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Independent Security Analysis. Technical Analysis. Fundamental Analysis. Watchlists. My Portfolio.

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Turnaround Is In Full Swing At Castle Brands

By The Wall Street Fox → Wednesday, February 19, 2014

Castle Brands (ROX), the alcohol distributor that markets the increasingly popular Gosling's Rum and Jefferson's Whiskey brands, released its quarterly earnings after hours on Friday, February 14, allowing investors a three-day weekend to fully digest the report. The Q3 2014 earnings clearly illustrated the continued progress of Castle Brand's turnaround efforts, and after turning EBITDA positive for the nine months ended FY 2014, prospective investors are presented with an unique opportunity to gain exposure to a company that is positioned for significant long-term growth and is on the brink of posting a profitable quarter for the first time in its history.

Castle Brands continues to clean up its balance sheet, and with the last of the non-cash warrant charges out of the way, the company is ready to put its foot on the pedal and drive into the green. Revenues and assets are up, expenses and liabilities are down, the company has a strong cash position, and the momentum behind Castle's two flagship brands continues to build. Castle Brand's risk/reward profile is compelling at current prices of approximately $0.80 per share, and the company is significantly undervalued on a fundamental basis. Below is a highlight of Castle Brand's recent earnings report and why it continues to be one of my largest "Phillip Frost" positions.

Quick Note

While it is typically a bad sign for a company to "sneak" its earnings report out after the closing bell on a Friday (hoping that few investors see the possibly negative report), especially right before a three day weekend, I believe it was a mere coincidence this year for Castle Brands. The company posts its earnings 45 days after a fiscal quarter ends, and for Q3's case, the quarter ended December 31, 2013. Add 45 days and you get February 14th, 2014. The company released its Q3 report on Valentines Day in 2011, 2012, and 2013. This year Valentines Day just so happened to fall on a Friday right before a three-day weekend. Once going through the report, you will see that there was nothing negative to hide, and a positive PR from Castle Brands should accompany the report some time this week.

Earnings Review

First the bad:

Castle Brands posted a quarterly loss of $2.1 million, compared to a loss of $477,000 year over year, and more than $4 million quarter over quarter. The losses posted in the past two quarters can be attributed to the conversion of warrants, which resulted in a $3.6 million non-cash charge last quarter, and a $1.6 million charge this quarter. With the warrant charges out of the way, the company has lifted a huge weight off its shoulders. It's telling to see these warrants converted years prior to their expiration date, signaling a high level of confidence among holders. Phillip Frost recently picked up more than 5.6 million shares of the company through the conversion of warrants, upping his total stake to nearly 40 million shares.

Sales of Boru Vodka continue to decline, as it attempts to compete in a highly competitive and saturated liquor segment. Case sales are down year over year, but up quarter over quarter, potentially signaling that a temporary bottom has occurred. Regardless if this is the case, vodka sales made up only 5.6% of Q3 revenue, so any decline in vodka sales should be offset by the strong performance of Castle Brand's rum, whiskey, and liqueur brands.

Castle Brands exited its Drink Pie venture (pie flavored liqueur) and incurred a loss of approximately $430,000 this quarter. This is Castle Brands trimming the fat and focusing on its core competencies. This loss is a short-term setback, but the decision to walk away from this failed investment will allow the company to devote more time and resources to grow its successful brands, and actively seek strategic acquisitions.

Now the good:

The demand for Gosling's branded products, such as the Dark'n Stormy cocktail, has spurred the company to expand the production of Gosling's Stormy Ginger Beer in Germany and the U.K. to better support international sales. This expansion will open up a number of new sales channels and help further fuel the growth of Castle Brand's most successful product.

