Month: August 2013

Article by Investazor.com

Walt Disney Company

Chart: DIS, Daily

From October 2010 the price of Walt Disney Company shares started a bullish market. Ten months later, the price has gained 150% after reaching 67.70$ per share. From May 2013, when the price peaked, a triangle consolidation has started.

At this point the pressure seems to be o on the lower line of the triangle. A breakout and a daily close under this line could signal a 9.5% drop back to the trend line. Do not rule out the possibility of a false breakout on the lower line and a rally above the upper line and resistance. In any of the scenarios there is a good opportunity for taking some profits.

Coca-Cola Company

Chart: KO, Weekly

Let’s pass to our next company, Coca Cola. Another bearish market that lasted more than 4 years and the price of the shares rallied almost 150%.

At the current moment a corrective movement started that brought the price at the middle of the up channel. It has found a support at 39.60$, but it might move lower to test the trend’s line. The best opportunities for this stock would come with the breakout under the trend line, signaling this way the start of a possible bearish market, or a breakout above the 41.20$ resistance that could mean the continuation of the trend.

MasterCard Inc.

Chart: MA, Weekly

The last but not least is MasterCard Inc. This company’s share price rallied in less than 3 years almost 250%. It is an impressive market with no important corrections.

This trend might continue for the next three years, only that there are some bearish signals. The price has got close to 700$ per share, the 28 RSI entered an overbought area and the volume started to drop as the chart shows it.  This signals are not enough to take action at this point, but a drop under the trend line (do not forget the chart is drawn on a logarithmic scale) or a candlestick formation could confirm our current signals.

If the signals will be confirmed, a fall back to 500$ per share would be imminent. In this case a shorting opportunity would appear.

If you are not fans for short selling you can always use options to trade this kind of patterns.

The post 3 Stocks you Should keep an Eye on appeared first on investazor.com.

By www.CentralBankNews.info

By www.CentralBankNews.info     Russia’s central bank held its policy rates steady and expects inflation to return to its target range in the second half of the year and fall further next year provided inflationary expectations remain sustainable as there are no significant demand-side inflationary pressures.
    The Bank of Russia, which last cut rates in September 2012, also said there were “persisting risks of further economic slowdown” due to the combination of weak investment activity and sluggish economic recovery.
    “The Bank of Russia will continue to monitor inflation risks and the downside risks to economic growth. In making monetary policy decisions the Bank of Russia will be guided by inflation goals and economic growth prospects,” the bank said.
    A decline in inflation in recent months and expectations for a further fall along with the central bank’s emphasis on the downside risks to growth signal that the central bank is preparing to cut rates in coming months, as expected by most economists.

    The Bank of Russia held its benchmark refinancing rate steady at 8.25 percent along with its other main rates, including a minimum 5.75 percent rate on 12-month loans secured by non-marketable assets, an refinancing instrument that was introduced last month.

    Russia’s inflation rate eased to 6.5 percent in July from 7.4 percent in June, the lowest in eight months but still above the bank’s 5-6 percent target range. As of August 5, the bank estimated an inflation rate of 6.5 percent.
    The recent decline in inflation is mainly due to lower food prices, the bank said, adding that core inflation eased to 5.6 percent in July.
   “According to the Bank of Russia estimates, there is no significant demand side inflationary pressures, as gross output stands slightly below its potential level,” the bank said.
    Russia’s Gross Domestic Product contracted by 0.07 percent in the first quarter from the fourth quarter for annual growth of 1.6 percent, down from 2.1 percent in the previous quarter.
    The central bank said industrial output remains subdued and investment in production capacity is continuing to decrease and there has been some increase in the unemployment rate in recent months.
    “Consumer demand supported by the real wage and retail lending growth remains the major driver for economic growth,” the central bank said.

    www.CentralBankNews.info
   

GOLD is in recovery mode for few weeks now and it seems that current price action could move even higher in the next few days if we consider a broken trend line of latest five wave decline which suggest that impulsive move from 1680 is complete. Usually when market is in reversal mode the price will retrace back to the territory of a former wave four. In our case that comes in at 1394-1400 level that could be tested in the next two weeks.

On the 4h chart we can see that price made a sharp reversal  yesterday and closed on a daily basis above the upper line of a downward trading channel. A break suggests that corrective move from 1348 has already bottomed and that market is now forming a continuation pattern within larger uptrend, from 1180.

If you are interested in our analysis then you can try us absolutely FREE FOR 7 DAYS!

Visit  http://www.ew-forecast.com/service/ for more details

Source: George S. Mack of The Life Sciences Report (8/7/13)

http://www.thelifesciencesreport.com/pub/na/eight-small-cap-medtechs-with-big-prospects-brian-marckx

Small-cap medical technology has long been regarded as the ugly duckling of biotech. . .but think again. Brian Marckx of Zacks Small-Cap Research believes that the real gems of the medtech space complement—and can even outshine—sexier drug and surgical therapies. In this interview with The Life Sciences Report, Marckx makes a strong case for eight small- and micro-cap names that could bring home huge returns for investors.

The Life Sciences Report: Brian, your coverage universe is bunched into a narrow market cap range of $20–25 million ($20–25M), with a couple of outliers—one down at $6M and one up at $63M. I can’t help but think that this market cap range embraces your theme. Is that the case? Do you have a theme?

Brian Marckx: Our theme is providing coverage for very small companies that have little or no existing analyst coverage and are largely unknown. It’s essentially about uncovering companies with compelling stories that most of Wall Street may not have heard about and that may be trading cheaply.

TLSR: With so little coverage and so few people on the buyside able to own these stocks, doesn’t that make the difficulty level two or three times greater than if you were to follow companies with wider coverage? You are really into these stories by yourself, without a life vest, aren’t you?

BM: Absolutely, yes. And it does make coverage more of a challenge when you’re the only one looking at the stock. There is limited information on the company, and you’re going in blind for the most part, starting from ground zero.

TLSR: How do you begin? I’m thinking that you probably start with company management and then move outside to verify that technologies are actually valid. Does that sound right?

BM: Yes. I start with management, which can answer questions and guide me. Then we do our own due diligence, which entails talking to people outside the company, the experts in the industry, and looking at any public information that might be available. I usually come up with a number of questions during due diligence, and go back to have a longer conversation with management before writing and finishing my initiation report. It can be a lengthy process, particularly for companies that aren’t well known and especially for proposed products that are novel.

TLSR: Isn’t it difficult to value tiny medtech companies like these? A company may have a valid and workable technology, but doesn’t have the scale of an Abbott Laboratories (ABT:NYSE), or even of a mid-cap company. How do you value penny-stock companies? I’m asking because a sum-of-the-parts valuation is not really germane when you consider the risk discount you have to apply to companies that trade at such low valuations.

BM: Valuation is always a challenge with very small companies. Some are at the development stage, or the very early revenue stage with no earnings, and they may not generate positive income for several years. Using a standard valuation metric like a comparable (comp), or a price:earnings ratio (P/E), or even a price:earnings:growth (PEG) ratio, doesn’t necessarily work with a lot of the micro caps that I cover. In that scenario, I’ll use a discounted cash flow (DCF) model, as it allows me to look out maybe 10 or more years, at which point a company is either likely to be generating positive cash or to be in real trouble. Either way, it provides a method of valuing a development-stage company that currently may not look very good from a financial perspective, but takes into account estimated financial performance that may be stronger several years into the future.

