Share this article:

TFN eNews: 11/20/2009: When bureaucratic red tape actually creates money for investors!

Published via e-mail broadcast on November 20, 2009

In today’s TFN eNews:

* Belated swine flu success

* The inbuilt triggers of biotech shares

* TFN Members Only

Dear TFN eNews reader,

On November 3, I updated our Hot Stock Confidential members on one of our less-than-mind boggling swine flu position Inovio Biomedical Corp. (AMEX:INO) with the fateful words: “So far, INO has disappointed in the short term. But in the medium- to long-term, I see great things for this company. Hold.”

Today, it looks like the medium- to long term has caught up with us. INO was soaring up to 30% after they reported that animal studies showed its new DNA-based vaccine was effective in protecting against several strains of influenza. Including the strains H1N1 and H5N1, a.k.a. swine and avian flu.

Better late than never, I thought. Swine flu hysteria has cooled down significantly once I demonstrated that, with a good book and an extra pillow for you neck, it is eminently survivable.

(It was strange to watch the diametrically opposed reactions to government-facilitated H1N1 vaccinations: In the United States, rugged American individualists were standing inline like sheep at under-supplied vaccination facilities. In Germany, the usually obedient Untertanen were screaming “Big Brother” and “human guinea pig” at the wholesale administration of “untested” vaccines…)

But the long-term fall-out of the media-hyped vaccine shortages are predictable. Rather than getting caught short again next year, the U.S. and other governments will be ordering more and earlier next year. And distrustful Germans may be more inclined to get their shots in 2010 after seeing their vaccinated neighbor didn’t grow a tail.

That’s good for the order books of swine flu vaccine companies like INO… and good for shareholders.

Now, we’re still down -24% over our official HSC entry price scored on September 3. We’ll continue to hold this for a while. In case you bought at recent lows, you might start thinking about locking in profits. HSC, however, will continue to cover the stock as an open position!

***INO’s steep spike reminded us just why biotech stocks make such attractive investments… even if some companies have never ever made a dime on their ingenuity.

But biotech stocks have a predictable set of triggers built in with the FDA approval process. And each of these triggers has a 50/50 chance of making you money!

I like those odds!

But it’s not just the actual approval of a drug or therapy. The very process of filing can spell millions of dollars lost or gained. (It’s probably the only instance anywhere where bureaucratic red tape actually creates money for investors!) Here’s a stock I’m tacking for our Penny Stock Confidential members:

CombinatoRx, Inc. (NASDAQ:CRXX) is an inoffensive biotech company that boasts a novel approach to designing drugs. They call it “developing synergistic combination pharmaceuticals”. To lay people, this means their drugs aim at treating multiple symptoms or diseases, not just one.

They’re good at what they’re doing: They have a portfolio of four product candidates that have either completed Phase IIa clinical trials or are in preclinical development. These drugs target multiple diseases including immuno-inflammatory diseases, metabolic disease, chronic pain and topical dermatoses.

They’ve made such a name for them that they’re about to merge with a very successful, privately held company called Neuromed. That’s where it gets interesting.

The stock price fell off a cliff at $1.63 this past Monday, after receiving FDA feedback on a New Drug Application (NDA) for Exalgo Extended-Release Tablets. This drug treats moderate to severe pain in opioid-tolerant patients requiring continuous opioid analgesia for extended period of time.

The FDA indicated that the NDA in its current form wouldn’t’t be sufficient under Section 505(b)(1) of the Food, Drug and Cosmetic Act of 1938. Investors recoiled in horror! Within hours, the stock was down 50%. It is so volatile!

But here’s where red tape translates into opportunity.

On June 30, CombinatoRx agreed to merge with privately-held Neuromed Pharmaceuticals Inc. in an all-stock transaction worth about $30 million. CRXX is expected to issue approximately 36 million new shares of its common stock to Neuromed stockholders, with each party owning approximately 50% of the voting power of the merged organization upon closing. The new pain drug is a key element in the delineation of power:

Relative ownership of CombinatoRx will be adjusted based upon the outcome of the above-mentioned FDA review of the NDA for Exalgo:

If Exalgo approval is received by December 31, 2009, pre-merger CombinatoRx stockholders will own 30% of the combined company. If approval is received between January 1, 2010 and September 30, 2010, pre-merger CombinatoRx stockholders will own 40%. And if approval is received between October 1, 2010 and December 31, 2010, they’ll own 60% .

