Month: November 2013

Source: Peter Byrne of The Life Sciences Report (11/7/13)

http://www.thelifesciencesreport.com/pub/na/six-opportunities-in-the-specialty-pharmaceutical-space-scott-henry

The specialty pharmaceuticals universe encompasses a variety of technologies, among them innovative drug delivery systems and unique pain management and orphan disease treatments. In this interview with The Life Sciences Report, Scott Henry of ROTH Capital Markets touts the value of “sound business models” in the specialty pharma space, and names six companies with interesting prospects and/or stock-moving catalysts on the horizon.

The Life Sciences Report: Scott, is right now a good time to be investing in biotech?

Scott Henry: It depends on what you invest in. Picking sentiment is a fool’s game, in my opinion. Rather, I try to find good companies with sound business models at reasonable prices. This sector is highly volatile and investors have to develop intrinsic valuation models for companies. That way they are best positioned to take advantage of volatility, as opposed to being a victim of it.

TLSR: Let’s talk about some of the biotech sectors in your coverage universe. What do you see going on in inhalable medicines?

SH: I look at the inhalable category on a product-by-product basis, because one must demonstrate material incremental advantages to warrant the increased premium pricing over cheaper alternatives. One company I cover that I believe demonstrates these advantages is Alexza Pharmaceuticals Inc. (ALXA:NASDAQ).

Alexza has a soon-to-be-launched product in Adasuve (Staccato loxapine), for agitation in patients with bipolar disorder and schizophrenia. The product is approved in the U.S. and Europe and the company has marketing partners lined up—Teva Pharmaceutical Industries Ltd. (TEVA:NASDAQ) in the U.S. and Grupo Ferrer Internacional S.A. in Europe. Adasuve is an easily inhalable version of the antipsychotic loxapine, and could replace slow-acting pills or painful needles. I would take an inhaler over a needle any day.

For investors, I believe that Alexza offers opportunities because expectations are so low. The market cap of the company is ~$90 million ($90M). By comparison, Teva paid $40M alone for rights to market Adasuve in the U.S., and Teva will supplement this payment with ongoing royalties. My target price on Alexza is $10/share, which is based on a sum-of-the-parts valuation, including $5.50/share for U.S. Adasuve royalties, and $2/share for ex-U.S. rights to Adasuve.

TLSR: Let’s look at pain management and oncology support. What products are in the pipelines in that space? Any recent trial results that investors should take a peek at?

SH: Again, I like to find specific investment opportunities as opposed to focusing on a category. That said, pain management is a sector that I know well. One company specifically jumps to mind, and that isBioDelivery Sciences International Inc. (BDSI:NASDAQ).

This company has a product in phase 3 studies—buprenorphine for chronic pain—that is partnered with a leading pain management company in Endo Pharmaceuticals Inc. (ENDP:NASDAQ). This could be a $500M+/year revenue-generating drug if approved. The product could get a further boost if oxycodone combination products are up-scheduled from schedule 3 to schedule 2. In effect, if approved, buprenorphine could be one of the few severe pain products that would allow refills. The key risk here is pending clinical data for buprenorphine in H1/14, which we expect to be good.

The company also has a filed product, Bunavail (burprenorphine/naloxone buccal soluble film), for the treatment of opioid abuse, a $1 billion ($1B) market. This product could be approved in mid-2014 and launched soon thereafter. We believe that this product has peak sales potential of $200M.

Given that this company has two late-stage assets and a market cap of about $200M, I believe there is a disconnect. Furthermore, catalysts could change this valuation, given that clinical data on the phase 3 trial for buprenorphine are expected in H1/14. Our research indicates a strong likelihood of a positive data readout.

Our price target on BioDelivery’s shares is $8.50/share, which is driven by buprenorphine for chronic pain ($4) and Bunavail ($2.75).

TLSR: The realm of aminotransferase inhibiters, which treat conditions such as epilepsy and some orphan indications, is interesting. Do you have any picks in that space?

SH: Catalyst Pharmaceutical Partners Inc. (CPRX:NASDAQ) is an emerging biotechnology company in the white hot space of orphan drug medicines, which target very small patient populations, but with high pricing power. The company has come under scrutiny lately given the emergence of a competitive program from Jacobus Pharmaceutical Company Inc. (private) to its key drug, Firdapse (amifampridine phosphate) for the treatment of Lambert-Eaton myasthenic syndrome (LEMS).

We continue to believe that Catalyst will win this race for three key reasons. First, the company inherited deep resources for its program from the premier orphan drug company, BioMarin Pharmaceuticals Inc. (BMRN:NASDAQ), which is a significant investor in Catalyst. Second, we question the ability of Jacobus to manufacture the product at phase 3 standards. Third, we question whether Jacobus has met all the U.S. Food and Drug Administration (FDA) requirements for a drug filing. The risk is that we underestimated Jacobus, and little visibility is available given that Jacobus is a private company. Our price target is $3.75/share, which is driven heavily by our valuation for Firdapse ($3/share).

TLSR: One of my relatives recently had a terrible case of shingles. Are there any new treatment products for this condition coming our way? And do companies in this space have other products that treat central nervous system disorders and inflammations?

SH: First, I am sorry to hear about your relative, but perhaps we can find him or her some good investments to help relieve the pain. Depomed Inc. (DEPO:NASDAQ) may be one of those. The company has a high-reward, low-risk grouping of assets. The shares have performed well this year, as this proposition has become better known to investors. Shares now approach $7.50/share—up 50% from the lows. Our price target is $9/share.

The company just added ~$240M to its balance sheet by converting assets into cash. We believe that putting this cash to work could drive upside to our price target. Importantly, management has been shrewd with cash lately—including the recent purchase of the approved pain treatment Lazanda (fentanyl nasal spray). Also, the company’s shingles drug, Gralise (gabapentine), continues to grow inline and ahead of our targets. Depomed could be an emerging specialty pharma company looking to make the shift to the elite world of profitable healthcare companies. The risk here is the redeployment of cash into assets that produce high returns. We believe the current management track record could bode well for investors.

TLSR: Let’s look at generic topicals. Any picks in this space?

SH: Generic topicals have been a very favorable environment, because the space is under the radar for most big players. There are also clinical barriers to entry, such that supply tends to be in check with demand. In the past few years, this has led to strong upward pricing power, which has raised all boats higher.

One of my favorite names in this space is IGI Laboratories Inc. (IG:NYSE.MKT). This small, generic company has many potential positive inflection points.

First, the company could turn earnings-per-share (EPS) profitable this year, which tends to be a good time to buy generic stocks. Second, the company has 13 proprietary abbreviated new drug applications (ANDAs) at the FDA. The first proprietary approval could come in the next six months. That could validate the whole business model and send shares significantly higher.

Our valuation on IGI Labs is $3.50/share, relative to the current price of ~$2. We base this valuation on a 20x multiple of forecasted 2016 EPS. The risk here is that the approvals fail to materialize.