Some of the growth figures for Castle Brand's case sales are through the roof. Quarterly case sales of Castle's non-alcoholic beverages (Ginger Beer) increased 80% on a yearly basis, and international sales of the beverage soared 480% higher. This sharp increase is due to the recent production expansion as noted above. Case sales of Gosling's Rum increased by a modest 7%, and whiskey case sales increased by an astounding 44% (+12% and +75% in revenue, respectively). The Jefferson's Whiskey brand has been a sleeper after years of development, and the company's recent convertible bond offering that was dedicated to purchasing whiskey in bulk is a testament to how strong the growth prospects are for this product.

Castle Brand's gross profit increased 26.3% in Q3 2014 to $4.8 million. Gross margins declined by less than a percent, which was attributed to high volume sales of Castle's lower margin products like Gosling's Stormy Ginger Beer and Clontarf Irish Whiskey. As the company expands and increases its overall sales volume, gross profit should increase as efficiency rises and economies of scale are reached.

Castle Brand's quarterly revenue continued to reach new highs, and the company is on track to record $50 million in revenue for 2014. The company posted a positive EBITDA of $220,000 for the quarter, and turned EBITDA positive for the nine months ended 2014.

Castle Brands now has a cleaned up balance sheet that will allow the company to achieve profitability with the current funds at hand. As of February 12th, the company had more than $3 million in the bank. From the company's 10-Q:
We believe our current cash and working capital, and the availability under the Keltic Facility (~$2 million available), the proceeds that have been raised, and additional funds to be raised, under the distribution agreement, and the cash from the expected exercise of certain of our 2011 Warrants, will enable us to fund our losses until we achieve profitability, ensure continuity of supply of our brands, and support new brand initiatives and marketing programs.
This is reassuring, and led me to a piece of information I overlooked in my previous write-ups. In November of 2013, Castle Brand's entered an Equity Distribution Agreement with Barrington Research Associates, which allows the company to issue up to $6 million worth of common shares via an "at-the-market" offering. This enables Castle to sell the shares at any time on the open market. This explains the massive seller that stepped in around the same time my last article on the company was released in mid January. Shares rallied in after hours trading, but were met by massive blocks of shares in the two following trading sessions.


This sale in the open market, and others since the distribution agreement offering was established back in November, have allowed Castle Brand's to raise approximately $4.5 million. Shares are poised to run once the company depletes of all its shares under this agreement, but because they currently have plenty of cash, the company may not immediately exercise this option since the share price can move much higher, hence less dilution. With only $1.5 million of shares left to be offered in this distribution agreement, the stock price will not be restricted as much as it was when the company sold more than $3 million worth of stock in mid January.


Shares of Castle Brands have been trading sideways since its last earnings report was released in November. This small cap company is subject to a number of risks, including extreme price swings and future dilution, and the company's accumulated deficit stands at nearly $140 million.

However, the operating platform that has been built up after more than a decade of development is finally ready to turn a profit and continue its stellar growth. Utilizing the industry average P/S ratio, shares of Castle Brands should be trading at $1.58 if the company books revenue of $50 million for 2014 (likely), representing a near double from Friday's close. With strong support at $0.71, shares of Castle Brands offers downside risk of 7% and upside potential of 100% for any investor who sets a tight stop loss near $0.70.

While Castle Brands presents an opportunity for short-term swing traders looking for an earnings play, longs should rest easy knowing that the superb performance of Gosling's and Jefferson's is not letting up, and the improved financial health of the company will enable continuous growth and acquisitions that will generate significant shareholder value over time.
Information was sourced from SEC Filings.

Will CoCrystal Discovery Be Phillip Frost's Next 10X Investment?

By The Wall Street Fox → Monday, February 10, 2014

Dr. Phillip Frost's impressive track record is one that I have highlighted in several of my previous articles, and at this point, an introduction is not needed. After Dr. Frost recently disclosed Opko Health's exit in Sorrento Therapeutics (SRNE), which resulted in a cumulative return of 1000% in five years, the search is on for Dr. Frost's next successful investment. One company that has experienced a lot of behind the scenes action recently is Biozone (BZNE) Pharmaceuticals, which sold 90% of its assets to MusclePharm (OTCQB:[[MSLP]]), and underwent a reverse merger with CoCrystal Discovery, a formerly private biotech company that received strategic investments from Dr. Frost in 2008, and Opko Health (OPK) and Teva Pharmaceuticals (TEVA) in 2011.

