company announced a profit of 0.63$ per share, missing the estimates of 0.64$ per share. The price dropped suddenly 4 dollars from 57.50 to 53.50.

Taking into consideration the factors mentioned earlier and combining them with a negative divergence on the 14 weeks RSI we can say that we have some good signals of shorting. The confirmation would come with a close under 50$ per share, sending the price back into the channel. The support it is found next to the trend line at about 45$ per share. From the current level to the support it is about a 15% drop.

Keeping in mind that until the end of 2012 bulls were pretty strong, we should keep an eye over the resistance. A break and close above 59 – 60$ per share could trigger another rally targeting 65 and 70.00 levels.

The post Looking for a 15% Drop on eBay Share Price appeared first on investazor.com.

Source: George S. Mack of The Life Sciences Report (7/18/13)

http://www.thelifesciencesreport.com/pub/na/15446

Small-cap, oncology-focused biotechs with novel technologies have always been bestsellers for investors. Subplots have emerged along the way, but Aegis Capital Corp.’s Managing Director and Head of Healthcare Equity Research Raghuram “Ram” Selvaraju maintains that these companies continue to drive the biotech story forward. In this interview with The Life Sciences Report, Selvaraju reflects on the state of the industry and shares reams of information on specific ideas for investors.

The Life Sciences Report: Ram, you’ve had a good 12-month run with your coverage. We are more than six months into 2013, and I wonder if you have seen transitions in momentum to new industries or companies. Has there been any shift in emphasis by investors?

Ram Selvaraju: We had a few rocky weeks moving from early to late June. There was a fear that the Federal Reserve would turn off the tap of unlimited liquidity for the U.S. economy and that the economy would go into a tailspin without continued support. I think those fears have abated somewhat, especially after recent reassurances by the head of the Federal Reserve, Ben Bernanke, that quantitative easing would continue until there is substantially greater strength in the U.S. macroeconomic recovery.

But I would remind investors that overall macroeconomic concerns have not, by and large, been significant impediments to the run-up in the biotech sector. The NASDAQ Biotechnology Index (NBI) and the Amex Biotechnology Index (BTK) are up more than 70% in the last 24 months. That just creams the heck out of the Dow Jones Industrial Average and the Standard & Poor’s index, both of which are only up about 20% over the same timeframe.

Biotech’s massive outperformance has principally been driven by a substantial appreciation in the stock prices of old-guard biotechs like Amgen Inc. (AMGN:NASDAQ), Biogen Idec Inc. (BIIB:NASDAQ),Celgene Corp. (CELG:NASDAQ), Gilead Sciences Inc. (GILD:NASDAQ) and Regeneron Pharmaceuticals Inc. (REGN:NASDAQ). But, in my view, a large number of smaller-cap companies have also benefitted. Only a few years ago these companies were trading at market capitalizations of only a few hundred-million dollars, and now they have market caps well in excess of $1 billion ($1B). Examples include Regeneron Pharmaceuticals Inc., Medivation Inc. (MDVN:NASDAQ) and Pharmacyclics Inc. (PCYC:NASDAQ).

TLSR: You have established that biotech has powerfully outperformed the overall market. What about emerging trends?

RS: Overall biotech outperformance is a significant trend in itself, and I do not anticipate that abating. As we have discussed in the past, this is driven by the more risk-tolerant stance at the U.S. Food and Drug Administration (FDA) and the fact that a record number of drugs were approved last year—39, in fact—more than those approved in 2010 and 2011 put together.

Also, it should be noted that many of these approvals were for new molecular entities, drugs that constituted entirely novel advances. We had not seen an approval pace like this since the late 1990s. If the pace continues, and more than 30 new drugs are approved this year, I think investors are going to view the FDA as much less an enemy to the drug industry, and are going to believe that the industry is worth investing in.

In addition, some subsectors of biotech that were really hot in 2010 and 2011 have lost a bit of their luster in 2013. That includes some hepatitis C (HCV) names, like Achillion Pharmaceuticals Inc. (ACHN:NASDAQ), which I still am bullish on. I don’t anticipate that this is going to be a significant issue, but the fever over HCV has subsided.

What we are seeing instead is a massive appetite for small-cap, oncology-focused companies. Some have the equivalent of phase 1/2 data, and yet they’re trading at billion dollar-plus market caps. Infinity Pharmaceuticals Inc. (INFI:NASDAQ) had a massive run, from below $10 all the way up to $50, and now it’s somewhere around $17/share. Merrimack Pharmaceuticals Inc. (MACK:NASDAQ) still sports a roughly $480 million ($480M) market cap, despite not having any pivotal trial data. Clovis Oncology (CLVS:NASDAQ) added nearly $1B to its market cap after disclosing phase 1/2 data at the American Society of Clinical Oncology (ASCO) annual meeting in June. The list goes on and on.

TLSR: Ram, what is your favorite stock right now?

RS: Our favorite stock here at Aegis—and the best performing biotech idea of 2013 to date—is Stemline Therapeutics Inc. (STML:NASDAQ). I initiated coverage on this company back in March at $11.55. It is currently trading around $26. We brought this company public at the end of January at an initial public offering (IPO) price of $10/share. It has been a phenomenal performer. We believe significant additional upside is yet to come.

Stemline is in the vanguard of small-cap, oncology-focused companies because of its focus on cancer stem cells (CSCs). The company has the ability to specifically abrogate cancer stem cells involved in reconstituting tumors after the tumor bulk has been removed via surgery or chemotherapy. These cancer stem cells are the reason patients get recurrences of cancer. Stemline is developing a suite of therapies that would specifically target cancer stem cells. Its drugs hit the tumor bulk as well, which is how they are differentiated from other cancer drugs.

TLSR: What does the pipeline look like at Stemline?

RS: The firm’s most advanced candidate, SL-401 (human interleukin-3 coupled to a truncated diphtheria toxin), has a rapid path to market because it’s being developed in an ultra-rare hematological malignancy. So far there has been a 100% response rate. Every patient treated with this drug has had a response, and 60% have had complete responses, meaning the drug effectively got rid of their disease. That is unseen in the oncology domain; now the drug is potentially on a path toward accelerated approval.

TLSR: You said the disease is rare. What is it, and how rare is it?

RS: It is called blastic plasmacytoid dendritic cell neoplasm (BPDCN), and it affects about 2,000 patients every year in the U.S. and Europe. Because of the rarity, the drug could potentially be deployed at a very high purchase price per patient. It can also be deployed in other blood cancers, including acute myeloid leukemia (AML) in the post-third-line setting, as well as in hairy cell leukemia.

TLSR: I am familiar with cancer stem cells, which by definition are more durable, more aggressive and more resistant to therapies. Does SL-401 have a multitargeting capability?

RS: Effectively, SL-401 works via the same mechanism as a drug called Ontak (denileukin diftitox; Eisai Inc. [ESALF:OTCPK]). Ontak selectively delivered a portion of the diphtheria toxin protein into the interior of cancer cells by targeting cancer cells that expressed the interleukin-2 receptor (IL-2R) on their surfaces.

The same exact mechanism is being utilized by Stemline’s SL-401, except that Stemline’s drug targets the interleukin-3 receptor (IL-3R). What’s nice about the way SL-401 kills tumor cells is that it is very difficult for the cells to evolve resistance to it. It’s very cytotoxic. If delivered selectively into cancer cells and cancer stem cells, it will result in cell death, no matter how protective the cells are and how many resistance pathways they might have. The cell is doomed.

TLSR: Is this an antibody conjugate?

RS: It’s a conjugate, but not an antibody conjugate. It is a fusion protein. A portion of the diphtheria toxin is fused to the receptor-binding domain of the IL-3, which is a messenger or signaling molecule. SL-401 utilizes interleukin-3’s ability to fuse to the interleukin-3 receptor (IL-3R) and thereby is internalized by cancer cells and cancer stem cells. It works because the targeted tumor cells in BPDCN patients express very high levels of IL-3R on their surfaces.

TLSR: In the conjugated state, is SL-401 safe for the patient? In other words, is the toxin not released until it attaches to the tumor cell?

RS: Diphtheria toxin has no activity extracellularly. The therapy has a low side-effect profile, in high contrast to what is typically seen with oncology drugs. IL-3R is expressed on normal cells, too, but not anywhere near the level of cancer cells and CSCs.