TLSR: What about molecular diagnostics? I understand you have a target price on PDI Inc. (PDII:NASDAQ), which has recently entered in to a collaboration agreement. Can you talk about the prospects of this firm?

SH: PDI is a really neat story; it just expanded into molecular diagnostics. The company is a contract sales organization (CSO), which means it has a “sales force for hire” for other pharmaceutical companies. That’s been a tough business model the past few years, but we expect it to improve the next two years. That alone makes PDI stock interesting to us, given that it trades just below $5, with ~$3.50/share in net cash.

The kicker is that PDI is putting small amounts of cash to work that could have large payouts. This includes two recent asset acquisitions for small up-front payments. The company can market these products with its excess CSO capacity such that it mitigates the marketing risk. The payouts from these recent deals could start to be apparent in H2/14. We think now may be the time to invest.

Our price target on PDI shares is $9, which is derived from cash (~$3.50/share) and the base business (~$5/share based on 20x EPS potential in 2015).

TLSR: Do economic stresses in the international market (including North America) impact the prospects of the firms we have talked about today?

SH: Fundamentally, economic circumstances do not reduce demand, as people always get sick. Economic stress may hurt healthcare coverage and reimbursement, but not in a material way. The one thing that does come into play is financing. In a low-risk investment environment, investors will demand a higher premium to invest in money-losing companies. Companies with greater financing flexibility will tend to outperform in tougher economic times.

TLSR: Thanks for your time, Scott.

SH: Thank you.

Scott Henry is the head of healthcare research and a senior research analyst with ROTH Capital Partners, covering the specialty pharmaceutical sector. He came to ROTH Capital from OppenheimerFunds, where he led coverage of the U.S. pharmaceutical sector. He has also been affiliated with Thomas Weisel Partners, ABN AMRO and Leerink Swann & Co. His coverage universe has included specialty pharmaceuticals, large-cap pharmaceuticals, biotech and selective medical device names. He has 12 years of sellside experience. Henry was ranked #2 in The Wall Street Journal’s “Best on the Street” stock-picking survey in 2010, #3 on the Forbes/Zacks Investment Research “Best Analysts” list for the Drugs category in 2010 and #3 in the pharmaceutical sector by Forbes.com/StarMine for earnings estimate accuracy in 2007. His investment views have been cited inThe Wall Street Journal and The New York Times and he has made frequent appearances on CNBC, CBS Marketwatch, and Bloomberg. Henry attended the University of Rhode Island and received a master’s degree in business administration with distinction from Cornell University.

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DISCLOSURE:

1) Peter Byrme 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 Streetwise Reports: BioDelivery Sciences International Inc. and Catalyst Pharmaceutical Partners Inc. Streetwise Reports does not accept stock in exchange for its services.

3) Scott Henry: I own, or my family owns, shares of the following companies mentioned in this interview: Alexza Pharmaceuticals Inc., BioDelivery Sciences International Inc., Depomed Inc., PDI, Inc., IGI Laboratories Inc. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

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By CentralBankNews.info
    Peru’s central bank cut its monetary policy reference rate by 25 basis points to 4.0 percent, its first change in rates since April 2011, describing the rate cut as “preventative and does not imply a sequence of reductions.”
    But the Central Bank of Peru (BCRP) also said that if necessary the bank would “implement additional easing measures in the BCRP monetary policy instruments,” a likely reference to the bank’s reserve requirements that have been lowered several times since April to provide more credit to the financial system in the domestic sol currency.
    The central bank said the new rate was compatible with an inflation forecast of 2.0 percent in 2014-2015 and also reflects that economic growth is slowing to a rate that is below the country’s potential level, that the world economy is slowing, a decline in inflation expectations and a reversal of supply factors that had a temporary impact on inflation.
    In addition to cutting the reference rate, BCRP also cut the overnight deposit rate to 3.2 percent, the rate on direct repo and rediscount operations to 4.8 percent while the commission on swaps was cut to an effective cost of 4.8 percent.

    Last month Peru’s central bank described Peru’s economic growth as close to its long-term sustainable rate while the external market had shown a slight recovery. Economists estimate Peru’s sustainable growth rate around 6.0 to 6.5 percent.
    However, in late September the central bank’s president, Julio Velarde, told a press conference that the bank had not ruled out eventually lowering its rate as it cut its 2013 growth estimate to 5.5 percent from a June forecast of 6.1 percent.
    In 2012 Peru’s economy expanded by 6.3 percent but growth has slowed this year due to weaker mineral exports and lower domestic demand.
    In the second quarter, Peru’s Gross Domestic Product grew by 1.1 percent from the first quarter for annual growth of 5.6 percent, up from 4.6 percent in the first. Last month Velarde said the economy would likely expand at an annual rate of between 6.2 and 6.3 percent in the fourth quarter.
   Peru’s government has targeted growth of 5.7 percent this year.
    But the central bank said recent indicators had shown weaker economic activity, reflecting lower export growth due to slower growth among its trading partners and lower export prices.
    Peru’s inflation rate rose slightly to 3.04 percent in October from 2.83 percent in September and is expected to remain within the central bank’s upper band of its target range in coming months due to the lagging effect of supply shocks.
    But in 2014 inflation is expected to converge to the bank’s 2.0 percent target. The central bank targets annual inflation of 2.0 percent within a range from 1.0-3.0 percent.

    www.CentralBankNews.info
 

USDJPY breaks below 97.80 support, suggesting that the upward movement from 96.94 had completed at 99.41 already. Further decline to test the support of the lower line of the price channel on 4-hour chart would likely be seen, a clear break below the channel support will signal resumption of the longer term downtrend from 100.60 (Sep 11 high), then the target would be at 93.00 area. On the upside, as long as the channel support holds, the price action from 99.00 would possibly be consolidation of the uptrend from 96.57, one more rise towards 100.00 area is sit possible after consolidation.

Provided by ForexCycle.com

By MoneyMorning.com.au

Stocks are still going up…barely.

We don’t mind admitting, it feels as though it would be easier to get blood from a stone than to get this market to punch any higher.

After the usual doom and gloom junk about October being a terrible month for stocks, what do you know? Just as we said it would, October this year turned out to be a pretty darn good month for stocks.

In fact, it turned out even better than we expected. The Australian market climbed 3.96%.

But since then it has been painful watching the market rise or fall by just a few points either way. It’s almost as though Australian stocks have gone into a coma.

So, is there anything we can read into this? Let’s see…

One stock we can’t blame for holding back the market is Commonwealth Bank of Australia [ASX: CBA].

Over the past four weeks it has surged from $71.57 to yesterday’s close of $79.32. That’s almost bang on a 10% gain…more than double the gain of the S&P/ASX 200 during the same period.

Another stock we can’t accuse of being a laggard is BHP Billiton [ASX: BHP]. It has climbed from $34.89 four weeks ago to yesterday’s close of $38.24.

One bank stock, one resource stock. Both gain 10% in short order…for very different reasons.