If the company does have current earnings, I think PEG is often a better metric than a P/E comp, as the indicated earnings can be less stable with these small companies, particularly compared to the large-cap universe. I don’t think using a P/E comp captures that inherent volatility risk. Incorporating your growth estimate with PEG allows you to account for more of that inherent earnings volatility.

One other thing: A sum-of-the-parts valuation often doesn’t work with these micro caps because a lot of the companies are one-trick ponies—one product, one operating business and one major market.

TLSR: Even when you have products moving through the regulatory pathway successfully, or even if you have approved products, these medtech stocks don’t react like a small drug-development stock might react. It’s frustrating, isn’t it?

BM: In a biotech or a small drug company, U.S. Food and Drug Administration (FDA) approval is huge. That oftentimes can be seen as the catalyst. But in medtech, the FDA hurdle—or the regulatory hurdle in general—is often much lower. It is not necessarily the catalyst, or necessarily a huge catalyst, particularly with class 1 and class 2 devices, in which the FDA approval hurdle can be relatively low. Oftentimes investors won’t get too excited if a device is approved in the U.S., or in any country for that matter, like they might with a drug.

TLSR: So the catalyst in medtech is going to be product sales, right?

BM: Sales, profitability and, ultimately, cash flow are the end catalysts. But there are earlier catalysts, too—things like additional positive clinical data, which is similar to a drug; recommendations from medical organizations in favor of using a product; and even things like positive changes in reimbursement. Those earlier catalysts can make a big difference.

TLSR: Why should a small- and micro-cap investor be interested in medtech, versus a micro-cap biotech or drug developer? Why would you take the risk that is inherent in a low double-digit market-cap company in medtech, instead of in a company with a drug?

BM: There are undiscovered micro-cap gems in any industry, whether it’s biotech, medtech, oil and gas, financials or whatever. Companies are going to be undervalued, even taking into consideration the inherent risk of investing in a very small, and potentially very thinly traded stock.

Specific to medtech, there are definitely some challenges in the industry. Some of those are new, like the medical device excise tax. But there are also real reasons to be interested in medtech, because diagnosing and treating diseases earlier is a major emphasis in improving healthcare and patient outcomes. With an aging and more sedentary population, the demand for healthcare is going to grow. Age-related diseases are addressed by new drugs, but are very much dealt with by medtech as well.

TLSR: Let’s talk about companies. Pick one for me.

BM: Verisante Technology Inc. (VRS:TSX.V) makes a device called the Aura for the detection of skin cancer. It has both a CE mark in Europe and Health Canada approval, has recently launched its device in those regions and already has distribution in Canada and Europe, including in Germany, which is a very big medical device market. It booked initial sales in Q1/13.

Skin cancer is a virtually untapped market as far as detection devices go. The way that skin cancer is diagnosed or screened now is somewhat antiquated. A dermatologist essentially looks at the skin and makes a determination of whether a particular lesion should be biopsied.

TLSR: Give me the quick take on how the Aura works.

BM: The Verisante Aura uses what the company calls Raman spectroscopy. It’s essentially a near-infrared laser that vibrates the molecular bonds in the lesions, which changes the light reflected back to the sensor. The biochemical makeup of the tissue is determined that way, and then the results are compared to a database to determine whether the tissue is cancerous or not. It’s totally noninvasive. The device has gone through clinical trials, and it looks relatively accurate.

There is only one other device on the market that’s of significance in terms of competition: the MelaFind, which is made by MELA Sciences Inc. (MELA:NASDAQ). There haven’t been any head-to-head studies performed between the two devices, but Verisante’s technology looks to be more accurate, which is very important. It also has a number of other significant advantages, one being that it’s much faster—you can scan a whole body rapidly, whereas the MelaFind system would take a long time to do that. The U.S. market is a goal, but it’s probably down the road, after some U.S.-based studies are done. Verisante’s game plan is to roll the Aura out overseas first, to help finance the U.S. studies.

TLSR: If the product is ultimately filed and approved in the U.S., this would be through a premarket approval (PMA), not a 510(k) clearance, right?

BM: Most likely, yes. That’s right.

TLSR: Would there be a procedure code to go with this diagnostic, or would the dermatologist or clinic have to absorb the cost of the device?

BM: Most likely there would not be reimbursement, initially at least. That’s a big question mark, and has been a big question mark since before MELA launched its device. Verisante can use that as a measuring stick to see if insurers are going to pay for the Aura. The dermatologist would charge the patient, and the patient would have to pay out of pocket. Based on MelaFind’s launch, which hasn’t been that spectacular, it appears that patients are willing to pay.

TLSR: Do you imagine that the Centers for Medicare & Medicaid Services (CMS), which determines payment eligibility of services, could look at this and consider it to be another toy for the dermatology practice, which is already a very big cash business with patients?

BM: I don’t know; only time will tell. I know CMS can take a long time to make a decision, so potentially it’s on the radar screen and already being looked at.

TLSR: CMS would have to see a clear benefit ratio here, wouldn’t it?

BM: That’s certainly what it has indicated in the past. Not necessarily for this device, but historically CMS wants to see a clear benefit. If Verisante can show that, it has a great shot at reimbursement. If the Aura is just a toy to make money on, CMS is not interested in that.

TLSR: Basal cell carcinoma is highly invasive but it does not metastasize frequently. On the other end of the scale, melanoma is very aggressive and does indeed metastasize. Is the Raman spectral analysis valid and accurate, as far as you know, for basal cell, squamous cell and melanoma—all three skin cancers?

BM: It is—and that’s a differentiation between MELA and Verisante’s product.

TLSR: Brian, I’m noting a recent price of about $0.23/share, and your target price is $2.25/share. Is that a 12-month or 18-month target?

BM: That’s a 12-month target.

TLSR: Can you give me another idea?

BM: My next idea is SANUWAVE Health, Inc. (SNWV:OTCBB). It makes a device called dermaPACE for the treatment of diabetic foot ulcers, which is a roughly estimated $2 billion ($2B) market in the U.S. And that market is growing as the number of diabetics grows.

The device uses shockwaves to promote blood flow and tissue growth. In late 2011, dermaPACE was in a PMA device trial and just barely missed the primary endpoint. The FDA came out with a denial. SANUWAVE designed a new trial, which is supplemental in the sense that it can build off of the initial trial data, which was mostly positive. The FDA approval of the use of Bayesian statistical methods is a real benefit to SANUWAVE, as this method applies sequential analysis, meaning that the supplemental data can build on the positive results from the initial study. The totality of the data will hopefully show statistical significance on the primary endpoint. The FDA typically approves Bayesian methods when there’s already compelling data to build upon, so we view that as another vote of confidence.

The new trial is smaller than the first, but it is still a multicenter study, and has just begun enrolling patients. It’s designed very similarly to the first trial, but uses more treatment procedures to help improve the efficacy. At this point, the trial is expected to complete in Q2/14, and the company is shooting for PMA submission in late 2014, with potential approval in 2015. This product would compete against Kinetic Concepts Inc.’s (private) wound-healing device, which uses negative wound pressure. SANUWAVE’s device potentially works better.