SL-401 is entering phase 3. The company has had discussions with the FDA on the design of a single-arm, open-label trial. The FDA is more than happy to entertain this relatively small clinical trial, enrolling about 40 patients, because of the stellar response rates seen so far. I believe the drug will not have to go through to the end of a phase 3 trial before petitioning the FDA for approval. If the company gets 20 patients into this trial, and all 20 respond, Stemline will file for accelerated approval. Stemline could potentially have the drug on the market by late 2015, if not earlier.

TLSR: If you will go ahead and select another company, I’d love to hear about it.

RS: We continue to like Synergy Pharmaceuticals Inc. (SGYP:NASDAQ). The company recently raised more than $100M, so it is not going to need to raise additional capital for a very long time. In May, it unveiled additional safety and efficacy data from a previously reported phase 2/3 study of its lead drug candidate, plecanatide. These data clearly demonstrated that there is a very robust dose response from an efficacy standpoint in patients with chronic idiopathic constipation. The side-effect profile was extremely good—much better, in our view, than Linzess (linaclotide; Forest Laboratories Inc. [FRX:NYSE] and Ironwood Pharmaceuticals Inc. [IRWD:NASDAQ]), the only direct competitor.

Synergy is starting two phase 3 trials with plecanatide in chronic constipation at the beginning of Q4/13. We anticipate topline results from those studies in the summer of 2014, after which the company can file for approval in the U.S. for that indication. The company could potentially have an approval before the end of 2015, assuming a standard review. The drug could be on the market for chronic constipation in late 2015 or early 2016.

Synergy also has a phase 2b study running in irritable bowel syndrome (IBS) of the constipation-predominant subtype, which should report results early in 2014. If that study is positive, the company will have to do two more phase 3 trials in IBS. I anticipate it would start those studies in H2/14, complete them by the end of 2015, file for IBS approval in early 2016, and have an approval in early 2017.

TLSR: Why is plecanatide superior to linaclotide?

RS: In our view, linaclotide has an inferior safety profile. In essence, linaclotide works too well. It relieves constipation but causes diarrhea in 20–30% of patients. Five to 10% of those patients have to stop taking the drug because the diarrhea is so bad. We do not believe this will be an issue with plecanatide and, indeed, that’s not what Synergy saw in the phase 2/3 study. The discontinuation rate seen with plecanatide was about half of what was observed with linaclotide, without any discernible difference in magnitude of efficacy.

TLSR: Ram, go ahead to your next idea.

RS: We recently initiated coverage on a very small company called Catalyst Pharmaceutical Partners Inc. (CPRX:NASDAQ). It is developing a drug called Firdapse (amifampridine) to treat a very rare disorder called Lambert–Eaton myasthenic syndrome (LEMS), an ultra-rare disease that afflicts maybe 4,000 people worldwide. There is a registry of patients so it is relatively easy to find them, which is good from a drug development perspective. If the drug is effective, the company should be able to readily target patients who suffer from the disorder.

Catalyst trades at roughly $1/share, with a market cap of less than $40M. This drug, if approved, could generate $80–100M in sales every year. Firdapse is already approved in Europe for the treatment of LEMS, and is in a phase 3 trial now in the U.S. The company needs to complete that trial to file a new drug application (NDA).

We believe Catalyst is another example of a risk-mitigated situation, trading at an extremely low valuation. We note that the company obtained the rights to Firdapse from BioMarin Pharmaceuticals Inc. (BMRN:NASDAQ), a well-known player in the ultra-rare, orphan disease space. BioMarin retains a 16% ownership stake in Catalyst, which indicates that BioMarin has high confidence in Catalyst’s ability to drive Firdapse through to approval in the U.S.

Catalyst has a backup molecule as well, called CPP-115. This drug is basically a pipeline in a single pill because it can be used to treat convulsive disorders like infantile spasm, a rare disease afflicting very young babies, as well as complex partial seizures, refractory seizures in epilepsy and conditions of that nature. It should have a very advantageous safety profile compared to vigabatrin (Sabril; H. Lundbeck A/S [HLUKY:OTCPK; LUN:OMX]), which has never seen broad usage because of its side-effect profile. CPP-115 could potentially achieve broad use.

This agent has gone through early-stage testing already and is advancing into phase 2 testing. We believe that Catalyst is getting no credit for this drug at this point from investors, yet it’s got a validated mechanism of action based on vigabatrin, an approved drug that has been around for many years, and has applicability in a wide range of convulsive disorders.

TLSR: Catalyst is up 118% over the past six months, 90% over the past 12 weeks and in a four-week period of real weakness in the sector, it is up 18%. The stock is now under $1/share, and you have a target price of $2.50, which represents a very nice implied return. What time period are we looking at?

RS: We expect Catalyst to wrap up its phase 3 study with Firdapse in early 2014—roughly a 12- to 15-month timeframe. It is one of the more risk-mitigated stories we are following right now.

TLSR: What is your next idea?

RS: We continue to like Neuralstem Inc. (CUR:NYSE.MKT), the only company we cover in the stem cell space that is focused on the neurodegenerative disease domain. We like it because of the company’s high-quality science.

Neuralstem is developing two different programs simultaneously. One is a neural stem cell-based solution called NSI-566 (human fetal neural tissue-derived stem cells), for the treatment of various neurodegenerative diseases, particularly amyotrophic lateral sclerosis (ALS; Lou Gehrig’s disease). ALS is relatively rare but is incurable; patients usually die within 3–5 years of diagnosis. The company is also going after spinal cord injury (SCI), which is a significant unmet need. Millions of people are living in the U.S. with SCI, or are chronically paralyzed. There are no available, effective therapies currently. Neuralstem has other possible indications with this technology as well.

Neuralstem also has a small molecule, NSI-189, which is aimed at the treatment of major depression. This small molecule is very interesting because it could have the ability to enhance cognitive performance in non-depressed or healthy people. Animal studies have shown that this drug selectively enhances neurogenesis in the hippocampus, which is the part of the brain used for learning and memory.

For all these reasons we believe Neuralstem is very interesting, with a rich calendar of catalysts over the remainder of 2013 and into H1/14. It is moving into phase 2b for ALS with the neural stem cell solution. We anticipate that study will begin in the U.S. in H2/13. It is also starting a phase 2a clinical study in the same indication in Mexico. We anticipate that the company will start a phase 1/2 study in SCI in the U.S. imminently.

A landmark paper published in the journal Cell last year demonstrated that Neuralstem’s human stem cells, when injected into rats with spinal cords severed by mechanical crush, could actually regenerate nerve tracts across the entire rostrocaudal length of the spinal cord, from head to tail. This is landmark stuff, the kind of thing that we’ve never seen before from a stem cell-focused company.

TLSR: This Cell paper references an acute-injury model of SCI, where the rodents regained motor function. But the company is about to begin treating patients with chronic spinal cord injury. Does Neuralstem ever speak of going to acute spinal injury?

RS: When the company starts dosing SCI patients in the U.S., it will dose chronic spinal cord injury sufferers, people diagnosed a couple of months to a year before they get the cells. I think it’s very possible that Neuralstem could deploy its neural stem cell solution in the acute setting as well. It is more difficult to do that because the patient must get immediate supportive therapy right after the injury occurs.

TLSR: Neuralstem is up 70% over the past 12 months, and its market cap is about $114M. I wonder if you think investors are ascribing any value whatsoever to the company’s small molecule, NSI-189?

RS: I think that, at the current valuation level, investors could justify an investment in Neuralstem for either program on its own, with the second program qualifying as a free call option. But this company has a roughly $80M+ enterprise value, and we don’t believe this is adequate for both of these highly compelling programs.

TLSR: Your target price on Neuralstem is $4. What’s the timeframe on that?

RS: We are aiming for 15–18 months from now. It currently trades at about $1.70. Aegis Capital has raised money for this firm in the past. Historically Neuralstem had a primarily retail-focused investor base, but we were successful in getting the company its first institutional investors.

We believe Neuralstem is one of the best stories in the stem cell arena. It’s appealing because it has been able to generate attractive, promising, scientific and preclinical data even while focusing on very difficult-to-treat neurodegenerative conditions. In the clinical setting, the company has had encouraging responses from a couple of patients, indicating its neural stem cells can, in fact, stimulate recovery in ALS. That’s practically unheard of; you don’t see spontaneous recovery from ALS. The company has a long track record of moving things forward on the clinical development front—and moving them forward successfully. It has never issued a negative clinical development announcement. It is very undervalued, and we think there is significant upside potential.