Investors Still Putting ‘Safety’ First

For a start it proves that the ‘safety’ trade is still alive. Investors still want dividend stocks, and they’re prepared to pay for it.

Now, we’ve put ‘safety’ in quote marks, because arguably the Australian banking sector isn’t as safe as most people think…not when it benefits from what US hedge fund manager Jeremy Grantham calls one of the last great asset bubbles – Australian housing.

But when the market’s going up – just like when house prices keep going up – people assume it’s the safest investment, and so they buy more.

What about BHP? Surely it’s hard to call a resource stock ‘safe’ in this volatile market.

Maybe, maybe not. If you’re a conservative investor but you want exposure to the Australian resource sector, or if you just want a completely balanced portfolio, it’s hard to ignore the Australian market’s biggest stock.

So again, in a way, a rallying BHP shows you that most investors are sticking with safe stocks rather than risky stocks.

That’s why, even though most income stocks are trading near to fair value (or in some cases over fair value), we continue to recommend income stocks in Australian Small-Cap Investigator.

For the simple reason that not only can you get paid (with dividends) in a sideways market, but if investors continue their search for yield and interest rates stay low, you’ve got a chance to lock in capital gains too.

A Market in Need of Reassurance

So, when you get that type of market behaviour two things can happen.

After piling into ‘safe’ stocks, investors may soon realise those stocks aren’t so safe after all. That scenario looks like playing out today following falls in Europe and on Wall Street.

Even the ‘safe’ stocks are likely to take something of a beating today.

But, if our hunch is right, today’s downturn will be a short-lived event. We’re not about to run out clichés such as ‘the market is due for a pullback’ or ‘this creates a buying opportunity’ – even though both clichés are probably true in this case.

You have to look at the reason why US stocks fell: the latest US GDP number was better than the market expected. Why is that bad news? Because investors have got themselves into thinking that the US Federal Reserve will stop printing money and raise interest rates.

Really, that isn’t about to happen. Yet it hasn’t stopped the market having a panic attack. That’s what the market does from time to time. It behaves like an over-anxious kid who needs constant reassurance. ‘Calm down, everything will be fine…here’s a lolly.’

In this case the lolly will be coded messages from US Federal Reserve members letting the market know that money printing and low interest rates are here to stay.

Six Figure Stake to Make a Four Figure Profit?

When that happens – as it almost surely will – you’ll get another surge back into stocks. The dividend payers should get the first burst of gains, followed by the growth stocks.

We can hardly believe we’re saying this, but it wouldn’t surprise us if CBA went even higher. Broking firm Bell Potter now has an $82 price target on the stock.

Whether you should buy CBA is another matter. To us buying a $79 stock for the potential of a $3 gain doesn’t make a lot of sense.

We prefer buying 20 cent stocks for the potential of a $3 gain. For a start, because of the huge potential, you only have to risk a small amount of cash – $500 in a 20 cent stock that goes to $3.20 will turn into $8,000.

To make the same profit on CBA going from $79 to $82 you’d need to invest a staggering $197,500. That’s a stake most investors can’t afford.

Of course, you won’t make those returns on every small-cap stock punt. And small-cap stocks are high risk; – you can lose the money you invest.

But here’s some breaking news: you can lose money on blue-chip stocks too.

It’s about working out the best risk versus reward scenario in the market and then acting on it. In our view, as much as we like the chances of the Australian market going much higher from here, we’ll caution you about investing in what most people perceive as ‘safe’ stocks.

Because when it comes to the crunch, ‘safe’ stocks can fall too, and you’ll soon realise they aren’t so ‘safe’ after all.

Cheers,
Kris+

Special Report: Read This or Retire Poor

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By MoneyMorning.com.au

‘Remember, remember the fifth of November.’

Earlier this week, November 5th, was Guy Fawkes Day in England, which commemorates when Guy Fawkes (who else?) tried to blow up Parliament in 1605. More on that in a moment, because right now that’s the least of our worries!

Today we have larger fish to fry….

There’s a stunning development in the world of gold buying and selling. In fact, there’s a massive gold shortage across conventional markets. This shortage may be a precursor for a price melt-up. Let’s look at some charts.

Click to enlarge

What’s going on? What do these graphs mean?

Above you’ll see ten years’ worth of graphical data concerning gold trades on COMEX, which is an exchange that offers warehouse services for clients who trade metals. That is, COMEX stores gold at designated sites, on behalf of its clients. When you read about ‘gold trading’, this is the gold that gets traded.

Let’s back up for a moment. COMEX holds metal on deposit to settle futures contracts, to back-up buy/sell deals and to secure transfers between parties. On occasion, gold gets withdrawn from COMEX warehouses. (Too many occasions in recent months, as we’ll see below.)

As part of its ‘exchange’ service, COMEX issues daily reports that detail its stock of gold, silver, copper, platinum, palladium and more. That is, COMEX states exactly how much metal is stored in its warehouses, and how much metal is available for trades.

In general, the idea behind daily COMEX reports is for traders to know how much metal is there to support futures contracts. The data also give insight into what large gold (and other metal) owners are doing in terms of trades and settlements, as well as how much metal is being drawn out for delivery. So far, so good.

Take a look at the top graph where it shows the price of gold (in yellow) and the ‘open interest’ in gold contracts (in dark blue) from 2003 to the present. This reflects more and more players getting into gold futures during a decade-long price rise.

The open interest designation reflects the number of option and/or future contracts that are not closed out – thus remaining ‘open’. Note a general rise in open interest between 2003 and 2012, and the decline over the past year. Makes sense, right?

Now look at the second graph. It shows how much gold is represented by the open interest. That is, how much gold it would take to satisfy all of the contracts out there, if people actually demanded delivery.

Back in 2011, the number was north of 60 million ounces, or about 1,700 tonnes (metric tons). Today, it’s just less than 39 million ounces, or about 1,100 tonnes. One way or the other, it’s a lot of gold, to be sure.

Then again, most traders just deal in ‘paper gold’ and not the real thing. Most people trade gold for the dollar-side of the deal, not because they want to take delivery and hoard gold in their vaults, let alone bury it in a treasure chest in the back yard. Still, the graph illustrates how much gold is in play just via COMEX.

Big Physical Gold Shortage Developing

Now look at the bottom two graphs. Note the second to last graph. It reflects an abrupt drop in ‘registered’ gold stocks over the past six months. That’s gold eligible for COMEX delivery. The chart distinctly shows quantities shrinking fast, to about 660,000 ounces – which is the point of drying up, certainly as compared with average levels over the past ten years or so.

Finally, take a look at that bottom chart. It reflects the number of ‘gold contract’ investors with a claim on each potential COMEX ounce. Looking back to 2003, COMEX data reflect between 10 and 20 potential ‘owners’ for each ounce, with an excursion up to the 30-range in 2011.