This is a tiny company entering a very big market. Although it would compete directly with a fairly dominant product on the market now, dermaPACE looks like it could be very competitive.

TLSR: SANUWAVE is up 267% in the past six months. What has been the driver here? Is this performance due to it being a penny stock with a $13M market cap and easy-to-drive shares?

BM: Part of it may be that. Sometimes it’s difficult to tell with these micro-cap stocks because, as you know, the shares get pushed around easily.

SANUWAVE was in what I would characterize as a holding pattern between the time it got the negative FDA news and when this new study started gearing up. The company needed money, it needed to cut costs and it needed to consolidate to be able to fund the new study. During that period the stock languished; there wasn’t much going on or much volume. But over the last few months, the company has brought on new management and a new CEO, it has secured initial financing to start the study, and it got Institutional Review Board approvals at its study sites. In short, SANUWAVE has made a lot of progress, and the company has a solid game plan in place. My opinion is that this second study has a good chance of succeeding, and it may be that investors are on board with that same theme.

TLSR: Could I hear another idea?

BM: VolitionRx Ltd. (VNRX:OTCPK) makes a noninvasive cancer test that is based on epigenetic markers and requires a simple blood draw. The company is initially targeting colon cancers, but breast and lung cancers will be a focus after this first indication. Initial small studies have indicated that the test, called NuQ, has a relatively high degree of both sensitivity and specificity.

VolitionRx is ramping up its clinical studies, and just announced a big, 10,800-patient study in colorectal cancer, which is going to be run in Denmark. It’s a head-to-head study versus colonoscopy, and this could be a big deal. Analysis on the first 1,000 patients is expected within the next few months, so we will be able to get an early look at the test’s accuracy. The company is going to use that data, assuming it’s positive, to support a CE mark application. The game plan is to launch in Europe in early 2014. The U.S., of course, is going to require more clinical studies, and therefore the U.S. market is probably a few years off.

TLSR: Is this a screening to determine if asymptomatic patients should have a colonoscopy?

BM: I envision that initially it would be for symptomatic patients, but clearly the potential longer-term goal, which would be hitting the gold mine, would be to evaluate asymptomatic patients in place of colonoscopy. This current study, versus colonoscopy, will hopefully give us a decent indication of where the test could be used in the intervention process.

TLSR: You have a target price of $7.25/share, which is almost a quadruple from where shares are now. Is that a 12-month target price?

BM: Yes, it is.

TLSR: Your next idea?

BM: CytoSorbents Corp. (CTSO:OTCBB) makes a blood purification filter, CytoSorb, that removes cytokines and other toxic substances from the blood. The device is a cartridge filled with patented, highly porous, adsorbent polymer beads that remove the unwanted substances from the blood. The cartridge filter is connected to tubing through which blood flows. The blood is pumped with a conventional dialysis machine, although no dialysis cartridge is used. It uses patented polymer beads in a filter to remove those unwanted substances. The target market is for critically ill patients, such as those who have sepsis, trauma, respiratory distress. It’s essentially for use in patients who could die if they don’t improve quickly.

The system has been used in a fairly small clinical study in Europe, which showed that it was safe and that it reduced key cytokines. It’s now CE-marked and being commercialized in Europe. It is also undergoing investigator-led studies to prove that it works. That is a drawn-out runway to help commercialization, but the company is making progress.

TLSR: This is for use in the intensive care unit, is that right?

BM: Yes, that is correct. It also has been awarded several government-sponsored grants, including a Defense Advanced Research Projects Agency (DARPA) award that is focused on developing a device for treatment of sepsis.

CytoSorbents is a micro-cap company, but it does have capital, which we think it is using very smartly. The company is not just coming right out and trying to sell the product without physicians understanding how it works and how it’s used properly. I think the technology has a lot of potential, and early indications are that it works.

TLSR: Your next idea?

BM: OptimizeRx Corp. (OPRX:OTC) takes advantage of a certain niche, that being drug companies that market directly to physicians. The company has a revolutionary way of doing business. It has developed software called SampleMD, whereby every time a doctor writes a prescription, he or she can print out a coupon for the medication or send an e-coupon to the pharmacy. Every time a doctor prints a coupon, OptimizeRx gets paid $4 or $5. Pharmaceutical companies can reduce their costs by not having to rely so much on sales reps going to medical offices, where reps are increasingly being shut out by the physicians. SampleMD allows drug companies to continue to sample directly to physicians and patients without sales rep face-time. It is very revolutionary.

TLSR: OptimizeRx is up 36% over the past 12 weeks.

BM: Yes—there has been increasing awareness and increased interest in the company, which is reflected in the stock price. Electronic prescriptions are the fastest-growing segment of all electronic health applications. SampleMD has integrated its system into Allscripts Healthcare Solutions, Inc.’s (MDRX:NASDAQ) electronic prescribing system, as well as other e-prescription systems, including NewCropRx LLC (private) and DrFirst (private). Allscripts is the largest electronic prescribing provider, so this is a great relationship for OptimizeRx. OptimizeRx continues to build its footprint and just this week announced SampleMD will be incorporated into HealthTronics Inc.’s (HTRN:NASDAQ) e-prescribing workflow. HealthTronics is the largest provider of urology services in the U.S. On the other side, OptimizeRx has relationships with some of the big pharma companies, like Merck & Co. Inc. (MRK:NYSE), Abbott and Eli Lilly & Co. (LLY:NYSE).

TLSR: It’s a software-based, not shoe-leather-based, business, and therefore it should be scalable. Do you see it that way?

BM: The business is incredibly scalable. OptimizeRx can essentially ramp revenue with very little additional operating expense. The company’s game plan is to broaden its prescriber base to get its coupons into the hands of more physicians. It will also continue to expand the number of drugs promoted—OptimizeRx has been very successful on both of these fronts over the last couple of years. As it is now, the company is generating revenue, which has been growing. It has a very low cost expense base. It is very close to profitability and being cash-flow positive. In fact, OptimizeRx preannounced Q2/13 revenue and earnings, both of which showed dramatic increases and were ahead of my estimates. This company looks like it could really take off.

TLSR: Another idea?

BM: Biomerica Inc. (BMRA:OTCBB) is probably one of the least exciting companies that I cover, but that’s not a negative in this case. This company has been in business for 40 years, so it has history. It sells diagnostic tests, mostly for gastrointestinal diseases, infectious diseases, diabetes and women’s health. These aren’t necessarily the newest, best or most exciting tests; what attracted me to the company was its growing revenue. It has positive cash flow and positive earnings. I like management; members of the team don’t pay themselves a lot. The stock is incredibly cheap. This is one of those companies that you feel very comfortable about when you invest in it. You can sleep at night. In the micro-cap space, you don’t always see that. Biomerica is an outlier when it comes to that, I think.

TLSR: Biomerica has a $6M market cap, a tiny valuation, but it makes money. Why doesn’t management take the company private? It seems like it could buy this company for $20M or less.

BM: Yes, I think management could, and it’s a good question. The company is not out there raising financing all the time, and it doesn’t necessarily need to be public. But the business is run right, and that’s another thing that you don’t always see with very small public companies. Management isn’t there to enrich itself. It is there to run a business, and it shows.