TLSR: Your next idea?

RS: I’m looking at Ampio Pharmaceuticals Inc. (AMPE:NASDAQ). We recently raised our price target to $12, a 12-month target. The company is currently trading at about $6. When we initiated coverage, the stock was trading at less than $4, so we’ve seen a pretty decent increase.

We think there is a lot of misinformation out in the blogosphere about this company. A lot of people like to trash Ampio, and, in our view, this company doesn’t deserve any of the criticism. Various commentators have stated that the company’s clinical-stage candidates do not target validated markets, which is untrue. Knee osteoarthritis, premature ejaculation and diabetic macular edema are all opportunities worth hundreds of millions of dollars individually. There has been criticism of the company’s clinical proof-of-concept data, which we believe denotes a poor understanding of the principles underlying statistical analysis and the mechanisms of action for Ampio’s lead agents.

Ampio is a classic example of how a company can develop drugs in a cost-effective and capital-efficient way. All three of Ampio’s clinical-stage drug candidates are already approved in the U.S. for use in other indications, and Ampio is developing these agents for new uses.

Ampio has a drug called Zertane (tramadol), which is being developed for the treatment of premature ejaculation. Tramadol is widely utilized as a nonsteroidal painkiller. Its second drug candidate, Optina, is a low-dose formulation of danazol, which was originally commercialized in the 1970s as a treatment for endometriosis. The new formulation is a proposed treatment for diabetic macular edema. Its third drug candidate is Ampion, which is a cyclic peptide derivative of human serum albumin. Albumin has been used for a variety of ailments for a very long time. Ampion is being developed, at least initially, for the treatment of pain associated with osteoarthritis in the knee.

TLSR: Ram, this company’s market value is about $226M. How much value is there in these repurposed drugs?

RS: From our perspective, the market could be worth hundreds of millions of dollars per year. Currently, the financial community is giving Ampio no credit whatsoever for its oxidation reduction potential diagnostic platform (for use in the diagnosis of serious inflammation and oxidative damage in patients who have suffered heart attacks and strokes, as well as other indications). Ampio has three separate shots on goal, plus the diagnostics, and it doesn’t spend much money. Its clinical development pathway is very cost-effective for all three drugs because none of the programs require massive evaluation time periods. We’re talking about clinical trials that typically last less than a year. Safety profiles are not going to be a problem because all of these compounds have been around for years and are well known. Plus, Ampio is using the drugs at significantly lower concentrations than in their current indications.

TLSR: Go ahead with your next idea.

RS: I initiated coverage on Galectin Therapeutics Inc. (GALT:NASDAQ) in September of last year, when the stock was trading under $2. It’s now at about $4.50.

The company is gearing up for clinical development of a small molecule agent designated GR-MD-02 for the treatment of liver fibrosis. It also has an ongoing, early-stage clinical trial in Germany with another agent that works via the same galectin-inhibiting platform for the treatment of cancer. If you look at the data generated in liver fibrosis in animal models, it is nothing short of stunning. The company has been able to demonstrate reversal of well-established fibrosis in the animal models. In our view, GR-MD-02 could be a best-in-class antifibrotic drug. The company is primarily going after treatment of nonalcoholic steatohepatitis (NASH), not treatment of patients who suffer from alcoholic liver cirrhosis. NASH is classified as fatty, fibrotic liver, and is a chronic condition for which there is currently no approved treatment.

TLSR: Ram, you have noted that Galectin has potential competitors targeting NASH. How do you read them versus Galectin?

RS: Galectin faces competition from a number of other companies, including Raptor Pharmaceutical Corp. (RPTP:NASDAQ) with a phase 2b program in NASH in children, and La Jolla Pharmaceutical Co. (LJPC:OTCBB), which is getting in on the act with an investigational new drug (IND) application and is ready for phase 1. Intercept Pharmaceuticals Inc. (ICPT:NASDAQ), which was an IPO last year, also has a phase 2 candidate.

In our view, Galectin has a best-in-class drug because the molecule selectively reverses liver fibrosis by specifically impacting the galectin pathway. Galectins are known to be upregulated in conditions of fibrosis and metastatic cancer disease. You can bind them and inactivate them to shut down inflammation causing fibrosis. There is a very good mechanistic rationale to support Galectin’s technology platform.

TLSR: Although Galectin has been weak over the past couple of months, it has nearly doubled over the last six months. Does that worry you?

RS: We think there is significant upside potential. The scientists working with Galectin are top notch. As to valuation, even after its recent run-up, Galectin is still only a $74M market cap company. The potential for additional upside is also clear when you look at how other companies are valued. For instance, Intercept Pharmaceuticals’ $839M market cap is more than 10 times that of Galectin’s.

TLSR: Your next idea?

RS: I’ll mention a couple of the larger-cap names that I follow, which I think still have significant additional upside. We correctly anticipated that Medivation’s prostate cancer drug, Xtandi (enzalutamide), currently marketed in the U.S. for treatment of chemotherapy-experienced, hormone-refractory prostate cancer, would get approval in Europe. The company is also in a phase 3 study looking at this drug’s activity in chemotherapy-naïve, hormone-refractory prostate cancer. We anticipate the drug’s effectiveness will increase the earlier it is deployed in prostate cancer treatment. Since chemo-naïve prostate cancer is clearly an earlier stage, the survival-promoting benefits should be comparatively greater in this patient population. We anticipate interim results from that phase 3 trial, known as PREVAIL, sometime in the next three to four months.

TLSR: Medivation had a huge run-up at the end of 2011 and through the end of 2012. How do you value this company with these upcoming catalysts taken into consideration?

RS: We believe that Medivation’s shares are attractively valued, especially in the context of the valuations of comparable companies. For example, Pharmacyclics trades at close to a $7.4B market cap, whereas Medivation only trades at a $4.1B market cap. Medivation does share the revenue from Xtandi with its large pharma Japanese partner, Astellas Pharma Inc. (ALPMF:OTCPK), but the company still takes home half the profits associated with the drug in the U.S., and gets a substantial double-digit royalty on net sales outside the U.S.

We believe this drug could generate as much as $6–7B/year in sales, especially if approved and commercialized successfully in all of the sub-indications of prostate cancer and for earlier-stage disease. It also appears to have applicability in breast cancer. We think there is significant additional upside for Medivation. It trades currently at about $57/share, and we have a $100 price target on it. We’d also note that this is one of the most attractive potential merger-and-acquisition (M&A) candidates in the oncology sector—and that there is renewed probability of M&A transactions occurring in the space following the recently publicized interest of Amgen Inc. in acquiring Onyx Pharmaceuticals Inc. (ONXX:NASDAQ), another oncology-focused specialty company.

TLSR: Do you have another name?

RS: Acorda Therapeutics Inc. (ACOR:NASDAQ) trades at about $37/share with a $1.5B market cap. We have a $40 price target, but that is very conservative because we’re only ascribing a $150M net present value (NPV) to the usage of Acorda’s currently marketed drug Ampyra (dalfampridine) in post-stroke deficit. The drug is already approved to improve walking in patients with multiple sclerosis (MS). But the company has demonstrated positive results from a mid-stage trial in post-stroke deficit, which affects 7M people in the U.S. today. There are only about 500,000 MS patients in the U.S.

If the drug were approved for post-stroke deficit as well, its potential market would be massively expanded. In that context, we believe investors should be looking at Acorda Therapeutics. This is a risk-mitigated company. It’s profitable. It’s very well run. It has a significant amount of cash with which to do additional strategic acquisitions, if necessary. And there is significant additional upside inherent in Ampyra, which is already a marketed, profitable product.

TLSR: Ram, you and I have spoken in previous interviews about Lpath Inc. (LPTN:NASDAQ) and Galena Biopharma Inc. (GALE:NASDAQ). You also follow CytRx Corp. (CYTR:NASDAQ). Can you mention these companies briefly?

RS: We continue to be very bullish on Lpath’s prospects to deliver positive results in the ongoing NEXUS study, which is looking at the company’s proprietary antibody iSonep (sonepcizumab for intravitreal administration) in the treatment of wet age-related macular degeneration (AMD). We anticipate those results sometime early next year.