But look what happened in the past few months. The number of ‘owners per ounce’ has spiked up to an unprecedented 55! In other words, if fewer than 2% of COMEX gold contract owners hold their positions to expiration, and then ask for delivery, COMEX warehouses would be cleaned out. The other 98% of gold contract players would be left holding an empty bag.

What does this mean? COMEX numbers clearly show a severe squeeze on physical gold. The gold that backs ‘trades’ is at an all-time low! The registered gold inventory is at critical shortage, unprecedented since the days of $300 gold back in the early 2000s.

Where’s the Gold?

Meanwhile, the well-publicized, ongoing disgorgement from ETF plays, such as SPDR Gold Shares (GLD) is NOT going into warehouse inventories, certainly not at COMEX. In fact, the evidence is that this gold is going to refiners in Europe, and thence to China and other gold-buying locales. The GLD outflow is no longer available to Western investors – not at current prices.

Here’s a trend that is NOT your friend.

The gold is going away, and I strongly suspect that it won’t come back in our lifetimes. National wealth – in the form of gold – that required generations to accumulate is leaving our economy. It’s migrating east.

Should we be worried? Well…it will only take a small change in ‘gold psychology’ for more and more Western investors to figure out what’s happening. The smart ones will demand delivery of physical metal, and the sooner the better. Then we could see a price melt-up for gold unlike anything in modern history.

What should you do? If you own physical gold, smile and hang on. If you don’t own physical gold – or silver, platinum or palladium – get some.

If you own mining shares, hang on as well. We’re in a bottom phase of the past year’s share price melt-down. Long term, valuations will rise.

Don’t Be Misled by the Lying Liars of the ‘News’

Meanwhile, watch the news. You’ll see and hear ‘big names’ in politics, economics, monetary policy, the mainstream media and big banks continue to bad-mouth gold. At root, they lie! They are lying liars! Oh, they lie like dirty rugs! These lying honchos are desperate not to let the news of a physical gold shortage become too well-known. They cannot afford – in any sense of the word – for large numbers of investors to understand how bad things are with gold inventories.

This physical COMEX gold shortage could quickly transform into a widespread run on gold. When more and more people figure out how precarious is the situation with physical gold, the metal markets will come afire like Yellowstone Park, burning to the ground back in 1988.

Back to Guy Fawkes

One last point, concerning the 5th of November. Guy Fawkes was one of the central players in the British ‘Gunpowder Plot’ of 1605. Fawkes was an English Catholic who joined a plot to assassinate King James I (of Bible-fame), and then restore a Catholic monarch to the British throne.

Fawkes and his co-conspirators placed barrels of gunpowder beneath the House of Lords, intending to take out much of the British leadership in an explosion. However, someone tipped-off the king’s inner circle, and authorities searched Westminster Palace during the early hours of Nov. 5, 1605.

The constables found Fawkes guarding explosives. Fawkes was arrested, questioned and tortured until he broke and spilled the beans about his plot. Fawkes was sentenced to be hung, dragged behind a horse and cut into four pieces on Jan. 31, 1606 – speedy justice, back then – but jumped from the gallows rather than give his English captors the pleasure of torturing him to death.

Today the name of Fawkes is synonymous with the Gunpowder Plot. In Britain, they commemorate Guy Fawkes Day by burning the man’s image in effigy and setting off spectacular fireworks.

But when COMEX gold runs out, we’ll have bigger things to worry about than plotters wanting to blow up the Houses of Parliament. Beware, beware…

That’s all for now. Thanks for reading.

Byron King
Contributing Editor, Money Morning

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Source: George S. Mack of The Life Sciences Report (11/7/13)

http://www.thelifesciencesreport.com/pub/na/global-expansion-and-affordable-care-act-boost-life-science-tools-and-diagnostics-bryan-brokmeier

Two years ago, medtech was thought to be waning. Investors were deserting companies perceived to be short on margins and sure to be demolished by the Affordable Care Act. Today the landscape is transformed: Medtech companies are embracing international markets, preparing for increased volumes of procedures and enjoying new, rich valuations. Do they have what it takes to woo investors back? In this interview with The Life Sciences Report, Bryan Brokmeier of the Maxim Group picks a small group of names that have performed brilliantly over the past year and that he expects will treat investors very well.

The Life Sciences Report: I’m looking at an unweighted basket of large bellwether medtech stocks, and it is up 37% over the past 52 weeks. I’m also looking at an unweighted basket of small- and mid-cap medtech stocks that you cover, and it is up 126% over the past 52 weeks. Given all the headwinds, including the Affordable Care Act (ACA), sequestration and the debt ceiling fight, as well as the medical device tax that has been a source of contention in Congress, why has medtech outperformed so beautifully this past year?

Bryan Brokmeier: There are a few different factors. Many of these companies are increasingly looking to global markets. Smaller and mid-cap companies, which may have been more focused on the U.S. market in the past, have been looking to China and other emerging markets, and have been investing a lot of money to get into those markets. In addition, in prior years, when these stocks may have underperformed, particular investor groups were concerned over the ACA, and were also overly concerned about the medical device tax.

TLSR: What about the ACA? Will it hurt medtech companies?

BB: Actually, medtech companies will get a number of benefits from the Affordable Care Act. It will bring 30 million (30M) insured patients onto the books, which will increase procedure volume. We’ve already had some increase in the number of insureds, but the bigger impact will come in future years. As investors look beyond the immediate term, they become more optimistic about the opportunities that medtech companies have ahead of them.

I’d also say that, specific to my coverage area in tools and diagnostics, the technology has been making significant improvements, and we’re seeing more tests developed by very small companies, which are then being acquired by larger companies. The larger companies are introducing new tests of their own, as well. As we increasingly utilize genetic testing, it will benefit a lot of the companies in the tools and diagnostics space.

TLSR: From a recent pre-earnings report that you wrote, I note that you have turned cautious on the tools and diagnostics sector. Why?

BB: My caution was on life sciences tools companies because of significant runs that these stocks have seen recently, and some near-term risks that they have ahead of them, including uncertainty with regard to the U.S. funding environment. I wrote that note prior to the completion of negotiations around the government shutdown, which was creating a lot of uncertainty. It still really hasn’t been resolved. There is a very wide gap between how much House Republicans want to reduce the government budget for the National Institutes of Health (NIH), versus what the president and particularly the Senate Democrats would like to see. It’s an extremely wide gap, and who knows when it’s going to be resolved. The frequent continuing budget fights are an overhang on the entire economy, not just on NIH funding.

TLSR: Are there any particular industry segments that you like better than others in the tools and diagnostics area?

BB: Just within the companies I cover, there are certain stocks that have much greater exposure to specific end markets. Diagnostic companies as a whole, I think, have significant growth opportunities, and are growing much faster than tools companies. Although diagnostics companies oftentimes have much pricier valuations, they are still not in line with their growth rates.

In the tools sector, companies that have significant exposure to applied markets, such as food safety, and companies that have significant exposure to pharmaceutical markets over the long term, stand to benefit right now.