TLSR: Do you have another idea you could share with me today?

BM: iCAD, Inc. (ICAD:NASDAQ) has two business segments. Its market is cancer, and it is in both cancer detection and cancer treatment. Its cancer treatment segment is where I see the bulk of the long-term opportunity. ICAD makes a device for intraoperative radiation therapy (IORT) for breast cancer, and this is a big growth area. As opposed to traditional external-beam radiation, which delivers radiation to the tumor from outside of the body, IORT radiates from within the body, directly to the cancerous site. IORT, for those patients where its application is deemed appropriate, has been shown to be more effective than external-beam radiation and, since it is more targeted, reduces the risk of killing healthy tissue. It essentially radiates only part of the breast. Reimbursement has been somewhat of an issue, but has gotten better and could continue to get better, because surgeons are interested in this technology. The company has been selling the devices, and utilization has been increasing.

The company also has an applicator for the treatment of skin cancer. The device has already started to take off, and this could be big. There were a number of question marks early on, particularly about reimbursement and whether iCAD could sell the device into the market without significant reimbursement. But that has gotten better. As reimbursement improves and awareness increases, this stock has a lot of potential.

TLSR: This is the largest company in your coverage, at least that I am aware of. It has a $63M market cap. Also, investors seem to like it because it is up 178% over the past 12 months. Any comment on that?

BM: Investors are certainly looking at iCAD. Management does a fantastic job on conference calls. The company provides a lot of detail. It’s a story that you feel very comfortable getting behind.

TLSR: Is there a last idea you would like to share?

BM: BioLife Solutions Inc. (BLFS:OTCBB) develops biopreservation media for cells, tissues and organs. Biopreservation media are solutions used to maintain the viability of biological material such as cells (including stem cells), whole blood and tissues following removal from the body, during storage and transportation, and while undergoing handling, manipulation and processing by researchers engaged in regenerative medicine product development.

It is estimated that demand for biopreservation media will grow at an annual rate of almost 20% for the next several years. BioLife expects to benefit from the emerging field of regenerative medicine (including cell therapy and tissue engineering), which has recently experienced rapid growth, largely as a result of recent advancements using stem cells to regenerate and repair tissues and organs, as well as to treat a number of diseases.

Today most of the biopreservation market is dominated by “home brews,” or in-house solutions. BioLife Solutions’ products, based on independent testing, appear to offer certain advantages over these home brews in terms of performance, reliability, shelf life and in the overall preservation of the viability and stability of cells. BioLife has drawn on more than two decades of molecular research that focused on how chilling can damage cells; this provided the backbone for product development, as well as for the differentiation and added value of the company’s products versus competing biopreservation media.

BioLife also has a contract manufacturing business. Financial performance has been very strong. The company set a new revenue record for the ninth straight time in Q1/13. The stock is up about 370% in the last 12 months and is up about 438% since I started covering the company in July 2012. My current price target is $0.90/share.

TLSR: I’ve enjoyed this very much, Brian. Thank you.

BM: I appreciate it as well. Thank you, George.

Brian Marckx is the senior medical device/diagnostics analyst with Zacks Investment Research. He covers small- and micro-cap medical device and diagnostic companies with a focus on development-stage companies with novel and emerging technologies, as well as already established names still flying under the radar. Prior to joining Zacks, Marckx worked as a high-yield bond analyst on Wachovia Securities’ institutional trading desks, where he specialized in the healthcare and industrials industries. Prior to that he was an analyst in corporate finance at First Union National Bank. Marckx has been quoted in The Wall Street Journal, Barron’s, Bloomberg Businessweek and Kiplinger. His work has also been cited in various market studies and working papers including those from Massachusetts Institute of Technology, Deloitte & Touche, and Pharmaceutical Manufacturing. He graduated with a bachelor’s degree in finance from St. John Fisher College, and received his master’s degree in business administration from Wake Forest University. Marckx is also a Chartered Financial Analyst.

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:Verisante Technology Inc., VolitionRx Ltd., BioLife Solutions Inc., Merck & Co. Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment. Merck & Co. Inc. is not affiliated with Streetwise Reports.

3) Brian Marckx: I or my family 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: Verisante Technology Inc., SANUWAVE Health Inc., VolitionRx Ltd., CytoSorbents Corp., OptimizeRx Corp., Biomerica Inc., iCAD Inc., BioLife Solutions 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.

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.

Participating companies provide the logos used in The Life Sciences Report. These logos are trademarks and are the property of the individual companies.

101 Second St., Suite 110

Petaluma, CA 94952

Tel.: (707) 981-8204

Fax: (707) 981-8998

Email: [email protected]

Source: George S. Mack of The Life Sciences Report (8/8/13)

http://www.thelifesciencesreport.com/pub/na/wedbush-expert-declares-money-for-biotech-is-still-out-there

The bull market in biotech stocks is coming up on its two-year anniversary, and large-cap and many small-cap names have flourished in that time. But can it last? Greg Wade, managing director of Wedbush Securities, wants investors to know there’s more to go, and that stocks are ready and willing to respond to good news from clinical trials and on the regulatory front. In this interview with The Life Sciences Report, Wade identifies six names that investors can take to the bank, one of which is still his favorite after two years.

The Life Sciences Report: Do you think the biotech market is getting a little frothy?

Gregory Wade: Some stocks have moved up quickly, and they’re going to need to have success in their pipelines to justify the valuations they have achieved. These rapid moves have probably occurred as a result of broad-based interest in the sector, which has done really well.

TLSR: Amgen Inc. (AMGN:NASDAQ) made a bid for cancer-focused Onyx Pharmaceuticals Inc. (ONXX:NASDAQ), and now other suitors’ names have surfaced—Pfizer Inc. (PFE:NYSE),AstraZeneca Plc (AZN:NYSE) and Novartis AG (NVS:NYSE). I’m wondering if you think this could be the beginning of something?

GW: Everyone has anticipated a wave of mergers and acquisitions, and this kind of activity might, in fact, be supporting the group. The existence of so many small companies with advanced programs and products creates a greater likelihood that there will be more activity, as bigger companies try to backfill their pipelines. The maturation of the industry is leading to more of these types of potential transactions.

TLSR: Do you think this activity makes the markets healthier, where stocks are more likely to react to catalysts?

GW: Yes, I do. The healthy level of financing activity has fundamentally created a favorable environment for investors, who can be relatively confident that their development-stage investments are actually going to get the financing they need to advance their programs.

TLSR: Are there therapeutic modalities or disease indications that are particularly compelling right now, generally speaking?

GW: It is tricky to invest across a therapeutic area; only a few failed studies can hurt that strategy. We are more focused on drugs, not on any particular indication causing excitement in the market.

TLSR: Let’s go ahead and talk about some companies. Do you have a favorite?

GW: We’ve had Pharmacyclics Inc. (PCYC:NASDAQ) on our best ideas list at Wedbush for almost two years now, and we have a $165/share price target on it, with the stock at the $100 level or a bit higher now. We’re anticipating the U.S. Food and Drug Administration (FDA) will act on its new drug application for ibrutinib (PCI-32765) shortly. Our research would suggest a potential timeframe of within 100–120 days to get an approval. That’s our best idea at the moment, and we would definitely focus investors’ attention on that. I think Pharmacyclics is a must-own stock. We’re expecting a lot of use of ibrutinib in chronic lymphocytic leukemia (CLL), and Waldenstrom’s macroglobulinemia as well, once the drug is approved.