The company also recently started a phase 2 study in solid tumors with Asonep (sonepcizumab in a systemic formulation for intravenous administration). The same antibody is used in both indications. The company’s partner in the AMD program is Pfizer Inc. (PFE:NYSE), which has also the right of first refusal in the oncology, MS and colitis indications with Asonep. We believe Lpath could be the subject of an acquisition transaction by Pfizer if the NEXUS study demonstrates a positive result. In our view, if iSonep works, Pfizer would want to bring it in-house, and would definitely like to get its hands on Asonep as well, especially considering that Asonep has demonstrated safety advantages versus agents like Avastin (bevacizumab; Genentech/ Roche Holding AG [RHHBY:OTCQX]) in the solid-tumor setting.

With respect to CytRx, we put out an update on June 19 and slightly lowered our price target from $8 to $7. But we still think there is significant upside for these shares. The company’s lead compound, aldoxorubicin, which is being studied for soft tissue sarcoma, is a risk-mitigated opportunity primarily because the drug is based on an approved product, doxorubicin, a chemotherapeutic agent that has been used for years. Aldoxorubicin is essentially doxorubicin conjugated to an acid-sensitive linker that will bind to circulating albumin after it is injected. The acid-sensitive linker is attracted to tumor tissues, which are acidic. Effectively, aldoxorubicin is a targeted version of doxorubicin because it hones in on tumor cells.

The company presented phase 1b data at ASCO detailing the fact that by combining aldoxorubicin with doxorubicin, it is able to significantly drop the dose of doxorubicin, and when it adds aldoxorubicin at a higher concentration to doxorubicin, no additional side effects are introduced, including cardiac toxicity. CytRx also released data very recently demonstrating that aldoxorubicin was much more effective than native doxorubicin for treatment of brain cancer, showcasing animal data that was impressive. The brain cancer indication—glioblastoma multiforme (GBM)—is potentially strategically important for CytRx, since it could qualify aldoxorubicin for breakthrough designation at the FDA. Breakthrough designation is a newly formulated classification for drug candidates that are aimed at addressing drastically unmet medical needs, and that have demonstrated significantly better proof-of-concept clinical efficacy than the standard of care. The FDA allows such candidates to pursue an accelerated path toward approval, which could involve completely waiving the requirement to conduct phase 3 trials.

TLSR: My understanding is that a pivotal phase 3 trial with aldoxorubicin is about to begin under a special protocol agreement as a second-line therapy for soft tissue sarcoma. When could we see an approval for aldoxorubicin?

RS: There is a good likelihood that aldoxorubicin could be approved in 2016 for use in soft tissue sarcoma. The company could also advance additional linker-based chemotherapeutic drugs from its pipeline. We think CytRx is not being given adequate value for either aldoxorubicin, which is a relatively advanced product with proof of concept and clinical data already established—and which is also based on an existing approved medication—nor is the company being given credit for the pipeline of drug candidates behind aldoxorubicin.

TLSR: You said you lowered your target on June 19. Why?

RS: We lowered our price target because the company recently discontinued development of tamibarotene, its non-small cell lung cancer-focused, synthetic retinoid-based drug. But that was only contributing about $90M in NPV to our overall enterprise value calculation. We still believe that the appropriate enterprise value for CytRx should be in excess of $250M. The current enterprise value of CytRx, if you take into account existing cash, is only about $40M. This remains an undervalued, risk-mitigated opportunity in the small-cap oncology space.

TLSR: Go ahead and speak to Galena, please.

RS: We continue to be positive on Galena’s prospects in breast cancer with its lead candidate NeuVax (nelipepimut-S or E75), which is proposed to prevent recurrence of breast cancer in disease-free patients who are HER2/neu negative—those expressing very low levels of HER2.

The fact that Roche Holding AG is partially paying for the phase 2 NeuVax study is encouraging. We also note that Galena has been very active on the business development front, bringing in an additional product, Abstral (fentanyl sublingual tablets) for breakthrough cancer pain. Abstral will provide some cash flow. On the diagnostics front, the company has signed an agreement with Leica Biosystems (private) to develop a companion HER2/neu screen. In December it signed a partnership agreement with Teva Pharmaceutical Industries Ltd. (TEVA:NASDAQ) to commercialize NeuVax in Israel. We think the company continues to be favorably positioned, and we continue to like the prospects of NeuVax and the ongoing phase 3 study.

TLSR: I understand that the phase 2b study, which led to the phase 3 PRESENT study now in progress, did not deliver statistically significant results, presumably because that study included both node-positive and node-negative patients. The phase 3 PRESENT trial is being conducted in the most aggressive cancers only—those patients recovering from node-positive disease. Can you comment on that?

RS: When Galena looked at the phase 2b data, it became clear the timing at which NeuVax intervention occurs is important because you have to have the most appropriate antigen presentation. We believe the current phase 3 clinical trial design has been optimized to take into account what the company saw in phase 2b. There also is a high likelihood that Galena will capture a significant cross-section of the breast cancer population by combining its agent with Herceptin (trastuzumab; Roche/Genentech). As Galena gets closer to unveiling the results of the phase 3 trial, the stock is most likely going to trend upward because there is a good mechanistic rationale here.

TLSR: What is the next catalyst we’re looking at for Galena?

RS: The next meaningful catalyst is completion of enrollment. If the company completes enrollment on target, we should see interim results in H1/14.

TLSR: Would you like to comment on NeoStem Inc. (NBS:NYSE.MKT) briefly? The firm, which is an emerging competitor in the development of autologous stem cell-based therapeutic approaches, recently announced a 1-for-10 reverse stock split.

RS: We recently initiated coverage on NeoStem with a Buy rating and a $2.50 price target. Considering the impact of the recently announced 1-for-10 reverse stock split, our new implied price target would be closer to $25 per share.

In our view, the reverse split is well timed, since the company had roughly 280M fully diluted shares outstanding before the split. The split could pave the way for easier institutional ownership of the stock. The most significant catalyst coming up for NeoStem is phase 2 data for its most advanced clinical candidate, AMR-001, an autologous bone marrow-derived stem cell therapy aimed at treatment of ST-elevation myocardial infarction (STEMI), a form of heart attack. The phase 2 STEMI trial of AMR-001 is slated to report topline results early next year. Positive data could potentially result in a transformative partnership for NeoStem.

TLSR: I enjoyed our conversation very much. Thank you, Ram.

RS: Thank you. My pleasure.

Raghuram “Ram” Selvaraju’s professional career started at the Geneva-based biotech firm Serono in 2000, where he discovered the first novel protein candidate developed entirely within the company. He subsequently became the youngest recipient of the company’s Inventorship Award for Exceptional Innovation and Creativity. Selvaraju started in the securities industry with Rodman & Renshaw as a biotechnology equity research analyst. He was the top-ranked biotech analyst in The Wall Street Journal’s “Best on the Street” survey (2006). Selvaraju went on to become head of healthcare equity research at Hapoalim Securities, the New York-based broker/dealer subsidiary of Bank Hapoalim B. M., Israel’s largest financial services group. While at Hapoalim, Selvaraju was regularly featured in The Wall Street Journal, Barron’s, BioWorld Today, and Reuters/AP. He was also a regular guest on the Bloomberg TV program “Taking Stock,” and was a guest on CNBC’s “Street Signs with Herb Greenberg.” He is currently an analyst and managing director with Aegis Capital Corp.

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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 CytRx Corp., Galena Biopharma Inc., Lpath Inc., Neuralstem Inc., Catalyst Pharmaceutical Partners Inc., NeoStem Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Ram Selvaraju: I or members of my immediate household own shares of the following companies mentioned in this interview: None. 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: Ampio Pharmaceuticals Inc., Neuralstem Inc., CytRx Corp., Galectin Therapeutics Inc., Synergy Pharmaceuticals Inc., Stemline Therapeutics Inc. 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.

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Article by Investazor.com

As I mentioned in my early statement, Ben Bernanke didn’t manage to really impress the markets neither yesterday nor today. Maybe the only factor that would make a difference is the fact that yesterday the chairman of Fed made it clear that is very flexible in taking decisions while today his attitude may have shift more towards a dovish one, with the promise that even if by the end of next year the QE3 will be ended, the Fed will keep its policy highly accommodative.

The manufacturing in Philadelphia increased considerably at values last met in March 2011, possible marking the start of an upward trend for the American economy. Last month, only 334.000 individuals filled an unemployment insurance, leading the labor market to the greatest shape since May. In an attempt to approach the situation of gold, Ben Bernanke highlighted another positive aspect of the current economic situation, the fact that investors feel safer now and they don’t make safe deposits as much as in the near past. For all that, taking in consideration a more consistent period of time, the data are mixed, so it’s too soon for the Fed to take a firm position concerning the QE3.  Along with close supervision of the evolution of the economy, gradual steps will be made and changes of situations can occur.