After thoroughly investigating the background of the CEO and Chief Scientist, and the technology being utilized and the products being developed, I believe something big is brewing behind the scenes of CoCrystal Discovery. Opko Health's second investment in the company completed just last week, a look into the scientific opinions of cocrystals and their pharmaceutical applications, and a conversation with CEO Dr. Gary Wilcox confirmed my bullish opinion behind this unique biotech company.

The Company and Management

CoCrystal Discovery, which still trades under the name and ticker of BioZone (changing momentarily pending shareholder approval), is focusing its efforts towards anti-viral therapeutic treatments that treat a range of common illnesses, including the Influenza virus, the hepatitis C virus, the norovirus, the rhinovirus, and the dengue virus.

The company is currently focused on developing oral, once-a-day medicines to treat the above-mentioned viruses, and in the future the company has the option to broaden its drug offerings, thanks to its unique technology. Dr. Wilcox commented, "There's no shortage of viral diseases to conquer, we can definitely apply our technology to any virus out there."

The management behind CoCrystal is nothing short of exceptional, and the company has a number of seasoned veterans that are immersed in the developmental process of the therapies being developed.
CEO Dr. Gary Wilcox served as the Executive Vice President of Operations for the Icos Corporation from 1993 to 2007, and was also on the board of directors for the company. Dr. Wilcox is best known for spearheading the development of the blockbuster drug Cialis, which now rakes in more than $2 billion in annual sales. Prior to Icos, Dr. Wilcox served as the Vice Chairman, Executive Vice President, and Director of Xoma Corporation (XOMA), and was the co-founder, Chairman, and CEO of Ingene prior to its merger with Xoma. Dr. Wilcox also served as a professor in the Department of Microbiology at UCLA for 10 years. Dr. Wilcox has a long history of introducing successful drugs to the market, and there's no reason why the drugs under development at CoCrystal should be any different.

Chief Scientist Dr. Kornberg is a biochemist and professor of structural biology at Stanford University School of Medicine. Kornberg received the Nobel Prize in Chemistry in 2006 for his studies regarding the process by which genetic information from DNA is copied to RNA, which he achieved through the utilization of X-ray crystallography. Dr. Kornberg has received a plethora of awards dating all the way back to the early 1980s. He holds a bachelor's degree in chemistry from Harvard University, and a Ph.D. in chemical physics from Stanford University. Here's an excerpt from the Nobel Prize committee regarding Dr. Kornberg's work related to his 2006 award.
The truly revolutionary aspect of the picture Kornberg has created is that it captures the process of transcription in full flow. What we see is an RNA-strand being constructed, and hence the exact positions of the DNA, polymerase and RNA during this process.
Dr. Phillip Frost, Dr. Jane Hsiao, and Steve Rubin are all on the board of directors of CoCrystal Discoveries, and all have a long and successful track record in the healthcare space.

Biozone's reverse merger with CoCrystal Discoveries is eerily similar to SafeStitch Medical's reverse merger with TransEnterix (TRXC). Dr. Phillip Frost had a stake in both public companies, the public companies were bleeding cash and had no clear future, and the companies completed a merger with a private company that has an exciting product under development. It took TransEnterix approximately three months after the merger closed to receive a name change and new ticker symbol. I believe it's safe to speculate that Biozone will receive its official name and new ticker by early March, three months after its merger closed. The company should be reporting earnings in late February, which will shed some light on the administrative proceedings of the company, as well as its official strategy moving forward.

Core Scientific Competence

Many readers and skeptics may be thinking, "so what? What makes CoCrystal so great? This company is a tiny fish in a sea of early stage biotech companies that all promise the same thing: to deliver groundbreaking medicine that will save the lives of millions."