The companies I’m more concerned about have high exposure to government academic funding in the near term. I am also concerned about companies with high exposure to industrial end markets, where we’ve been seeing a slower gross domestic product growth environment.

TLSR: Can we talk about some names, please?

BB: I really like Affymetrix Inc. (AFFX:NASDAQ). The company has suffered as a result of the declining gene expression business. There has been a lot more focus on genomic sequencing, and that has taken a greater share of research dollars from gene expression. But I think that other analysts have not given Affymetrix enough credit for the products it has introduced to the market over the last 12 months. I think it is very well positioned to turn its business around.

The company has been investing in its cytogenetic business. A couple of years ago it launched its CytoScan, and in early August it introduced the OncoScan Assay system, which can analyze DNA from solid tumor tissue, at the Cancer Cytogenomics Microarray Consortium in Chicago. Affymetrix has also been investing more in biobanking, and introducing other products. It announced a very large restructuring earlier this year, and that is now improving its cost structure. In October it announced a debt refinancing of $48M at a more favorable interest rate, which is going to further improve its bottom-line growth potential.

TLSR: You have a $9 target price on Affymetrix. It has recently traded at $7 and change. You must see this as a very safe play.

BB: It was trading down around $4 in August, so the company has had a really good run. I think there is a lot more upside to the stock, especially as we get closer to the end of this year and more investors start thinking that the company could be acquired. The right time to sell a business isn’t when it’s on its way down, but rather when it looks like it’s on its way up. So as Affymetrix improves margins, profitability and its growth rate, more investors are going to start looking at it as being a takeout target. That’s going to create additional upside to my $9 price target.

TLSR: Affymetrix seems particularly vulnerable to diminished government funding, but it sounds like one of your favorite plays. How does that fit into your fear of government funding being cut?

BB: The government funding cuts have been negatively impacting the company’s expression business, but many of the customers buying its CytoScan line are not government funded, such as Laboratory Corporation of America Holdings (LH:NYSE), Quest Diagnostics (DGX:NYSE) and other diagnostic labs. Labs are still using older-generation technologies, and so the market is relatively underpenetrated. There is significant upside in the applied markets, and also significant potential to penetrate agricultural biomarkets.

TLSR: What about another name?

BB: Another name that I like is diaDexus Inc. (DDXS:OTCMKTS), which I initiated coverage on in October. DiaDexus is a diagnostic company that’s focused on the cardiovascular disease market. Its PLAC ELISA (plaque enzyme-linked immunosorbent assay) test measures the Lp-PLA2 (lipoprotein-associated phospholipase A2) level in patients. It’s been shown that elevated Lp-PLA2 levels can lead to cardiovascular disease.

Right now, diaDexus is working toward FDA approval for a cheaper, more widely available test, the PLAC Activity test, which it currently has a CE mark in Europe. The PLAC ELISA Test, which the company is selling in the U.S. now, is limited to a much smaller customer base. The growth driver would be the introduction of the PLAC Activity test in the U.S., which could get FDA clearance in early 2015.

But even more significantly, GlaxoSmithKline (GSK:NYSE) is developing darapladib, an inhibitor drug that lowers Lp-PLA2 levels. If diaDexus is able to obtain a requirement to become a companion diagnostic with Glaxo’s Lp-PLA2 inhibitor, that would give diaDexus a $250M opportunity. This is a stock that’s trading around a $105M market cap, and that $250M is an annual revenue opportunity.

TLSR: Elevated levels of Lp-PLA2 can lead to eruption or exfoliation of a vulnerable plaque, which can lead to a sudden heart attack or stroke. Many of these patients don’t even know they are at risk prior to the acute events that could take their life. Is anything approved currently that will reduce Lp-PLA2, aside from GlaxoSmithKline’s darapladib molecule, which is currently in phase 3 studies?

BB: No. The drugs on the market right now aren’t targeting Lp-PLA2 levels. Darapladib is the best opportunity for diaDexus to penetrate the $250M opportunity that I’m estimating.

TLSR: Since there’s no current inhibitor on the market for Lp-PLA2, is it fair to say, at least for the time being, that internists, primary care physicians and cardiologists are not really incentivized to test for Lp-PLA2 levels?

BB: No. They’re incentivized because if you identify patients who have high levels of Lp-PLA2, those patients can change their diets or lifestyles. If they do those things, they can stop the condition from getting worse, and reduce their risk of heart attack. But the drug could actually give them more opportunity and more incentive, because they could reduce their Lp-PLA2levels further.

TLSR: Your target on diaDexus is $3, and it was recently trading at around $2. That’s a 50% implied upside from current levels, but this stock is already up more than 600% over the past year. I wonder if you worry about new investors getting squeezed by profit takers.

BB: Sure. New investors that only have very short investment timeframes could get squeezed if other investors start taking profits. But that could create a new buying opportunity, if the stock pulls back. There’s a lot of upside, even beyond my $3 target, if diaDexus’ product gets approved as a companion diagnostic with darapladib.

We should get results from Glaxo’s first phase 3 clinical trial with darapladib later this year, and then probably around March 2014—early next year—we should get results from the second phase 3 clinical trial. If the darapladib data are positive later this year, you could expect to see diaDexus’ market opportunity significantly increase.

TLSR: DiaDexus holds 21 patents, and there are another 12 patents pending. The issued patents expire between this year and 2016. That does not sound like a long runway of exclusivity to me. What are your thoughts?

BB: One, the PLAC test isn’t easy to run. It is not likely that a lot of competitors will start offering it. Two, the darapladib companion diagnostic would allow diaDexus to obtain additional patents.

TLSR: Go ahead with another idea. Do you have a best idea?

BB: Bruker Corp. (BRKR:NASDAQ) is actually my top pick. Again, you could point out that the company, which sells a variety of analytical instruments, has an extremely high exposure to government-funded academic markets, but the story isn’t about the company achieving an acceleration of growth. I expect the gap to actually narrow as the company invests more in its infrastructure, rationalizes its pricing and selling processes and expands margins. I don’t think there is any other company in the life science tools market that has the margin expansion potential that Bruker has over the next couple of years.

TLSR: Your $27 target price implies about 30% upside from here, which is not bad for a mid-cap stock with a $3.2 billion ($3.2B) market cap.

BB: Right, but we could still see the stock go much higher—beyond my target as it expands margins. If you’re looking out to 2016, you could very easily see this stock going into the low- to mid-$30s.

TLSR: Do you have another name you would like to mention?

BB: Most analysts on the Street have written off Pacific Biosciences of California Inc. (PACB:NASDAQ)because its technology looked like it was not extremely competitive. But the company replaced its CEO about a year and a half ago. The new CEO, Michael Hunkapiller, has done a great job with improving system reliability and performance for its long-read gene sequencer, and significantly increasing the company’s throughput. PacBio has introduced new consumables, and it has been making software upgrades.

TLSR: There has been news of a partnership recently. Tell me about it.