The post Any Movement is Tied to the Economy appeared first on investazor.com.

By The Sizemore Letter

From Jeff Reeves at The Slant:

U.S. stocks rose again on Thursday, with benchmark stock market indexes hitting fresh records. Part of it was jobless claims falling, part of it was strong earnings from blue chip stocks and part of it was Ben Bernanke talking about continued Fed support.

But will the run continue?

Charles Sizemore says yes, and while we may not get another 19% in the next six months, it’s realistic to think we add another 5% to 10%. After all, the Federal Reserve rattled the markets several weeks ago with talk of “tapering” and now that everything looks normal again it has been off to the races. Charles thinks that was the correction the market was looking for before another leg up.

It’s worth noting, too, that stocks are a forward looking indicator. Yes, there are troubles now — but investors are moving their money based on what things may look like in 2014.

And besides, what other assets look good right now? Emerging markets? Bonds? No thank you.

Check out the video and share your thoughts about the market’s direction in the comments section below.

By www.CentralBankNews.info   Here’s today’s Central Bank News’ link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don’t miss any important news.

By www.CentralBankNews.info     South Africa’s central bank held its benchmark repurchase rate steady at 5.0 percent, as widely expected, saying upside risks to inflation from a lower exchange rate was limiting its ability to ease policy and stimulate a weak economy, and the outlook for inflation would determine its policy stance.
    The South African Reserve Bank (SARB), which is facing the uncomfortable combination of rising inflation and slowing growth, said that at this stage “a sustained breach of the inflation target is not our central forecast. However, we are concerned about the revised higher trajectory of core inflation and macroeconomic vulnerabilities that are increasingly evident.”
    Gill Marcus, governor of SARB, said the bank’s policy committee was mindful of these conflicting pressures and its policy would be “highly dependent on how we see the inflation trajectory unfolding in this very uncertain environment. In other words, it has become even more data dependent.”
    SARB revised its growth forecast downward and its inflation forecast upward.
    SARB, which targets inflation of 3.0-6.0 percent, said the outlook for inflation had deteriorated since May and it now expects average inflation of 5.9 percent this year, up from a previous forecast of 5.8 percent, 5.5 percent in 2014, up from 5.2 percent, and 5.2 percent in 2015, up from 5.0 percent.

    “The deterioration is mainly due to continued currency weakness and higher-than-expected petrol price increases,” SARB said, adding that inflation is expected to breach the upper end of its target in the third quarter of this year – an average level of 6.3 percent from 6.1 percent – but then return to the target range by the fourth quarter of this year. 
    South Africa’s headline inflation rate eased to 5.6 percent inflation in May from 5.9 percent in April, March and February, but SARB said this was likely a temporary decline as a 73 cent cut in petrol prices in May had been reversed by an 84 cent increase in July.

     The central bank’s policy committee again revised its 2013 growth forecast down to 2.0 percent this year, from a 2.4 percent forecast, and to 3.3 percent in 2014 from a previous forecast of 3.5 percent.
    “The downside risk to growth has already resulted in the Bank being more tolerant of inflation at the upper end of the target range than would normally have been the case, an approach that is consistent with a flexible inflation targeting framework,” Marcus said.
    Economic growth is expected to improve in 2015, with the economy expanding by 3.6 percent, down from a previous forecast of 3.8 percent. In 2012 South Africa’s Gross Domestic Product grew by 2.5 percent and SARB last cut its policy rate by 50 basis points in July 2012.
    “The risks to the outlook are still assessed to be on the downside, particularly in the face of further delays in overcoming electricity supply constraints,” Marcus said.

    South Africa’s economy lost steam in the first three months of this year, with GDP expanding by only 0.9 percent from the previous quarter,  the lowest quarterly growth rate in almost four years. On an annual basis, GDP expanded by 1.9 percent, down from 2.5 percent in the fourth quarter.

    “However, the risk remain that these pressures could be mounting, particularly if further currency weakness occurs and affects inflation expectations, which are currently anchored at the upper end of the target range,” she said, adding that the outcome of the present round of wage talks will be critical in determining how much wage pressure would impact the inflation outlook.
    South Africa’s rand has been under pressure since mid-2012 when labour unrest and high wage demands in the mining sector started to undermine the confidence of investors. The rand was also caught up in the general fall in emerging market currencies in May in response to fears of a tightening of U.S. monetary policy.
    Since May, the volatility of the rand’s exchange rate has increased, trading between 10.36 and 9.60 to the U.S. dollar, and since the start of the year it has declined by 14.2 percent agains the dollar.
    Marcus said the relatively muted pass-through to inflation of the depreciation in the rand was likely due to weak pricing power as economic growth is low.

     www.CentralBankNews.info

London Gold Market Report
from Adrian Ash
BullionVault
Thursday, 18 July 08:25 EST

WHOLESALE GOLD traded in a tight range around $1280 per ounce Thursday morning after recovering over a third of yesterday’s $30 drop from 4-week highs.

Gold miner equities, in contrast, extended their fall as broader stock markets rose.

 By lunchtime in London, African Barrick, spun out of the world’s largest gold producer in 2010, stood 2.2% lower but held above last month’s record low.

Russian miner Petropavlovsk lost a further 5%, taking its 2013 drop to more than 75%.

 Like the gold bullion price, silver prices were quiet after Wednesday’s sharp 4.3% swing, in line with other commodities.

 US Treasury bonds ticked higher, nudging 10-year yields down to 2.48%.

 “The sentiment [in gold stocks] is terrible – worse even than the sentiment towards gold,” says HSBC analyst Patrick Chidley to the Financial Times.

 “We have seen a 50% fall in gold mining shares in six months,” the paper also quotes Evy Hambro, co-manager of the $2 billion Blackrock Gold & General Fund.

 “Common sense would naturally say we are in very oversold territory.”

 Gold-heavy hedge fund manager John Paulson – whose $2 billion position in AngloGold Ashanti alone lost clients $317 million in the second quarter, according to the Wall Street Journal – yesterday defended his continued investment in both gold and gold producers.

 “People who bought gold in anticipation of inflation have lost their patience,” Paulson told CNBC’s Delivering Alpha conference.

 “[But] the consequence of printing money over time will be inflation, it’s just difficult to predict when.”

 That makes gold “an important part of anyone’s portfolio.”

 US Fed chairman Ben Bernanke restated his aim of starting to taper quantitative easing in testimony to Congress on Wednesday.

 But on short-term rates – now at zero for more than four years – “I don’t think the Fed can get interest rates up very much,” he said, “because the economy is weak, inflation rates are low.

 “If we were to tighten policy, the economy would tank.”

 Bernanke was due to resume his semi-annual testimony at 10am Thursday in Washington.

 “The $30 pullback in gold prices [after Bernanke spoke Weds] was likely more a reflection of disappointment that prices did not manage to break resistance [at] $1300,” says Swiss investment and London bullion bank UBS’s strategist Joni Teves.

 “Our economists,” says a note from Commerzbank’s commodity team, “are still confident that the Fed’s bond purchasing programme will be gradually scaled back from December.

 “This is likely to be largely priced in and should thus no longer weigh significantly on the gold price.”

 But “shifting sentiment regarding the timing of Fed tapering will impact gold and make trading volatile,” warns HSBC analyst James Steel.

 “Since investment demand is weak, with ongoing gold ETF liquidation, a strong physical market is crucial if gold prices are not to sink considerably further.”

 Further ahead, gold-mine output is set to shrink in the years to come, said Gold Fields’ boss Nick Holland in an interview Wednesday, thanks both to the falling gold price and “a dearth of exploration projects.

 “The industry is struggling to replace what it mined,” says Holland, CEO of the world’s 8th largest producer.

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 OilPrice.com

Oil and gas is getting bigger, deeper, faster and more efficient, with new technology chipping away at “peak oil” concerns. While hydraulic fracturing has been the most visible revolutionary advancement, other high-tech developments are keeping the ball rolling—from the next generation of ultra-deepwater drillships, subsea oil and gas infrastructure and multi-well-pad drilling to M2M networking, floating LNG facilities, new dimensions in seismic imagery and supercomputing for analog exploration.