This is a valid and understandable concern, and there is no doubt that at this time CoCrystal is purely a speculative investment, as are all other early stage biotech companies. Having said that, in this large sea of early stage biotech companies, there are certain ones that stand a better chance at surviving and moving up the food chain than others. If the overqualified, accomplished management didn't convince you on this company, maybe the technology will.

To fully understand the value proposition of CoCrystal Discovery, you need to have a basic understanding of the technology being utilized to develop these broad targeted therapies. The technology is right in the name.

CoCrystal Discovery is utilizing X-ray crystallography technology, the same technology that aided Dr. Kornberg in many of his groundbreaking studies, to develop pharmaceutical cocrystals. The use of X-ray crystallography technology allows CoCrystal Discovery to obtain high-resolution structures of viral diseases, and then uses proprietary quantum mechanical computation methods to screen and design drug candidates that take advantage of the information gathered from the crystallography high-resolution structures. Dr. Wilcox explained that the process is akin to you being locked out of your house.

The key is the medicine, and the door lock is the virus, so by X-raying the door lock (virus), you are able to design a key (medicine) that fits the lock (virus), thanks to the detailed X-ray image. This approach allows CoCrystal to predict possible mutants in the virus, which would help better avoid drug resistance.

A 2008 scholarly article authored by Ning Shan and Michael Zaworotko and published in Drug Discovery Today, focusing on the role of cocrystals in pharmaceutical science, went into more detail about the scientific advantage of cocrystals and the potential impact they can have on current and new drugs.

Cocrystals have lagged behind in the pharmaceutical industry since they were discovered back in the 1800's, and they have received a limited number of studies detailing its forms or characteristics, however cocrystals are appealing to scientists because they can, "significantly diversify the number of crystal forms that exist for a particular active pharmaceutical ingredient ((API))." This advantage allows for improvements in the physical properties of the drug, and the FDA has commented that,
[cocrystal pharmaceuticals] achieve performance characteristics to ensure drug product stability, bioavailability, patience acceptance, and other quality characteristics…Pharmaceutical cocrystals are of interest because they offer the advantage of generating a diverse array of solid-state forms from APIs that lack ionizable functional groups needed for salt formation.
Cocrystals ability of offering greater diversity to drug developers in terms of the number of crystalline forms available for a medicine, which have been limited to salts, solvates/hydrates, and polymorphs, is of great relevance to the pharmaceutical industry, and the utilization of cocrystals can lead to a tidal wave of safe and effective drugs. The active ingredient in drugs has to be stabilized through a number of other chemicals, which tend to reduce the stability and strength of the drug and increase the chances of negative side effects. Utilizing cocrystals allows the active ingredient in the drug to remain stable and effective without the need for the other bonding chemicals.

Engineering cocrystals offers drug developers a quicker pathway to commercialization because the cocrystals of existing APIs can be patented as new crystal forms, and they can be developed as new drugs if they exhibit clinical advantages over the existing API. Receiving a patent for a cocrystal based off of an existing API allows the developer to bypass the discovery and toxicology phase of drug development. Avoiding these phases will save CoCrystal a lot of time and significantly speed up the process for the company to get its anti-viral medicines into clinical trials.

Cocrystals allow drug developers to alter the composition and molecular makeup of a drug without the need to make or break covalent bonds, which leads to a more stable, and effective drug. As many as 60 different cocrystals can exist for a particular API, and this large diversity of potential drug forms offers an exciting opportunity for drug developers to substantially improve current drugs, and create new ones.

The concluding remarks of Shan and Zaworotko's scholarly article are incredibly bullish for any biotech company utilizing cocrystals for drug development.
In summary, the importance of crystal from selection during development of APIs has never been higher, and pharmaceutical cocrystals have become an important part of a landscape that was previously occupied only by polymorphs, salts, and solvates/hydrates.
The concepts of supramolecular synthesis and crystal engineering remain largely underexploited.
One might claim that it is now fair to assert that the issue no longer centers around whether cocrystals are designable or if pharmaceutical cocrystals will impact pharmaceutical form and formulation; the issue now is when it will happen, who will benefit, and whether the changes will be evolutionary or revolutionary.
After nearly six years since the publication of this article, I believe CoCrystal Discovery is one company that will surely benefit from the utilization of pharmaceutical cocrystals, and after six years of developing its therapies, I believe investors will receive an update soon now that the company went public.