BB: Toward the end of September, the company announced a partnership with Roche Holding AG (RHHBY:OTCQX) in the in vitro diagnostics area, in which Pacific Biosciences received a nice cash injection of $35M, which it really needed. There is also the potential to achieve performance milestones payments totaling up to $40M, as the company gets FDA approval for a new diagnostic version of its PacBio RS II instrument and then comes out with diagnostic tests consisting of sequencing systems and consumables based on its Single Molecule, Real-Time (SMRT) technology. These tests would be marketed by Roche.

This is an area where nobody really felt PacBio had a strong presence, because in vitro diagnostics is not what its instruments have been used for in the past. The Roche deal has significantly expanded PacBio’s long-term opportunities, and further showed investors that the company will be around in a few years. PacBio is no longer in financial trouble, as everyone thought it was a year ago. The Roche deal really gave the company a very strong reference, because everyone knows Roche. Now investors are going to start taking a much closer look at the PacBio technology platform.

TLSR: PacBio has done quite well. It’s up 223% over the past 52 weeks. But why did investors sell after the Roche partnership news? This stock is down about 30% since that deal.

BB: The stock jumped on the day the deal was announced—Sept. 25—from about $3.50 to about $6, but it has pulled back as investors started taking profits. Also, some investors have become concerned over whether the company is actually going to be able to develop diagnostic tests for Roche, which could walk away if it wanted to acquire another sequencing technology company, such as Illumina Inc. (ILMN:NASDAQ). But I think that investors are just realizing profits. Over the last year, the stock has gone from about $1.17 or so to where it is right now, around $4.

TLSR: It was a pleasure speaking with you, Bryan.

BB: Thanks a lot.

Bryan Brokmeier, senior life science tools and diagnostics analyst, covers medical device, healthcare service and life science companies as a vice president of equity research at Maxim Group. Brokmeier has been with Maxim Group since 2009, when he joined as an associate analyst covering medical device, healthcare IT and service companies. Previously, he worked as an associate analyst at Credit Suisse and as a senior portfolio accountant at Brown Brothers Harriman. Brokmeier has been quoted in numerous financial publications, such as The Wall Street Journal, Barron’s, Investor’s Business Dailyand Bloomberg News. He holds a master’s degree in business administration (finance and accounting) from Indiana University’s Kelley School of Business, and a bachelor’s degree in finance and applied economics from Ithaca College. He is a CFA charterholder, and a member of the New York Society of Securities Analysts, the CFA Society of Chicago and the CFA Institute.

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 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: None. Streetwise Reports does not accept stock in exchange for its services.

3) Bryan Brokmeier: I own or my family owns 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: Affymetrics Inc., diaDexus Inc., Bruker Corp., Pacific Biosciences of California Inc., Illumina 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

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Source: Tom Armistead of The Energy Report (11/7/13)

http://www.theenergyreport.com/pub/na/four-international-o-g-juniors-for-a-globe-sweeping-shale-revolution-christopher-brown

Shhh! The market is sleeping. Meanwhile, international juniors are stealing into old oil and gas basins with the same equipment and technical expertise that forever changed the oil and gas landscape in North America. In this interview with The Energy Report, Canaccord Genuity Research Director Christopher Brown and Research Associate Kimberly Thompson name some promising junior companies that are poised to tempt majors back into these basins or simply clean up on premium international pricing. For investors, it’s a case of massive potential upside for practically nothing—at least until the market wakes up.

The Energy Report: Christopher and Kimberly, welcome. International oil and gas companies need to have more skills than purely domestic companies—diplomatic skills, ability to navigate regulatory bureaucracies, financial depth to survive political turmoil and knowledge of import and export protocols are just a few. How do the juniors manage this?

Christopher Brown: Juniors are able to leverage off previous technical information that majors typically leave behind in a number of these jurisdictions. The technical expertise of these juniors is so specialized. They find their niche in particular areas where they think they can unlock more value than was previously unlocked. Because of the speculative nature of going back into these older basins and looking for new unconventional plays, junior companies often source funding from institutions that are willing to take on the risk for significant potential rewards. Institutions based in New York as well as Europe have provided capital support to technically skilled juniors.

TER: The companies in your portfolio operate largely in the unconventional oil and gas space. Why haven’t the majors moved in and taken them out?

CB: The majors have their plates full. They can’t be everywhere at once. Keep in mind that the majors are looking for materiality, especially when you’re dealing with companies like Exxon Mobil Corp. (XOM:NYSE), which has 25 billion barrels (25 Bbbl) of proven reserves. Exxon needs to see that it’s worth the time to come back to these basins.

TER: How have Cub Energy Inc.’s (KUB:TSX.V) Ukrainian and Turkish gas prospects performed?

CB: On the Ukrainian side, Cub has done well at introducing new technologies to the country. Cub has received the approvals to bring in this new technology and apply it. It’s going to be a slow process, but as the company continues to unlock value, there’s no denying that its region and fiscal terms are very good and provide a lot of incentive to keep on working hard to grow the production base.

Turkey hosts a more difficult unconventional basin. The Anatolia Basin is still in its earlier stages, whereas the Ukrainian assets have some proven opportunities. In the Anatolia Basin, you do have some majors that are tentatively playing around the edges, but there has not yet been anything that’s really unlocked that basin. But it didn’t cost Cub much to enter the basin and the Turkey play provides shareholders with potential future value, which they don’t pay for at Cub’s current share price.

TER: Your research report noted that Ukraine’s gas production was quite high in the 1960s, but then fell off because the Soviet Union just quit investing in it. Is there a reason to think that it might reach those heights again?

CB: Well, we’re not sure if it will achieve those heights, but Cub’s success to date indicates it has potential. The issue we’re dealing with right now is that Gazprom (OGZD:LSE; GAZ:FSE; GAZP:MCX; GAZP:RTS; OGZPY:OTC) dominates the systems for gas production in the region. It does not want significant competition. On the flip side, Ukraine is motivated to service its domestic needs with domestic gas rather than paying high prices from Gazprom. History has proven Ukraine has access to significant volume. That’s why Cub is in this country: It believes it can unlock more value.

TER: Have the fields that Ukraine was producing back in the 1960s been completely exhausted, or are they still useable?

CB: They’re still useable. But Cub has tried to avoid moving into government-operated situations. In most cases Cub wanted to have independent operations. But I feel, as a reservoir engineer, there is still incremental opportunity to exploit if the operators of the larger fields were motivated to bring in new technology. I think they’re probably monitoring Cub’s behavior right now to see what technologies are most applicable, and then we will start to see that mimicking effect likely four or five years down the road as others start to adopt that newer technology once it’s proven to be successful.

TER: Many of Cub’s licenses in Turkey are near the Syrian border. Are these licenses exposed to political risk?

CB: There’s never a guarantee that some disruptions won’t occur, but Turkey does have a very strong military force. I think that if there were any temporary disruptions or terrorist activities, it would be on a small scale. It’s something that we’ve almost grown used to internationally with our operations in numerous jurisdictions that we monitor and provide investment research on. We often deal with these disruptions with production, and they tend to only be three- to five-day disruptions on pipeline repairs and things like that at most, nothing that carries on for multiple years.