Exalgo looks like a potential cash cow: The rights to Exalgo were recently acquired by Mallinckrodt Inc. for $15 million in up-front payments, additional development funding of up to $16 million, an approval milestone of $30 million, which could potentially increase up to $40 million, and tiered royalties on Exalgo net sales after approval.

Neuromed’s under the gun: It filed the NDA for Exalgo with the FDA, which originally had a November 22, 2009 PDUFA review date.

They’re now working with Mallinckrodt on amending the existing NDA, or potentially resubmitting the NDA under Section 505(b)(2) of the FDCA, which uses different criteria to determine the basis for approval of a new drug candidate. There’s revenues at stake… but more so, control of the combined company.

Shares of CRXX have risen since the deal was announced and were boosted after Sanofi-Aventis SA (NYSE:SNY) acquired eye specialist Fovea Pharmaceuticals SA for $541 million. (CRXX and Fovea are co-developing yet another drug candidate, slated for Phase 2b clinical trials later this year.)

Now, CRXX is a good company. And it’s not as if Exalgo didn’t meet primary endpoint in a trial. There were no efficacy issues. The NDA was filed under the wrong Section (505(b)(1)of the FDCA.

Yes the filing snafu cost investors half their share valuation. Good news for scavengers like us!

This week’s action provided a window to buy CRXX at penny share prices.

That’s why we recommended our risk-happy VIP members at Penny Stock Confidential take a speculative position in CRXX yesterday. We recorded an entry price of 88 cents — which was available pretty much all day yesterday.

Yesterday’s new addition to our stable of volatile Grand Slam hopefuls soared today on the unexpected news that the FDA extended its NDA review. The extension has been set for February 22, 2010.

I considered this neutral news: With that kind of money riding on this, they won’t be dragging their feet until February! From a longer-term perspective, this is good news for CRXX share holders: By missing the first deadline, existing shareholders will end up owning a larger percentage of the combined company once the merger with Neuromed is final. Hang in there and don’t sweat the fluctuations.

PSC members were instructed to keep their entry price below 95 cents this morning. Since then, the stock has crossed $1 multiple times on substantial volume and is currently registering gains of 24%-plus in our PSC open positions portfolio.

Had this been a TFN or even Hot Stock Confidential recommendation — and, with the limited visibility that goes with a stock trading below a buck, it’s simply too risky for that! — I’d have been happy taking this kind of gain off the table in a day. But with penny stocks, you’re in for larger gains… and willing to bear higher risk in exchange.

I expect this stock to regain the price level it had a week ago as the FDA process progresses. After all, that’s what makes biotech penny stocks perfect for speculation: They have a predictable set of triggers built in with the FDA approval process. And each of these triggers has a 50/50 chance of making you money!

As I said: I like those odds!

Since we were able to squeeze in at what could be fire-sale lows, that could mean a cool double for PSC members. This is exactly the situation we’re seeking out at Penny Stock Confidential. In just 10 days, we’ve taken gains of 43% and 68% on two stocks of our first dozen positions. We saw one of our stocks double in a day just yesterday, and two more are up by double-digit percentage gains.

If you have the stomach for more involved trading along these lines… why don’t you check out what PSC is all about?

***”We can’t recommend stocks like this to a larger — or sane! — readership!!”

How about a company trading for $0.0003 right now. Their CEO made headlines for bouncing company checks. Repeatedly. A worthless piece of junk, in other words. But at this price, it has substantial speculative upside: Its order backlog is over $200k, and the hope to be bought out. It could double, or even triple. But the potential downside is 100%. Few traders know how to deal with risk like this. We’ve created Penny Stock Confidential just for them: http://www.todaysfinancialnews.com/PSC/LAUNCH/WPSCKB11.html

*** TFN Insider Report:

TFN eNews readers report on the actualities of their economic environment:

“I work for a heavy equipment manufacturer in Portland, Oregon — although it is Swiss-owned. Recently mothballed a plant in Burnaby, BC. Have been through one major downsizing and another should occur sometime in the next two months. Problem: No heavy investment currently underway and overcapacity in the industry globally. Locally, many empty buildings and ‘for lease’ signs. Condos selling at significant discounts. Politicians are raising taxes and fees. Serious disconnect between main street and political structure whether local, state or national.” — TFN eNews reader David E.