TLSR: Pharmacyclics has doubled over the past year, and it’s still your best idea?

GW: Absolutely, yes.

TLSR: We’ve seen stocks sell off recently when their lead candidate gets approved. Do you think that’s a possibility with Pharmacyclics?

GW: I don’t. The stock is trading off some anticipation of what peak sales could be, and I don’t see the likelihood for the first two or three quarters of revenue to disappoint because the published numbers are quite low. I think there are enough regulatory catalysts and global commercialization activities to keep investors interested while ibrutinib is launched into the U.S. marketplace.

TLSR: The target of ibrutinib is Bruton’s tyrosine kinase (BTK), a newer target. Do you see other small molecules coming along as competitors target BTK?

GW: We’re aware of a direct competitor in Celgene Corp.’s (CELG:NASDAQ) program with Avila Therapeutics’ BTK inhibitor AVL-292 (now CC-292), which Celgene acquired in January 2012. But this is only in phase 1 trials. Then there’s a small private company in the Bay Area with a compound that’s not yet in the clinic.

Ibrutinib, though, is somewhat special. While it’s very selective for BTK, it also hits B lymphoid tyrosine kinase (BLK) and tyrosine-protein kinase (ITK). It’s potentially the ITK activity that’s leading to the differentiated depth and durability of response to the other BTK inhibitors and the p phosphoinositide-3-kinase (PI3K)-delta inhibitors that Infinity Pharmaceuticals Inc. (INFI:NASDAQ) has (IPI-145 in phase 2), along with Gilead Sciences Inc.’s (GILD:NASDAQ) idelalisib (formerly GS-1101; in phase 3).

That’s not all, though. We think once ibrutinib is approved in the U.S., it’s going to become increasingly challenging to do studies of other agents, at least in ibrutinib-sensitive patients. We think the drug is in a strong competitive position.

TLSR: In other words, there would be ethical considerations in doing head-to-head studies versus ibrutinib because it is so efficacious?

GW: Yes. Once ibrutinib is in the marketplace, especially if it gets approved broadly in CLL, I think it will become the standard of care. It would be my sense that most patients would have to fail a cycle of ibrutinib prior to being potentially suitable for investigational agents.

TLSR: Could I hear another name?

GW: We’ve been focusing on Endocyte Inc. (ECYT:NASDAQ) as well. This company is developing small molecule drug conjugates, and its lead program, vintafolide (EC145), is targeting the overexpression of the folic acid transporter. We have good randomized data in ovarian cancer that suggests that the companion imaging test with etarfolatide (EC20), which the company has developed, can identify the patients most likely to benefit from therapy with this molecule. The data also show that there is activity in heavily pretreated, advanced solid tumor ovarian cancer patients, and that the addition of vintafolide to the standard of care doesn’t result in increased toxicity. These data will likely support an accelerated approval of vintafolide in Europe, potentially before the end of the year.

TLSR: Vintafolide is a small molecule. Does that mean it can be given orally, or will it be given parenterally—intravenously or intramuscularly?

GW: It’s an intravenous medicine. This one won’t be oral.

TLSR: I note that vintafolide is in at least four clinical trials, and it is partnered with a big pharma.

GW: Yes, it is partnered with Merck & Co. Inc. (MRK:NYSE) on a global basis. Merck has committed to a wide variety of additional clinical studies in several other cancers. The partnership came with a substantial amount of cash, so the company is well financed, potentially to profitability. We will see additional data in the company’s lung cancer study before long, and that is a much larger opportunity than the lead indication in ovarian cancer. The lung cancer results could be the first in which three chemotherapies are used together, producing incrementally positive results for patients. Historically, triplet chemotherapy in lung cancer hasn’t improved overall survival.

On an enterprise value basis, the company is still reasonably valued. It has a market cap of $611 million ($611M), with close to $200M in cash and an almost-approved product in Europe. Investors should pay close attention here. The stock moved up following a positive reception from its analyst day. With approval in Europe, some success in the lung cancer setting and with pipeline progress, I don’t see why this stock might not be up by a factor of four of five in two to three years.

TLSR: The next catalyst is European approval?

GW: Yes, potential European approval.

TLSR: Another idea?

GW: I would highlight PTC Therapeutics Inc. (PTCT:NASDAQ). PTC is developing ataluren (formerly PTC124), a small molecule drug that helps patients with very specific gene mutations. The lead program is in Duchenne muscular dystrophy (DMD). It is in phase 3. Ataluren is also in a study, in phase 3, for cystic fibrosis (CF). The company also is expecting a decision on a potential European accelerated approval before the end of the year.

This is not an antisense drug, like Sarepta Therapeutics Inc.’s (SRPT:NASDAQ) exon-skipping eteplirsen molecule. A lot of strategies allow for a more appropriate expression of the dystrophin protein. Prosensa Therapeutics B.V. (RNA:NASDAQ) also has an antisense compound that induces exon skipping. These are for a different set of mutations.

TLSR: Is there a subpopulation of DMD patients with the mutation for which ataluren might be effective? If so, what percentage?

GW: A 10–15% range of DMD patients have this specific type of mutation. Gene sequencing is necessary to identify patients who have an inappropriate stop codon that terminates protein synthesis from DNA. We’re in a fortunate time in medicine now, where many patients with rare diseases have the gene of interest sequenced, so most know if they have this appropriate nonsense mutation.

TLSR: What catalysts should we be looking for?

GW: The European approval for ataluren in the DMD setting could come before year-end. PTC will also be filing for accelerated approval in the CF setting before the end of the year. Then it’s about the DMD data for the FDA, which we’re expecting in the latter part of 2014.

TLSR: Are there other companies you want to talk about?

GW: Novavax Inc. (NVAX:NASDAQ) is a vaccine platform company. It has had good success with the clinical development of both its pandemic and seasonal flu products, both of which the U.S. government is supporting, as well as a respiratory syncytial virus (RSV) vaccine candidate that it is developing on its own.

Some novel pandemic flu strains have popped up recently. The avian influenza A virus, H7N9, was in the news when there was an outbreak in China that was reported by the World Health Organization in early April. The U.S. government has just published a prenotification that it will be seeking suppliers of various different flu products, and something more formal will come out about this on July 31. In the near term, we think that Novavax could be the recipient of additional funding for its H7N9 vaccine product.

We’re also expecting Novavax to outline the path forward for licensure of its RSV vaccine. RSV is a fairly common respiratory pathogen that is responsible for a significant portion of hospitalizations of infants and young children, as well as the elderly. It’s one of the few common pathogens for which we don’t have a vaccination strategy. Novavax has had some positive data in a variety of different volunteer populations. Later this year we’re expecting an update from the company, and it will be describing the program forward and the pathway to registration for the RSV immunization.

With one set of programs fully funded by the government, good phase 1/2 data in RSV and the potential for an additional set of monies from the government for a new flu vaccine, we think this is a very interesting stock.