TER: Several plans for major takeaway pipelines crossing Turkey, such as the Nabucco pipeline and the Trans-Anatolian, folded in July. Is there a takeaway route for the gas produced in Turkey now?

CB: Right now in Turkey there are multiple opportunities to service even domestic requirements, where you can do industrial sales with competitive contracts using international pricing. I’m confident that just on a domestic basis Cub would find a home for the gas, but Cub would have the ability to export if its volumes reach a decent amount.

TER: If Ukraine’s talks with the International Monetary Fund fail, you expect the country to devalue its currency and possibly tax foreign exchange transactions and deposits. How would that affect Cub Energy?

Kimberly Thompson: We don’t expect it to have a major impact because although Cub’s gas prices are in hryvnia, the local currency, they’re tied to Russian import prices denominated in U.S. dollars. Basically, a lower hryvnia would be offset by higher local prices. In terms of the tax situation, Cub mitigates its risks by having its funds flow through Cyprus through its subsidiary, KUBGas Holdings. Cub doesn’t see this as a risk.

TER: Cub Energy’s stock price has trended down for most of the last year, but appears to have turned upward. What’s driving that?

CB: Well, the dominant force has been management’s commitment to the company. They have taken it upon themselves to buy back the shares, but they are buying them back with their own dollars; they’re not using shareholder money. Through its ownership in a separate private holding company (Pelicourt Ltd.), management holds a major position in Cub Energy, and recently it decided to put in additional dollars to show confidence in the future of Cub. As of its last statement in October 2013, it owns 39.54% of the shares outstanding. That’s provided a decent amount of market support.

TER: Coastal Energy Co. (CEN:TSX.V) is entertaining the $20/share offer from a private equity fund in Hong Kong. Is that happening now?

CB: I don’t think it’s going to go through. Coastal Energy’s prospects—combined with the reserve base of $20–21/share and its prospect inventory of over 500 million barrels (500 MMbbl) of future opportunities and resources—I think that $20 is quite a bit under what management would accept to put forward to the public for a takeover. I think we won’t hear anything more about this in the near future.

TER: What do you consider to be a reasonable offer price?

CB: We currently have a target price on Coastal of $23/share. We’ve accounted for $20–21 of base value for the company and we’ve actually given them a couple of dollars of credit for future risked resource opportunity upside. So, $23 would be the minimum offer an international company should make for Coastal, at least to get its attention to move forward and have it open a data room for more technical review. I think if you really want to provide incentive for shareholders to hand over their shares, any offer would likely have to be north of $23/share.

TER: What is Coastal Energy’s long-term goal, sale or growth?

CB: I think ultimately it’s going to be put up for sale as a long-term strategy, but in the meantime it wants to improve the value to make sure it captures a higher premium per share. I don’t think that an international company is going to see enough evidence to give it a premium until 2014. The reason I say that is that Coastal has a number of near-term production growth opportunities. We’re going to see the current production go from 22,000–23,000 barrels of oil equivalent per day (23,000 boe/d) to upwards of 30,000 boe/d. I think once Coastal has shown the ability to grow production, it will probably be in a much better position to show other technical groups that it’s worth far more than $20/share.

TER: Cub is relying pretty heavily on hydraulic fracturing. Is Coastal doing the same?

CB: Yes. Coastal’s offshore Thailand reservoirs have an acceptable permeability that allows the company to produce just with conventional completions. Coastal has gone back and done some recompletions with fracks and it has been able to tap into incremental reserve opportunities. Coastal, going forward, is in the same stage as Cub in terms of using new technology to unlock incremental reserves for shareholders.

TER: Why are you recommending a buy for Coastal and Cub?

CB: The buy is driven by the disconnect the market currently has on these companies that receive solid pricing internationally. Cub receives great gas prices in the Ukraine. Coastal receives very strong pricing for its oil in offshore Thailand. Combined with acceptable balance sheets, good cash flow and a discount to proven and profitable reserves, and given the discoveries both companies have made over the past year, we see their reserve bases continuing to grow. We feel that eventually shareholders will begin to bridge that gap between the discount to reserves and the reserve values. We’re going to maintain that strong buy recommendation on these companies until we see that value gap bridged.

TER: What is the current price for Cub and your target for Cub?

CB: Cub is trading at around $0.25 a share and we have a target price of $0.70 per share for Cub.

TER: What other companies in your portfolio are you excited about?

CB: There are two others that we talk about quite often with our international investment community. One is listed in London, Caracal Energy Inc. (CRCL:LSE). This is a fascinating company because it is operating in Chad, so if you’re talking about political risk that tends to be one that raises red flags when you discuss this with investors. The company is just bringing on production right now. Last month, it was not in production. It is literally ramping up to 35,000 barrels a day (35,000 bbl/d) within the next six months.

It’s another company that trades at a reasonable discount on the market. We have a buy recommendation and a £9.20 target price. It currently trades at around £5. This is another situation of a discount to reserve. Even to date, the company’s exploration success has already added incremental reserves, so that 2P reserve number should to continue to grow. That has been one name we’ve been talking about quite actively.

TER: What is the other company?

CB: Canacol Energy Ltd. (CNE:TSX). This is another one that is a mix of conventional operations in Colombia, but for us the excitement is really on the unconventional shales the company is pursuing in Colombia. The company is partnered with Exxon, ConocoPhillips (COP:NYSE) and Royal Dutch Shell Plc (RDS.A:NYSE; RDS.B:NYSE) and it’s a situation where, again, you have a junior producer that amassed a decent land position on an unconventional play and then invited the majors to drill an initial grouping of up to 13–15 wellbores.

Again, I like to focus on these unconventional opportunities because I think the market will eventually come around to how much upside is associated with them, similar to what we have seen in the U.S. over the past five years. The U.S. is ahead of the curve on the unconventional development, and the investor base understands U.S. unconventional. I think internationally, people are just starting to understand how large the unconventional space could be. We have a buy recommendation with a target price of $7.50 and it currently trades at $4.50.

TER: Do you have parting thoughts to share on the oil and gas space?

CB: Now that the U.S. performance has been exceptional this year and the multiples are starting to get relatively high for a number of investments in the U.S., we see institutions starting to express interest in learning more, both on the domestic Canadian side, which still trades on discount, and more important on the international side, which trades at even more of a discount to reserve base. We’re hoping that this will continue through until year-end and perhaps provide investors with some excitement going into 2014.

TER: Christopher and Kimberly, thank you both very much for your time. This has been an enlightening discussion.

CB: Excellent. I’ve enjoyed it.

KT: Thank you very much for having us.

Christopher Brown serves as director, research, international oil and gas at Canaccord Genuity and has provided international analytical coverage since 2006. Previously, Christopher worked as the international oil and gas analyst for BMO Capital Markets. Brown’s industry experience includes reservoir engineering work at various large-cap oil and gas companies. Prior to that, he was employed at an international M&A firm with mandates out of London. Brown holds a Bachelor of Science in chemical engineering.