ADVANCED SEMI-SUBMERSIBLES & 6^TH GENERATION DRILLSHIPS

Rig advancements are coming online in tandem with the significantly increased momentum to drill in deeper waters as shallower reserves run out. For 2012, 49% of new offshore discoveries were in ultra-deepwater plays, while 28% were in deepwater plays. What we’re looking at now are amazing advancements in deepwater rigs, with new semi-submersibles capable of drilling to depths of 5,000 feet or deeper. Beyond that, though, new sixth generation enterprise-class drillships can go to depths of 12,000 feet! From a global perspective, there are 120 ultra-deepwater rigs in existence—and demand is on the steep rise.
SUBSEA PROCESSING

Subsea processing can turn marginal fields into major producers.

Subsea production systems are wells located on the sea floor rather than the surface. Petroleum is extracted at the seafloor, and then ‘tied-back’ to an already existing production platform. The well is drilled by a moveable rig and the extracted oil and natural gas is transported by riser or undersea pipeline to a nearby production platform. Subsea systems are typically in use at depths of 7,000 feet or more. They don’t drill, they just extract and transport.

The real advantage of subsea production systems is that they allow you to use one platform—strategically placed—to service many well areas. And as the cost of offshore production rises, this could represent significant savings.

Subsea production could rival traditional offshore production in less than 15-20 years, and we’re looking at expected market growth for subsea facilities of around $27 billion in 2011 to an amazing $130 billion in 2020. Analysts expect E&P companies to invest more than $19 billion in subsea production equipment in 2013 alone–and up to $33 billion by 2017.

Subsea processing can handle everything from water removal and re-injection or disposal, to single-phase and multi-phase boosting of well fluids, sand and solid separation and gas/liquid separation and boosting to gas treatment and compression.

Subsea processing allows producers to separate the unwanted elements right on the seafloor, without using complicated and expensive flowlines to bring these elements up to the above-water processing facility to remove them and then send them back down to the seafloor to be re-injected. We’re cutting out the middle man here. The middle man in this case is the process known as “subsea boosting”.

What we’re talking about, essentially, is saving space and time (which means money) by performing processing activities on the seafloor rather than sending fluids back and forth between the seafloor and the processing facilities above water.

We are particularly interested in a new subsea rotating device that promises to enhance dual-gradient drilling (DGD). This is a system being developed by Chevron, which is hoping to deploy the system is the Gulf of Mexico later this year. What the DGD system will do is render the thousands of feet of mud that is bearing down on the wellbore … well … weightless.

And then we have subsea power grid plans, which have been making progressive leaps since 2010 towards the advancement of electric grids installed on the floor of the sea to run processing systems at the site of underwater wells. It reduces the need for so many platforms on the water surface, and makes the entire process much less complicated. The ultimate goal here is to be able to operate offshore wells remotely from land—saving countless billions.

MULTI-WELL-PAD DRILLING: OCTPUS IN THE HOUSE

One of the greatest drilling developments of the last decade is multiple well pads, which some like to refer to as “Octopus” technology.

Imagine gaining access to multiple buried wells at the same time, from a single pad site. This is what “Octopus” technology is doing, first in a canyon in northwestern Colorado in the Piceance Shale Formation and then in the Marcellus shale. It’s definitely not your traditional horizontal drilling.

Traditionally, to drill a single well, a company needs a pad or land site for each well drilled. Each of these pads covers an average of 7 acres. The Octopus allows for multiple well drilling from a single pad, which can handle between 4 and 18 wells. So, a single pad on 7 acres can now be used to drill on up to 2,000 acres of reserves. More than anything, it means that drilling will be faster, faster, faster … And less expensive in the long run once it renders it unnecessary to break down rigs and put them together again at the next drilling location. It’s simple math: 4 pads usually equals 4 wells; now 1 pad can equal between 4 and 18 wells.

Here’s how the technology works: A well pad is set up and the first well is drilled, then the rig literally “crawls” on its hydraulic tentacles to another drill location from the same pad, repeatedly. And it’s multi-directional. It takes about two hours between each well drilling. With traditional horizontal drilling methods, it takes about five days to move from pad to pad and start drilling a new well.

Last year, Devon Energy (DVN) drilled 36 wells from a single pad site using Octopus technology in the Marcellus Shale. More recently, Encana (ECA) drilled 51 wells covering 640 underground acres from a single pad site with a surface area of only 4.6 acres in Colorado. Multi-well pad drilling is also revolutionizing drilling in Bakken, and this is definitely the long-term outlook for shale. It will become the norm.

It’s also good (or at least slightly better) news for the environment because it means less drilling disturbance on the surface as we render more of the process underground.

SUPERCOMPUTING & SEISMIC DIMENSIONS EINSTEIN WOULD APPRECIATE

Oil majors are second only to the US Defense Department in terms of the use of supercomputing systems. That’s because supercomputing is the key to determining where to explore next—and to finding the sweet spots based on analog geology.

What these supercomputing systems do is analyze vast amounts of seismic imaging data collected by geologists using sound waves. What’s changed most recently is the dimension: When the oil and gas industry first caught on to seismic data collection for exploration efforts, the capabilities were limited to 2-dimensional imaging. Now we have 3-dimensional imaging that tells a much more accurate story.

But it doesn’t stop here. There is 4-dimensional imaging as well. What is the 4^th dimension, you ask: Time (and Einstein’s theory of relativity). This 4^th dimension unlocks a variable that allows oil and gas companies not only to determine the geological characteristics of a potential play, but also gives us a look at the how a reservoir is changing LIVE, in real time. The sound waves rumbling through a reservoir predict how its geology is changing over time.

The pioneer of geological supercomputing was MIT, whose post-World War II Whirlwind system was tasked with seismic data processing. Since then, Big Oil has caught on to the potential here and there is no finish line to this race—it’s constantly metamorphosing. What would have taken decades with supercomputing technology in the 1990s, now can be accomplished in a matter of weeks.

In this continual evolution, the important thing is how many calculations a computer can make per second and how much data it can store. The fastest computer will get a company to the next drilling hole before its competitors.

We are talking about MASSIVE amounts of data from constant signal loops from below the Earth’s surface. For example, geologists generate sound waves using explosives or other methods that dig deep into the Earth’s surface and then are sample 500 times per second. Only a supercomputer could possibly process all this complex data and make sense of it.

We’ve moved beyond geographical interpretations, such as pursuing exploration based on geological proximity, like Tullow’s Ethiopia play is on trend with its massive Kenya finds. This is child’s play. What we’re talking about is using supercomputing to tell us that standing in prolific Brazil is pretty much the same as standing in Angola; or that Ghana is analog to French Guiana.

Supercomputing advances remove a great deal of the risk involved in undertaking expensive drilling when you’re not sure what’s there. Supercomputing essentially puts the idea of peak oil to bed for the foreseeable future.

LNG TECHNOLOGY: FLOATING IS NOT A FANTASY

Liquefied natural gas (LNG) technology—from LNG seaborne tankers and LNG trains to floating LNG facilities have quickly gone from concept to commercialization, opening up new possibilities in new frontiers and rendering the remote—well, much less remote.

Liquefaction of natural gas is the process of super-cooling natural gas to minus 260 degrees Fahrenheit (minus 162 degrees Celsius) at which point it becomes much safer and easier to transport. After shipped to its destination, regasification plants at importing or receiving terminals return the fuel to a gaseous state.

Floating LNG production, storage and offloading concepts are revolutionary because they have the ability to station a vessel directly over distant fields, removing the need for offshore pipelines and adding the advantage of mobility—these floating facilities can be moved to a new location once existing fields are depleted.

Floating liquefaction technology can bring additional LNG supply by accessing stranded gas reserves that were previously thought to be too remote, small or otherwise challenging for conventional land-based LNG development.

Shell’s most prized LNG project is its Prelude Floating Liquefied Natural Gas (FLNG) Project in Australia, which is moored some 200 kilometers out to sea and will produce gas from offshore fields and liquefy it onboard. This vessel will be six times bigger than the biggest aircraft carrier and will cost between $10.8 and $12.6 billion to build—but it also means that Shell won’t have to pay rising prices in Australia’s onshore LNG plants. The facility will produce about 3.6 million metric tons of LNG and 1.3 million tons of gas condensate a year.

M2M FOR OIL & GAS: GETTING SMARTER AND MORE CONNECTED

The hottest arena in the smart grid world is machine-to-machine (M2M) technology—an industry worth $1 trillion. It’s relevance to the oil and gas industry should not be underestimated. Now it’s about to get even bigger because the cost of sensors used to make M2M possible has fallen so much that they are BEYOND commercially viable; and wireless networks are now cheap and everywhere. This is the next frontier in cross-sector technology.