CoCrystals Advantage

Any company can utilize X-ray crystallography and develop a wide range of drugs utilizing cocrystals. One company that is doing so is privately funded Thar Pharmaceuticals, with multiple therapies in phase I and II trials for drugs that are delivered through IVs.

CoCrystal is utilizing high-energy X-ray facilities that can cost more than a billion dollars to build in some cases, and cost tens of millions of dollars to maintain each year. There are only a handful of these facilities in the US, with only two located on the west coast, at UC Berkeley and Stanford University. The fact that Dr. Kornberg and four members of CoCrystal's seven-person scientific advisory board are faculty members at Stanford leads me to speculate that CoCrystal may have a beneficial advantage (discounted access) regarding usage of these capital-intensive facilities. CoCrystal has contracts in place with both Stanford University and Berkely College for the use of the two facilities.

Source: Berkely Lab

Even if you have access to the technology, what's more important is the people who are using the technology. Crystal engineering is a complex field that requires an extensive number of crystal surveys from the Cambridge Structural Database, as well as experimental work to prepare and characterize new compounds that are sustained by molecular recognition. From the article:
A detailed understanding of the supramolecular chemistry of the functional groups present in a given molecule is a prerequisite for designing a cocrystal because it facilitates selection of appropriate cocrystal formers.
CoCrystal Discovery has a team of scientists that have a life long career in Structural Biology, Biochemistry, structure based drug design, Microbiology and Immunology, among other fields. The expertise of the management and scientific advisory board in place at CoCrystal signals that the company has the right people behind the right technology to develop promising anti-viral drugs.

The Market Opportunity

CoCrystal is targeting a number of multi-billion dollar markets with its first in class antiviral therapies. The hepatitis C virus has impacted more than 170 million people worldwide and represented a $6 billion market in 2012, and is expected to grow to more than $20 billion in 2020. Johnson and Johnson recently acquired a hepatitis C drug candidate from GlaxoSmithKline for an undisclosed amount, Gilead Science spent nearly $11 billion on Pharmasset for access to their hepatitis C drug candidates back in 2011 (all drug candidates failed), and Bristol-Myers Squibb purchased Inhibitex for $2.5 billion in 2012 for their hepatitis C drug candidates.

Clearly there is a large pile of resources being thrown at these early stage therapies (successful or not), and if CoCrystal unveils a promising hepatitis C drug candidate that is ready for clinical trials, an increased valuation would be warranted. CoCrystal is targeting two Hepatitis C replication enzymes, with one in the lead optimization stage (pre/clinical drug development follows), and the other being in the lead identification stage.

The influenza market exceeded $6 billion in 2013, and the norovirus, dengue virus and rhinovirus (common cold) all represent billion dollar markets. It should be noted that CoCrystal Discoveries is developing cures for these viruses, not symptom relief medication, and the scarce technology that CoCrystal is utilizing to develop these potential blockbuster therapies is a testament to how unique this company is, how much potential this company has, and how far this company should go.

The idea that CoCrystal's potential rhinovirus cure could pose a threat to the likes of Dayquil/Nyquil and other over the counter cold-relief medications in the future (ways away) is profound, especially for a company that has a valuation of less than $100 million. CoCrystal's once a day medications will be prescription based cures, not symptom relief, and will target a specific population at first.
For the rhinovirus, CoCrystal will be specifically targeting patients who have asthma or COPD, which when combined with the rhinovirus results in a serious health complication. Patients who have a history of asthma or COPD and obtain the rhinovirus represent the fourth most common US hospital admittance. If CoCrystal's developmental rhinovirus treatment does show significant signs of safety and effectiveness, then the drug can apply for over the counter status after years of data has been thoroughly reviewed.