TLSR: Greg, I know you like government biodefense programs because they offer nondilutive funding of programs. You follow some other companies that have accessed that kind of financing.

GW: Absolutely. It’s an exceptionally positive way to build up your infrastructure and have it paid for.

TLSR: Would you talk about another idea?

GW: Avanir Pharmaceuticals Inc. (AVNR:NASDAQ) has seen a tremendous response to its direct consumer efforts that were undertaken in the early part of the year. It has seen strong week-over-week demand growth for Nuedexta (dextromethorphan + quinidine) for pseudobulbar affect, which is a condition characterized by sudden outburst of emotion—laughing, crying—in patients who have had brain injury.

A Paragraph IV trial challenge to its Nuedexta patents is coming up. We think the company has strong intellectual property (IP), and we expect a favorable outcome from that challenge. The trial week is Sept. 9. Then, before the end of the year, we’ll get data on the potential for the Nuedexta combination in patients with pain and multiple sclerosis. In the middle of next year, the same combination is being tested in an Alzheimer’s disease agitation setting. We have four events that we think could be drivers for the stock—the improving revenue picture for Nuedexta, the lifting of the IP overhang as a result of success in the courts and then two important clinical results releases. All of these, we think, will see the stock continue to move up.

TLSR: Just looking at the stock action, up 60% over the past 12 weeks and up 11% over the past month, that Paragraph IV trial does not seem to be an overhang at all.

GW: No, it has not held the stock back.

TLSR: You and I have discussed Oncolytics Biotech Inc. (ONCY:NASDAQ; ONC:TSX) twice before, once last summer and more recently this past February. The company is addressing several very tough oncology indications with its Reolysin (human reovirus serotype 3—Dearing strain) therapeutic agent. Would you update me on the upcoming catalysts?

GW: There are quite a few catalysts in the latter half of this year for Oncolytics. The phase 3 head-and-neck cancer data are going to read out in Q3/13. The company has a pancreatic cancer study going on, and we might see some early data in that before the end of the year. With each of these studies we’re going to start to see the first randomized data that will help us to get a view on how Reolysin is really doing.

TLSR: The first readout will be data from the squamous cell carcinoma of the head-and-neck trial, is that right?

GW: Yes. The head-and-neck is going to read out first. Then there should be some pancreatic cancer data as well.

TLSR: Although this stock was very strong in June, it’s been weak over the last two years. Do you detect that investors just don’t have a lot of faith in Reolysin? What has been the issue here?

GW: I think a lot of investors have taken a disciplined approach with this stock, preferring to wait to see randomized data prior to embracing the reovirus approach. That, combined with peers doing well, has led investors to sell the one that’s not going up and buy the others. With these upcoming data, which we expect will be positive, Oncolytics will have the opportunity to work for investors.

TLSR: Do you believe that Oncolytics is going to have to find specific genotypes for each indication?

GW: I don’t think so. That’s because most malignancies have the Ras pathway activated, and that shuts off expression of the PKR protein, the normal cell’s antiviral response, which would usually neutralize a virus. However, in tumor cells with the Ras pathway activated, the reovirus, Reolysin, is able to replicate itself inside the tumor cell, causing its death. The cell dies and millions of reovirus particles are free to enter other tumor cells. The theory is that this cycle of infection and cell death would be repeated in all the tumor cells, and they all will die. Most cancer cells are already targets.

TLSR: Back on March 28, you applied a $7/share target price to Oncolytics. That would be more than a double from here. Is that still your target?

GW: Yes, and that’s a 12-month target price.

TLSR: Which of the catalysts you’ve discussed will be the most powerful?

GW: I think the head-and-neck cancer study—the larger randomized trial—is the most powerful. Positive data there would be very well received. But the pancreatic cancer study is also randomized. Both could be meaningful.

TLSR: Thank you for your insights. I’ve enjoyed this very much, as always.

GW: I have, too. Thank you.

Greg Wade, managing director and senior analyst with Wedbush Securities, has worked on the sellside since early 2000, first at Pacific Growth Equities and subsequently at Wedbush PacGrow LifeSciences, where he was promoted to managing director in 2011. Wade’s coverage of emerging biopharmaceutical companies is supported by analyst team members David Nierengarten and Chris Marai. Wade earned an undergraduate degree with honors in medical biophysics and a doctorate in physiology from the University of Western Ontario in London, Canada.

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 toThe 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:Merck & Co. Inc., Oncolytics Biotech Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment. Merck & Co. Inc. is not affiliated with Streetwise Reports.

3) Greg Wade: I or my family may or may not own shares in companies mentioned in this interview. My company may or may not have a financial relationship with companies mentioned in this interview. 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.

Participating companies provide the logos used in The Life Sciences Report. These logos are trademarks and are the property of the individual companies.

101 Second St., Suite 110

Petaluma, CA 94952

Tel.: (707) 981-8204

Fax: (707) 981-8998

Email: [email protected]

Source: Peter Byrne of The Energy Report (8/8/13)

http://www.theenergyreport.com/pub/na/smart-fracking-jim-letourneau-on-enhanced-oil-recovery-with-competitive-costs

What’s the difference between an oil well and a very expensive hole in the ground? Advanced hydraulic fracturing techniques, in many cases. That’s why Big Picture Speculator Editor Jim Letourneau is following service companies that are helping producers get to the finish line on time and under budget. In this interview with The Energy Report, Letourneau discusses new ways to play the ever-evolving shale revolution.

The Energy Report: On July 26, George Phydias Mitchell died at the age of 94. The late Texas oilman had pioneered the use of horizontal drilling and hydraulic fracturing. Can you speak about his achievements?

Jim Letourneau: Mitchell was the founder of the entire shale oil/shale gas revolution. For decades, the Texas wildcatters had known that there was gas in the Barnett Shale, but it was very difficult to get it out. Mitchell did not invent the fracking technologies. He just wanted to get the gas out of the shale. And as the owner of an oil company, he got to challenge the technical people. He basically said, “If you guys can’t figure it out, I’ll find someone who can.” He had the power and the money and the persistence to make it work. Mitchell Energy & Development Corp. began working on the problem in 1981, and it took until 1999 to figure it all out. The company sold for $3.5 billion ($3.5B) in 2001! It is inspiring.

TER: Were other companies trying to develop fracking?

JL: The conventional wisdom did not comprehend what George Mitchell was attempting; some folks thought he was crazy. And since some visionaries fail, we need to celebrate the ones who are successful. He grew to be very wealthy as an oilman, but he had also read the book, “The Limits to Growth,” and he was very concerned about how civilization is managing the earth’s resources.

TER: The extraordinary success of fracking has brought the prices of petroleum products below the cost of production, in some cases. What kinds of adjustments are the juniors that are already producing product in the North American shale field having to make in order to turn a profit, or even to just survive intact until the next boom?

JL: Because horizontal wells cost anywhere from $5–15 million ($5–15M) to drill, the juniors typically need to partner with a larger company. The big companies wait for juniors with nice land positions but not much capital to get desperate; then they move in to strike a deal.