M2M device use in the oil and gas industry is set to more than double, as these technologies (including SCADA Telemetry– supervisory control and data acquisition) emerge as key differentiators in expediting oil and gas exploration and accelerating operational efficiencies.

Adopting M2M early on enables remote monitoring and allows for more flexible control of assets from wellhead to pipeline. It also enables fiscal metering, drilling monitoring and fleet management, as well as worker safety and accident response.

It means higher productivity and eventually, lower costs for the oil and gas industry.

This is the important part: The number of devices with cellular or satellite connectivity deployed in oil and gas applications worldwide is expected to rise more than 20% over the next several years.

The top two applications for M2M in the oil and gas sector are in-land pipeline monitoring and onshore well-field-equipment monitoring.

The drivers are new regulations, rising operating costs (think unconventional drilling) and increasing competition (a lot more players on the field, and the rising ranks of the juniors).

WHO TO WATCH (AND OWN)

In the high-tech hydrocarbons game these are our four picks: General Electric (GE) for subsea infrastructure; Transocean (RIG) for deep and ultra-deepwater rigs, Schlumberger for 3D seismic, and FMC Technologies.

As upward pressure pushes up day rates for deep-water (especially ultra-deep) rigs, it’s Transocean (NYSE:RIG) all the way. This year’s already been a pretty good year for Transocean, despite some rather serious legal problems, and it’s got a nice backlog of contracts. But we’re also looking at Ensco and SeaDrill.

But hands down, it’s GE Oil & Gas, General Electric’s fastest-growing segment, with annual 16% revenue growth over the last three years. GE is one of the most diverse companies out there, and it has carved itself a nice niche in the oil and gas sector. And it’s impressively forward-thinking—from massive LNG projects to subsea drilling equipment. GE is positioned to experience significant growth.

This year has been an amazing year for GE Oil & Gas, with a list of contracts that would impress the biggest skeptic. Since January, GE has sealed a $620 million, 22-year contract for QGC’s Queensland Curtis LNG plant offshore Australia; a $333 million 16-year contract extension for Russia’s Sakhalin-2 LNG plant; a $500 million contract Petrobras for new pre-salt projects in Brazil; $600 million in multiple-customer propulsion system contracts; and most recently, a $147 million deal with Statoil for carbon dioxide injection. Adding to GE Oil & Gas’ market share here is the recent acquisition of Lufkin Industries. Though it had a very rough time of things during the financial crisis, GE has turned around—and quickly. Downsizing GE’s Capital Division has been fortuitous, and we see huge things ahead for this company.

By. OilPrice.com Premium Analysts

This report is part of Oilprice.com’s premium publication Oil & Energy Insider. Oil & Energy Insider gives subscribers an information advantage when investing, trading or doing business in the energy sectors. Successful investors, hedge funds and senior executives, have access to high level intelligence and power in ways that you, as an individual investor, are locked out of (the game is and never has been fair.) Let us help you level the playing field by using our network of traders, intelligence assets and high level partnerships to ensure you are making the right investment decisions.

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Source: Brian Sylvester of The Gold Report (7/17/13)

http://www.theaureport.com/pub/na/15444

Even though precious metals stocks are going through a nasty and unpleasant interval, Mike Kachanovsky, founder and partner of smartinvestment.ca, looks at the market through a bullish lens. Shrewd accumulators are buying all the gold and silver juniors they can. When prices recover, investors will realize that mining stocks have been driven down to generational lows and money will rapidly flow back into the juniors. In this interview with The Gold Report, Kachanovsky details actions smaller juniors can take to survive the downturn and discusses companies with the resources to stay afloat until the markets rebound.

The Gold Report: Mike, the prevailing wisdom in the market favors producers over explorers in the precious metals equities. The thinking seems to be why buy the pasture when entire farms are selling at nearly the same price? What do you think of that strategy?

Mike Kachanovsky: That is a good summary of current affairs. Market values for the entire sector have been trimmed dramatically; even many of the highest rated stocks are down 50% to 60%. From a value perspective, it makes sense to buy higher up the food chain when you have the opportunity, to buy more established companies that offer legitimate earnings and established infrastructure.

TGR: Kenneth Hoffman of Bloomberg Research notes that production from the world’s biggest gold mines has dropped 17% since early 2011. He predicts that gold mines, especially high-cost mines in Africa, will start to close as gold hovers around $1,200/ounce ($1,200/oz). Is there a bullish medium-term case to be made for gold given the shrinking supply?

MK: We have been through similar severe price corrections before. At the beginning of this century, gold’s market value was below what it cost to produce it. Mines closed and companies went out of business. That scenario evolved into the bull market we have today and the achievement of all-time high metals prices.

TGR: But this is not a bull market.

MK: A lot of the mainstream commentary is telling us this is a bear market for gold. I consider this to be a very severe correction within the context of a long-term bull market, a volatile event that will lead back into an even more bullish case down the road. I think we will see new highs for both gold and silver before this is over.

TGR: Predicting how long this will last is not easy, but what is your best guess?

MK: In my last Gold Report interview just over a year ago, I thought we would see a recovery before the end of 2012. I was dead wrong, obviously. Trying to predict the timing is just asking to be proven wrong.

The longer we get into this correction, I believe we are setting up for an even higher and more vibrant recovery. I would like to think the selling pressure would be washed out by this fall, but who knows? Silly can always get sillier.

TGR: Could gold test the $1,000/oz threshold this summer?

MK: Putting this in perspective, when gold was setting new highs in 2011, we had a parabolic short-term price curve. People speculated the price would break through $2,000/oz on the upside. We are now looking at a parabolic decline, which is just as unsustainable as a parabolic rise.

TGR: If silver and gold do rebound, what will underpin those rebounds?

MK: Demand for actual physical bullion is running at all-time highs. That is what will trigger more bullish conditions.

Both gold and silver exist in finite quantities. Speculators are panicking at these low prices, but shrewd accumulators who understand that gold and silver have always been money are buying all they can at these prices.

I saw it for myself in Hong Kong this April: people lined up three deep screaming, wanting to buy metal. That demand, along with supply curtailed by the lack of new development projects, will cause a shortage. That will trigger the next new high in gold as the market reacts.

TGR: If investors do return to precious metals, what would that mean for junior mining stocks?

MK: After metals prices have recovered, people will realize that mining stocks have been driven down to generational lows and money will rapidly flow back into the juniors. The selling today comes from hedge funds, exchange-traded funds and mutual funds. The recovery will be the mirror image of that, when the same funds want to accumulate these stocks again.

TGR: Until then, what do junior precious metals equities need for you to make a bid on them?

MK: It still makes sense to look at explorers one-by-one and find companies that are sitting on a large cash position and good projects. Many good stories are priced at generational lows. Even in this weak market, it is a good time to accumulate companies positioned for the day sentiment swings back to more bullish. This is an opportunity to buy cheaply and establish positions at very low cost averages.

But you must be selective. Warren Buffett once compared investing in stocks to playing a game of baseball where there are no called strikes. You have to wait and look for that really fat pitch to come across the middle of the plate before you swing the bat. The willingness to wait until you find that one company that is priced cheaply and has all the attributes to succeed will define the investors who make the most money after this downturn in market sentiment is resolved.

I look for companies with great cash positions, strong management, robust projects and low operating margins. Even really good stories are trading as if they were impaired.

TGR: You routinely make site visits. What mines or projects have you visited recently?

MK: I was at Scorpio Gold Corp. (SGN:TSX.V) in Nevada in April to tour its brand-new crushing plant at Mineral Ridge. That plant will allow the company to increase production and lower its unit cost.

Scorpio could well be one of the lower cost junior producers in Nevada, yet the stock has been a train-wreck. It is a good company priced at an almost ridiculous valuation, but it is well positioned to survive the downtrend and continue with its growth plan.

TGR: Scorpio settled a lawsuit in 2012 and seemed poised for better things in 2013, including more output at Mineral Ridge. Is its low price all market related or are there company-specific issues?

MK: I have been buying Scorpio all the way down, asking myself if I am missing something. Everything—cash costs, debt load, operations—looks sustainable and well-run. I have not been able to find a reason that justifies all this selling other than the overall weakness in the sector.