Become a TFN eNews contributor! Please send us your own update of how reality looks like where you live: Email me at support [at] todaysfinancialnews [dot] com!

*** Members’ Only Update:

TFN Strategic Trader reports: “With just a few hours left until expiration, it looks like we timed the exit of our Xerox calls perfectly. We locked in moderate gains at the stock’s peak and watched as share price dropped in the following days. While the Xerox gains were nice, they are nothing compared to our United States Natural Gas Fund, LP (NYSE:UNG) puts, which handed us first-half gains of 400% yesterday. With those profits locked in, we are playing with the house’s money with the remainder of our natural gas positions.

“Now let’s see if we can lock in another big winner. You see, my hometown is lucky enough to be the host of the company’s largest manufacturing facility. In fact, I spent two years studying the ins and outs of finance and business inside the company’s secured fences. (If you are a fan of Lean Manufacturing, you’d love the company’s latest line.)

“But now there’s a very real chance the local factory is going to follow the path of other manufacturers and move south.

“As I write, the local union is getting its first look at a tentative contract that, if passed, ensures the plant will stay put. It also means the company will have to dump $90 million into making the plant more efficient and profitable. Better yet, the state has pledged $15 million in funding of its own.

“I had a chance to get a sneak peak at the contract this morning. It is interesting to say the least. Without the storm clouds of double-digit unemployment and a nasty economic environment looming, this deal would never get ratified. But the company’s playing hardball. I think the news contract will pass on December 2 and they will stay put: Good news for shareholders as the elimination of risk is always a boost for stock valuations.

“Here’s how we play the situation. I recommend buying a specific set of call options. When shares pop on the news of a ratified contract and reduced risk, you’ll be able to lock in gains just in time for the holidays. This is a moderate- to high-risk play, but the reward potential is high. Just a 7% or 8% move in underlying share price in the next month could lead to triple-digit gains for our options!”

Be among the TFN Strategic Trader options players when this takes off: https://web-purchases.com/TST/WTSTKA04/location.html

*** Quote of the Day:

“The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital… the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy.” — John F. Kennedy

Today’s Top 3 Financial News Stories:

NPR.org – Counting Stimulus Jobs Is Tough Work “The massive economic stimulus bill may not be stimulating as many jobs as the government says.”

MoneyNews.com — Bob Toll Predicts New Housing Crisis “Luxury builder Robert Toll says the Federal Housing Administration (FHA) is a train wreck waiting to happen. If he’s right, that’s bad news, because the FHA has played a huge role in buoying the housing market in recent months.”

Bloomberg.com — Equities, Commodities Drop on Trichet, Dell; Dollar, Yen Rise “Stocks and commodities slid as European Central Bank President Jean-Claude Trichet said policy makers will withdraw emergency cash gradually and earnings at Dell Inc. and D.R. Horton Inc. trailed analysts’ estimates. The yen and dollar rose, while two-year Treasury note yields fell to the lowest of the year.”

Cordially yours,

J. Christoph Amberger

Executive Publisher, TodaysFinancialNews.com

P. S. “Who cares if this technology really changes the world? I don’t. I only care that this stock, which is trading for just pennies, hits $0.50 in the next three months!”

Right now, you can buy 10,000 shares for just $250… and when it hits 50 cents, those shares will be worth a cool five Grand! For just $500, you can pick up 20,000 shares that could be worth an amazing $10,000 by the end of the winter.

Read the Free report (by clicking here) and you’ll see exactly why… heck, you may want to pick up a hundred thousand shares right now!

Next Article: Take 65%-plus gains on Origin Agritech (SEED)

Posted by J. Christoph Amberger · Filed Under TFN eNews

Share this article:

Be the first to leave a reply.

Your comments are welcome

Follow TFN via RSS or Twitter

<a href='http://www.todaysfinancialnews.com/tfn-ads/www/delivery/ck.php?n=a362353e&cb={random}' target='_blank'><img src='http://www.todaysfinancialnews.com/tfn-ads/www/delivery/avw.php?zoneid=12&source=IL&cb={random}&n=a362353e&ct0={clickurl}' border='0' alt='' /></a>
Advertisement

Today’s Financial News - For the Capitalist in all of us