The giant shale plays are not junior friendly, because small firms do not have the hundreds of millions of dollars needed to develop them. Thirty million dollars sounds like a ton of money, but it might only fund two wells. Statistically, it might be necessary to drill up to 10 wells to prove up a play. Typically, it’s the majors that develop the new fields, and the juniors try to tag along by capturing acreage in a hot play, and that is often a good strategy. But they can’t afford to spend big money to crack the code. They usually look for partners.

Even medium-sized big companies like EnCana Corp. (ECA:TSX; ECA:NYSE) are entering into partnerships with foreign companies and looking for big investors, because the amount of money required to develop these plays is so enormous. In Northeast British Columbia, literally billions of dollars of investment will be required to fully develop the resource. If a junior’s land position is compelling enough, it can get a big payday from selling it. The challenge is that there are numerous shale opportunities for major oil companies to pursue and a junior needs an asset that is big enough to move the needle.

TER: For companies with producing wells, what kinds of new technologies are available to increase productivity without hurting already stressed out operating budgets?

JL: There are a lot of technological tricks with minimal costs: A producer can re-enter wells or stimulate wells or fracture older wells. It can enhance oil recovery with pulsed injection of water or chemicals.

TER: How does that work?

JL: A tool installed in the well injects fluids in pulses—pumping like a heart pumps. Think of putting a kink in a garden hose. Pressure builds up and when the kink is released there is a strong pulse of water. This technology is efficient and companies can make money doing enhanced oil recovery with pulsed injection.

TER: What names are on top of that technology?

JL: Wavefront Technology Solutions Inc. (WEE:TSX.V) provides pulsing tools to operations all over the world. It has a couple new business lines with fantastic growth rates. In well stimulation, a chemical (usually acid) is injected into a formation to clean up the area around the well bore so that more oil and gas can flow. By using pulsing, the acid is placed more uniformly and better flow rates are achieved after the stimulation. This part of Wavefront’s business is growing very quickly and now accounts for roughly half of the company’s revenue.

Wavefront’s pulsing technology has been modified for use in performance drilling tools. Fluid pulsing behind the drill bit and drill string agitation dramatically increases the rate of penetration. Reducing drilling time by 20–40% is an easy sell, and the enhanced oil recovery business has a huge market in the field.

In another five years, these technologies will be commonplace, but it takes time since most oil companies are slow to adopt new technologies. It is going to take a few more quarters for Wavefront’s revenue to ramp up, but its revenue growth is encouraging and I am quite optimistic about its prospects.

TER: How is its cash position?

JL: It has over $11M in cash. It is very close to being profitable, and it has more than enough money to see it through. The bottom line is that it has a market cap of about $25M and a rapidly growing business.

TER: How is Wavefront’s stock performing?

JL: The share price is approaching all-time lows. A couple of weeks ago, I bought more Wavefront shares because it is so cheap. I could be wrong, but the company has staying power, and it is not desperate for cash, so it is a good buy right now.

TER: Where are the best shale oil plays located?

JL: The big picture is there are lots of thermogenically mature source rocks all over the world that are amenable to horizontal drilling and fracking. Typically, these plays do better where there is existing infrastructure and expertise, like Texas. It is harder to do hydraulic fracturing in relatively new areas like Pennsylvania and New York or Europe because even though these regions have a long history of petroleum development, they currently do not have the infrastructure and the regulatory environment to manage fracking. Take the Wolfberry trend in the Wolfcamp shale, for example. It’s one of the hottest Texas plays with really good results coming out. And because it is in Texas, there are not a lot of regulation-related delays.

TER: Do you have any names for us in these shale plays?

JL: There is a small Canadian company with a foot in the Wolfberry door called Big Sky Petroleum Corp. (BSP:TSX.V). It has drilled one well that recovered a small amount of oil, but it remains to be seen how that plays out. Right now, Big Sky does not have a lot of staying power on its own, but it does have a big land position. However, with only about $1M in cash on hand, it needs to find a partner or get bought out. That is not an uncommon situation for a small company with a big land position. Capturing the land takes expertise and an upfront investment with no immediate return. The next step is drilling wells that flow at an economic rate. Or a company can wait for other drillers nearby to come in with good wells, which can make it easier to raise money at that point.

I also pay attention to Shoal Point Energy Ltd. (SHP:CNSX), which has big shale play acreage in Western Newfoundland, but since it did not have a lot of cash, Shoal Point partnered with another company that will earn in by drilling wells. Drilling costs a lot of money, and the first well does not always work out. Drilling can quickly turn into a giant money pit.

Generally, the challenge is the continual need to raise capital. It is a grind, but every once in a while, a company taps that gusher and sells itself to a major at a big profit. It just doesn’t happen all the time. It took George Mitchell 20 years to figure out what he was doing in the Texas shales; and that is too long a wait for most investors.

TER: Do you have any other names?

JL: There is a hot new play in California called the Monterey Shale. It is world-class source rock. A little company called Zodiac Exploration Inc. (ZEX:TSX.V) has a big land package in the San Joaquin Basin. It has farmed some of it out to partners, and it is getting results. It has about $13M in cash.

TER: Are there regulatory issues in that area in California?

JL: Zodiac is drilling close to Bakersfield, which is an oil and gas-friendly neck of the woods. There are some big majors involved there, like Chevron Corp. (CVX:NYSE). And once a major gets involved in a play, it helps everybody in terms of community relations. Occidental Petroleum Corp. (OXY:NYSE) is also big in that area of California.

TER: What kind of oil price will make shale exploration profitable?

JL: At $150/barrel, we would be booming! But, seriously, even the current low prices are sustainable. There are a lot of moving targets and price is just one of them. There are the drilling and completion costs—and those costs are coming down because companies are figuring out what technologies work best. The oil and gas business is slowly learning how to frack more efficiently. Oil companies cannot do much about the price of petroleum, but they can watch their costs, and that is where the focus is now.

TER: You often talk about the “hype cycle.” What is it?

JL: When something new comes along, everybody gets excited about it, everybody wants to try it and then the technological limitations kick in. The challenge is to make that technology better and better. Hype-oriented investors get in during the onslaught of the hype and then sell at the crest. Things decay as people realize, “wow, this is going to take a lot of work!”

With the advent of hydraulic fracturing, there was a big hype cycle: Everybody wanted in on the new thing. Money was thrown at all sorts of shale plays all over the world. Some of them worked out, and some of them did not do well. But the industry is maturing and optimizing the strategies that work. It is a slow grind to make horizontal drilling and hydraulic fracturing economic. But the current price of product is certainly sustainable, and oil companies can make a profit if they keep costs under control.

In the long run, oil production will operate like a manufacturing business. When the price goes up, there will be no shortage of ways to increase production. There is a huge runway, and that will keep the industry in balance for many decades ahead.

TER: It sounds like you’re an optimist.

JL: I just do not see a problem in the current situation. With the new industry that George Mitchell created, we are less reliant on coal. Natural gas is a better, cleaner fuel than coal—in spite of the protests and arguments to the contrary. Most people would rather have natural gas-fired electricity than coal-fired electricity for a variety of reasons. Low energy prices are good. It’s good for the economy. When we humans run out of a resource, we usually fix the problem.