TGR: In late June, Atna Resources Ltd. (ATN:TSX) suspended operations at its Pinson mine in Nevada until a “revised operating plan is developed and gold prices are sufficient to support positive cash flow from operations.” Is this strictly about the gold price or are things just getting tougher in Nevada?

MK: Things are tough everywhere. Cash costs in every significant gold-producing region of the world have risen more than the metals prices. Now that the metals have corrected, operating and profit margins are under severe pressure.

Whenever there is a longer term correction in prices, production will revert to the lowest margin producers; the smaller companies and the higher cost producers will be taken offline. That is what we are seeing now.

The oldest cliché in the commodities sector is that the best cure for low prices is low prices. The longer gold remains in its current price range, the more mines will go offline, limiting the gold supply. Low supply will eventually contribute to a recovery and to higher prices.

TGR: Rye Patch Gold Corp. (RPM:TSX.V; RPMGF:OTCQX) is another junior operating in Nevada. It recently settled with Coeur Mining Inc. (CDM:TSX; CDE:NYSE) over the Rochester mine claims. What does that settlement mean for its investors?

MK: First, the settlement with Coeur injected $10 million ($10M) in working capital upfront for Rye Patch to move ahead.

Second, it gives Rye Patch a revenue stream. The royalty part of the settlement will contribute another $28M of recurring income that Rye Patch can use to fund projects.

There is about $38M in cash value from the settlement, which works out to about $0.25/share in value, on a stock trading at about $0.19/share.

TGR: In other words, if you believed in Rye Patch before it staked the Rochester claims, you should really believe in it now.

MK: Exactly. I think the sellers in Rye Patch are speculators who bought in expectation of a bigger settlement and more of an upside as the lawsuit progressed.

I look at it from the other point of view: A lot of good companies are dead in the water with no access to capital. Rye Patch has now emerged as one of the best funded juniors, ready to spend on its other properties or to make acquisitions.

A stock that trades at $0.19/share has a clear path to survive this downturn and to take advantage of the low-price opportunities out there. I am buying it and plan to continue to buy as long as I can get shares in this price range.

TGR: You are well known as Mexico Mike. What are your favorite junior equities in Mexico?

MK: Mexico is one of the premier spaces for investors in the junior mining space. Many good companies have been active there for years, but today their price ranges are so low that you can accumulate them almost as new entrants.

I have been a fan of IMPACT Silver Corp. (IPT:TSX.V) since the company acquired its first project in Mexico more than 10 years ago. IMPACT has put three new mines into production in the last couple of years. The company is running at capacity and is a low-cost operator. It has an extremely strong cash position and a huge inventory of untested new targets for future growth.

This is a company you can hold with confidence even if this correction drags on.

TGR: What is IMPACT Silver’s cash position?

MK: As of May 24, the working capital position was $16.8M, which is enough money to go for a while.

TGR: IMPACT Silver recently commissioned its 100%-owned Capire Production Centre. The company expects to begin concentrate shipments in the next six months. What will that add to IMPACT’s bottom line?

MK: I am not sure what the bottom-line numbers will be. To me, Capire’s significance is that it is being set up as a test mining operation. The company will be evaluating the strength of that whole mining area based on the small-scale operations of Capire.

In the early stages, the numbers are not as important as getting an idea of how the ore from that new zone will behave in a conventional processing environment. If it is profitable, IMPACT can redirect the cash flow back into expanding the operation and making it a much more significant production center.

TGR: Capire hosts high-grade, polymetallic mineralization. How important are byproduct credits to margins in this market?

MK: Most Mexican mines produce concentrates with silver in a zinc or a lead concentrate. The value of the concentrate itself has come down. These polymetallic mines get a lot of their total cash value from the base metals they produce along with the silver.

Silver has lost about 60% of its value off its peak, and other base metals have been affected by the same deflationary price trend. Right now both zinc and lead are at much lower price levels than when they were trading near their peaks. The companies will not gain as much benefit from byproducts as they did in the bull market.

TGR: What equities do you follow in Mexico?

MK: Like IMPACT, Great Panther Silver Ltd. (GPR:TSX; GPL:NYSE.MKT) has invested a lot in infrastructure. The company also has made significant discoveries. It improved the efficiency of its operations and can recover high percentages of the byproducts for every kind of ore that the company processes. Great Panther can use its strong cash position to continue investing in its operations and stay strong however long this correction continues.

TGR: Great Panther’s president, Martin Carsky, recently announced his resignation. How will that affect the share price?

MK: Bob Archer, who helped build the company over the last 10 years, will succeed Carsky, so the analysts and the institutions know that the same committed person will be running the company in the short term. In the long term, it would be smart for Bob to appoint a new president and not wear as many hats.

TGR: Do you have another Mexican story?

MK: Avino Silver & Gold Mines Ltd. (ASM:TSX.V; ASM:NYSE.MKT; GV6:FSE) has been active in Mexico since the 1990s. The company invested in infrastructure and in developing a new mine. That improved its cash costs and the output is in a rising trend. The company has reported strong cash flow and has access to additional capital through a line of credit. It is well positioned to survive a long downtrend.

TGR: We saw Endeavour Silver Corp. (EDR:TSX; EXK:NYSE; EJD:FSE) buy El Cubo from AuRico Gold Inc. (AUQ:TSX; AUQ:NYSE) and turn that asset around. Do you expect any small producers, like those you just mentioned, to buy distressed assets and prepare them to produce if prices turn around?

MK: I doubt any of the smaller producers have the clout to acquire a producing mine at this point. They are not capitalized or funded to take on major new deals.

Instead, I think junior producers will start to merge in friendly transactions. Perhaps the overall sector weakness will encourage more management teams to sit down and agree to deals to make that happen. Friendly mergers could be a win-win for any of these smaller juniors.

TGR: Do you see a likely dance partner for Avino in that situation?

MK: There are probably a dozen strong producing juniors, any one of which would be a good candidate for a partnership. In some cases they are operating individual mines immediately adjacent to each other, working very similar projects.

It is just a question of whether or not management is willing to agree to a transaction. That has been the problem all the way through this market; the smaller juniors resisted any efforts to merge.

TGR: What prompts that reaction? Self-preservation? Ego?

MK: Most junior miners were built from the ground up by one or two people. For a merger to succeed, some of those senior people would have to hand over the reins to a new management structure where they are no longer leading the charge. That is a difficult transition, even if it makes better sense for the company as a whole.

Unless merger becomes a necessity, I think most management teams will continue to resist mergers. The market conditions of today may create that necessity.

TGR: Mike, you have made a lot of money in this space and obviously believe that can happen again. Can you share one unsung aspect of your success, a trick of the trade?

MK: Probably the most significant thing that I did, starting with a very small amount of money at the beginning of this bull market, was to spread it around and get onboard a number of speculative stories.

All you need is one tenbagger, a company that goes from $0.10 to more than $1/share. You then redeploy those profits into other similarly positioned companies. In a robust bull market it is like firecrackers going off; one junior mining story after another suddenly becomes a huge winner.

The trick of course is to understand when the market rolls over and conditions become less bullish. Then you take some money off the table, back away and wait for the next speculative cycle to kick off. That is the next phase I am dealing with now.

TGR: You are waiting for the next cycle?

MK: Yes. I am convinced we will see another, even more intense bull market. The ability to keep your options open and be positioned in the next round of winning companies will define the next round of successful speculation. My attention is focused on finding the companies that have the potential to lead the entire market higher.

TGR: Mexico Mike, thanks for your time and your insights.

Mike Kachanovsky is a consultant providing analysis of junior mining and exploration stocks. His work is published on a freelance basis in a variety of publications, including the Mexico Mike column inInvestor’s Digest of Canada. He is a founder of www.smartinvestment.ca, which serves as an online community for the discussion of all topics relating to junior mining stocks.

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DISCLOSURE:

1) Brian Sylvester conducted this interview for The Gold Report and provides services to The Gold 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 Gold Report: Rye Patch Gold Corp., IMPACT Silver Corp. and Great Panther Silver Ltd. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Mike Kachanovsky: I or my family own shares of the following companies mentioned in this interview: Scorpio Gold Corp., Rye Patch Gold Corp., IMPACT Silver Corp., Endeavour Silver Corp., Great Panther Silver Ltd. and Avino Silver and Gold Mines Ltd. 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: IMPACT Silver Corp., Great Panther Silver Ltd. and Avino Silver & Gold Mines Ltd. 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.

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