Kimberly Thompson is a research associate with Canaccord Genuity. With ten years of finance and accounting experience, she conducts analysis, evaluation and synthesis of investment opportunities in the international oil and gas space. Kimberly holds a Bachelor of Commerce from the University of Saskatchewan and is a Certified Management Accountant.

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) Tom Armistead conducted this interview for The Energy Report and provides services to The Energy Report as an independent contractor. He or his family owns shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of The Energy Report: Royal Dutch Shell Plc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Christopher Brown: 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: Canacol Energy, Caracal Energy and Cub Energy. 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) Kimberly Thompson: 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: Canacol Energy, Caracal Energy and Cub Energy. 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.

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

6) 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.

7) 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]

Difference Between Market Makers And STP Brokers

In the forex market, there are three different types of brokers. They are the Market Makers, Straight Through Processing (STP) brokers and Electronic Communication Network (ECN) brokers. The aim of this article is to discuss the difference between Market Makers and STP brokers.

Market Makers

Market Makers provide liquidity to the clients or market. They trade against their clients as the counterparty, taking positions as well as risks on their own trading books. Market Makers maintain an inventory of the currency  that they offer for trading. They have a dealing desk and they use their currency inventory to trade against their clients. They may also have their own liquidity providerswhich they can use at their discretion. Market Makers may act in one of the following ways when they receive an order:

– Sell from the inventory on receiving a buy order or buy to enhance the inventory on receiving a sell order.
– Match as well as execute orders with contra-side orders having the same volume and price as that offered by an ECN broker.
– Pass on the order to their liquidity provider adding or subtracting the spread either before or after market execution, depending on whether a buy or sell order is received as an STP broker does.

A Market Maker displays current ask/bid prices of currency pairs based on the market prices provided by liquidity providers and orders received from clients. Market Makers manipulate prices and never give real market price to their clients. Thus, Market Makers generate their revenue from spread and by taking the other side of clients positions.

STP Brokers

Forex brokers who are not Market Maker are either STP brokers or ECN brokers. These brokers are also referred to as Non-Dealing Desk brokers. Their liquidity and pricing is usually sourced from multiple banks . They route orders of clients to the these liquidity sources usually through an aggregation system. Client orders are therefore dispersed among the banks which makes for a more efficent marketplace.

STP brokers will charge their clients either through an increase in the spread of the currency pair or they may charge a commison or transaction fee.

Summarizing It is important that if using a STP broker it should be one that offers deep liquidity and speed of ececution. This type of broker tends to offer a more level playing field in the world of forex trading.

To learn more please visit www.clmforex.com

Disclaimer: Trading of foreign exchange contracts, contracts for difference, derivatives and other investment products which are leveraged, can carry a high level of risk. These products may not be suitable for all investors. It is possible to lose more than your initial investment. All funds committed should be risk capital. Past performance is not necessarily indicative of future results. A Product Disclosure Statement (PDS) is available from the company website . Please read and consider the PDS before making any decision to trade Core Liquidity Markets’ products. The risks must be understood prior to trading. Core Liquidity Markets refers to Core Liquidity Markets Pty Ltd. Core Liquidity Markets is an Australian company which is registered with ASIC, ACN 164 994 049. Core Liquidity Markets is an authorized representative of Direct FX Trading Pty Ltd (AFSL) Number 305539, which is the authorizing Licensee and Principal.

By www.CentralBankNews.info     The notional amount of outstanding derivatives contracts jumped to $693 trillion by the end of June from $633 trillion at the end of 2012, but part of the rise was due to increased trading through central counterparties (CCPs), the Bank for International Settlements (BIS) said.
    When over-the-counter (OTC) derivatives trades are cleared through CCPs, the notional amounts reported to the BIS increases because one contract becomes two, said the BIS based on its semiannual survey of some 70 major derivatives dealers based in 13 countries.
    In contrast to the rise in notional amounts, the gross market value of the OTC derivatives, or the cost of replacing all contracts at market prices, fell to $20 trillion end-June from $25 trillion end-2012.
    Interest rate contracts are still the largest segment in the global OTC derivatives market, with notional amounts of $577 trillion.
    But the use of derivatives varies depending on dealers, the BIS said.
    Dealers in emerging markets tend to focus on managing foreign exchange risks with interest rate derivatives accounting for a much smaller share of their contracts compared with those dealers that are based in the largest markets and participate in the semi-annual survey.

    In addition to its semiannual survey, the BIS also carries out a Triennial Central Bank Survey to capture the trading in foreign exchange, interest rate, equity, commodity and credit derivatives traded in OTC markets. Combined, the two surveys capture the positions of more than 400 dealers in 47 countries.
    For full details of the BIS derivatives survey, please click on “OTC derivatives market activity in the first half of 2013.”

    www.CentralBankNews.info

By www.CentralBankNews.info     Denmark’s central bank maintained its key interest rates, despite a rate cut by the European Central Bank (ECB), saying commercial banks have “a large need to place funds” at the central bank.
    The National Bank of Denmark, which aims to keep its currency stable against the euro, normally shadows any ECB rate changes to maintain a rate spread to the euro and hold the crown currency within its fluctuation band of plus/minus 2.25 percent to a central rate of 7.46 crowns per euro.
    The Danish central bank entered unchartered territory in July 2012 when it cut its rates, including the deposit rate by 25 basis points to a negative 0.2 percent, in an attempt to weaken the crown which came under upward pressure as investor sought safe haven outside the euro area’s sovereign debt crises.
     In January this year, the central bank then raised its rates after investors started to return to euro zone assets and the crown fell. Rates were raised by 10 basis points, leaving the deposit rate at a negative 0.10 percent and the key lending rate at 0.30 percent.

    In May, following the ECB’s first rate cut of the year, the Danish central bank cut its lending rate by 10 basis points to 0.20 percent but left its deposit rate at minus 0.10 percent, just as the ECB maintained its deposit rate at 0.0 percent.
    “In the current liquidity situation in the euro area the money market rates are marginally above the deposit facility which as mentioned is kept unchanged,” the Nationalbank said.
    “Since the monetary policy counterparties – the banks – have a large need to place funds at Danmarks Nationalbank, the monetary deposit rates determine the money market rates and the exchange rate. For this reason Danmarks Nationalbank keeps the interest rates unchanged” the bank said.
    The Danish crown tends to trade in a narrow range against the euro but was volatile today, fluctuating between a low of 7.466 euros and and a high of 7.456.
    The Danish economy – which is not a member of the euro zone – is gradually improving, with Gross Domestic Product up by an annual 0.6 percent in the second quarter after four consecutive quarters of contraction.
   In September the central bank cut its 2013 growth forecast to 0.3 percent from 0.5 percent and forecast growth of 1.6 percent in 2014.

    www.CentralBankNews.info