One good example is the peak oil website, The Oil Drum. It recently stopped adding new content, because the peak oil argument is the same thing repeated over and over. The argument is that there is a finite amount of oil and we are going to run out of it and the consequences will be dire. But when there is a new discovery, the oil peakers have to pick it apart and say, “oh, it’s not that good because these wells decline quickly” or, “the environmental impact of this is too great.” They are continually negative about new developments that increase supply. And it’s fair to be critical. Good business practices include environmental impact and looking at how resource development best serves all of society.

But the big picture is that we have bought ourselves a lot of time with horizontal drilling and hydraulic fracturing: we will not run out of hydrocarbon fuels, and we will be able to make a nice transition into cost-effective alternative energy during the next 10 or 20 years.

TER: Given the high costs of exploration, is there going to be a collapse of the junior sector?

JL: There has already been a natural winnowing out of a lot of juniors. It used to be that a junior with a small amount of money could develop a play to the point where a bigger company would buy it out. Now the bigger companies have all kinds of options to pursue, so they’re less interested in small acquisitions and they have just as many ideas as the juniors do.

The challenge for a viable junior is to have a play in the top quartile. The odds are stacked against junior explorers. But if one of them ties up the right land, then there is an exciting payday for all involved. The key challenge is how to crack the code for the least amount of money.

TER: How can investors determine which of the small firms has the best chance of success?

JL: That is unknowable, because there are a lot of variables. The ideal situation for an investor is to hold a diverse portfolio of juniors. There definitely are attractive companies out there and they all have the same story: “We have captured acreage, and there are lots of hydrocarbons in place, and we have lots of science to support that it is valuable.” And sometimes they have big companies playing right beside them, too. But advancing the story to where there is a payday for the investors is a long road.

I’m not being negative, but realistically, it’s not easy right now for the juniors. They need their plays to look shiny and pretty. They need people to get interested. And there are so many shale plays out there that it’s hard to stand out.

TER: Thank you, Jim.

JL: You are welcome, Peter.

Jim Letourneau is the founder and editor of the Big Picture Speculator and is a geologist living in Calgary, Alberta. He is an early-stage investor in energy, metals, biotech and technology companies. He speaks at investment conferences across North America.

Want to read more Energy 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 Interviews page.

DISCLOSURE:

1) Peter Byrne conducted this interview for The Energy Report and provides services to The Energy 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 Energy Report: Zodiac Exploration Inc. and Big Sky Petroleum Corp. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Jim Letourneau: I or my family own shares of the following companies mentioned in this interview: Wavefront Technology Solutions Inc. and Shoal Point Energy 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: Wavefront Technology Solutions Inc. and Shoal Point Energy 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.

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 Energy 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.

Participating companies provide the logos used in The Energy Report. These logos are trademarks and are the property of the individual companies.

101 Second St., Suite 110

Petaluma, CA 94952

Tel.: (707) 981-8204

Fax: (707) 981-8998

Email: [email protected]

USDCAD breaks below 1.0345 support, suggesting that the uptrend from 1.0245 has completed at 1.0445. Further decline to test 1.0245 support could be seen, a breakdown below this level will signal resumption of the downtrend from 1.0608, then the following downward movement could bring price to 1.0150 area. On the upside, as long as 1.0245 support holds, the fall from 1.0445 would possibly be correction of the uptrend from 1.0245, one more rise to 1.0500 area to complete to upward movement is still possible.

Daily Forex Analysis

By MoneyMorning.com.au

Stocks go down, stocks go up again.

What’s an investor to make of it all…?

As we mentioned yesterday, the Australian stock market had fallen 1.8% on Wednesday. Yesterday it gained 1.1%.

If the Aussie share market keeps doing that on alternate days then the market is in for a steady decline over the coming months. That wouldn’t be a good result.

But as bad as things seem every now and then, the stock market still has a habit of turning up nice surprises to help stocks rebound. Is that sustainable? You’ll have to wait and see…

 Finally, a Positive ‘Bolt from the Blue’

Yesterday the stock market was lazily trading along, going nowhere fast. Then suddenly, the latest economic news came out of China. As the Financial Times reported:

 ‘The world’s second biggest economy said exports in July rose 5.1 per cent year on year, rebounding from a 3.1 per cent drop in June. Imports increased 10.9 per cent, up from a 0.7 per cent fall in June.

‘The numbers are stronger than expected and have raised hopes that activity has revived in what is widely seen as the engine of global growth.’

Before we knew it, the S&P/ASX 200 was up over 60 points. It would be a good day after all.

As always, we try not to get too excited. Even though we’ve set a target of the Aussie index hitting 7,000 points in 2015, we know markets don’t move in straight lines — up or down.

And even though your editor is undoubtedly the most bullish out of everyone in our Albert Park offices, we know that a bolt out of the blue can turn the market upside down…when we least expect it.

Of course the recently big obstacles in the way of a rising market haven’t been bolts from the blue at all. They’ve been repeats of the same old story — central bank meddling.

Saying that, even China’s export and import numbers can’t be completely detached from central bank meddling. It’s a fair argument to say the numbers (if genuine) are only possible because central banks keep printing money and providing artificial stimulus to various economies.

Anyway, for someone as bullish as us, you’d think yesterday afternoon’s stock rally would have had us in raptures. But it didn’t…

 Proof it Was a Great Time to Buy Stocks

Although we recommend you invest in dividend-paying stocks in order to collect ongoing reliable income, our favourite end of the market is growth stocks — especially small-cap growth stocks.

Small-cap stocks are great because you only need to invest (OK, punt) a small amount but you still have the potential to make a big return. That’s because small-caps are risky and they tend to be hyper-volatile.

That means they aren’t suitable for all investors.

But there’s something else about small-cap stocks. When the market rallies, small-cap stocks tend to lead the way. That’s because they attract the type of investor who hopes to make a killing from beaten-down, risky stocks.

And because these stocks are so small it only takes relatively few investors to pile in, in order to push the shares higher. In short, when punters are happy to take a risk on small-cap stocks it’s a signal that the rest of the market could be about to take off.

We saw that happen over the past month, as the chart below shows:

Key: Blue line – S&P/ASX 200; Red line – S&P/ASX Emerging Companies Index
Source: Google Finance

As you can see, the Emerging Companies Index gained 9% over the past few weeks compared to 5.3% for the S&P/ASX 200. That chart shows you why we’ve been so excited about getting into small-caps over the past few weeks — telling you to buy stocks while most others told you to sell.

Stocks Pause Before Another Rally

However, yesterday’s  market action was different. It wasn’t the small-cap stocks that did the best, it was the blue-chip stocks. That’s enough to give us a brief pause for thought. We ask: have the punters paused too?

It’s possible. The stock market has put in a good run. It’s now hovering around that psychologically important 5,000-point level. So right now it wouldn’t surprise us to see the market hover around this level a bit more.

It would be great if we were wrong and stocks took off in a flash. But for now we see it as a better than 50% chance that Aussie stocks will trade mostly sideways, perhaps for another few weeks.

Be clear: that doesn’t mean you should sell stocks. We don’t see a big crash looming on the horizon. In fact, we say it’s still a good time to buy, especially if the volatility calms down.

Just be aware that you probably won’t see the quick-fire gains that stocks gave you over the past month. But if you were waiting for an opportunity to buy into the market before the next rally, now is the time to do it.