Because CoCrystal only needs a protein of a virus to be subject to high resolution X-ray crystallography, the targeted market size can be expansive if management expands the number of viruses they target.

A Timeline to Value Creation

Although CoCrystal Discovery is engaged in the early stage discovery and development of anti-viral medicines, the company has room to move higher now that shares are hovering above key support near $0.50.

There is reason to believe that CoCrystal may be gearing up to move its leading hepatitis C anti-viral into the drug development stage (clinical trials), which has shown to add significant value to a company that's positioned in the hepatitis C market. It takes approximately six and a half years to complete the drug discovery stage, and after working on its anti-virals for more than six years, CoCrystal seems ready to create a number of catalysts and significant value for its shareholders as it steadily introduces a number of anti-virals based off of promising technology into the FDA drug development process.

A scholarly editorial published in 2012 by Bhupinder Singh Sekhon further backs up the positive advantages of utilizing cocrystals for the development of pharmaceuticals, and highlights the potential value behind them.
Co-crystal screening technology has the potential to identify and establish new IP for new drug-drug co-crystals of multiple APIs to protect the product from competition… optimization of co-crystal screening may lead to commercialization of new co-crystal product along with separated single enantiomers. In the case of commercial API-API combination, a patent of a drug-drug co-crystal with better drug properties than previously known forms could be of high commercial value. Designing drug-drug co-crystals of marketed drugs may shorten development period (including clinical trials) than those of New Chemical Entities as co-crystals do not involve structural modification of the APIs.
The significance behind the ability to bypass a number of studies to get the drug into clinical testing is profound. CoCrystal's hepatitis C antiviral that has been in the last stage of drug discovery for months can bypass nearly all of the IND application and begin phase one trials within months. Here are the studies CoCrystal is able to bypass thanks to the use of cocrystals:
  • Acute Studies
  • Repeated Dose Studies
  • Genertic Toxicity Studies
  • Reproductive Toxicity Studies
  • Carcinogenicity Studies
  • Toxicokinetic Studies
The ability to avoid these studies, which generally take a number of months, is why I speculate that CoCrystal well on its way to beginning clinical studies for there hepatitis C anti-viral, which would create significant value for all shareholders.

The recent funding from a secondary offering, and the infusion of Muscle Pharm stock may serve as a buffer to get the hepatitis C vaccine into clinical development. Also worth mentioning, the pockets of CoCrystal's investors run deep. Teva Pharmaceuticals has obtained the rights to exclusively license the drug for its own development pipeline, and has the option to invest more money once CoCrystal achieves specific milestones.


This is a micro cap stock that is associated with volatile price swings, has no source of revenues, and will not be recording revenues anytime soon. The company's drug pipeline has not been clinically tested yet and is subject to failure. Currently this investment is solely a bet on the stellar and experienced management that is in place, and the technology that they are using. The company has approximately 120 million shares outstanding, and although the company recently completed a secondary offering, CoCrystal will most likely need to raise more cash down the line, which should result in another secondary offering.

However, it should be noted that while CoCrystal Discovery is developing potential life saving drugs, they are not spending a large amount of money to do so. The company operates laboratories in Bothell, Washington (headquarters), and Mountain View, California (Stanford University), and has a small work force. The company received an initial investment of $10 million from the Phillip Frost group during its inception, a $733,438 grant from Qualified Therapeutic Discovery Project for the company's development of its hepatitis C and common cold drugs, and a $7.5 million investment from Teva Pharmaceuticals in 2011. Let's assume in its first six years of operation, CoCrystal burned through all of the raised $18.2 million, or approximately $3 million per year. Given the fact that the company just raised more than $5 million in a private offering, already had $1 million in cash, and has nearly $10 million worth of MusclePharm stock, I believe the company can avoid further dilution for at least a year. However, if the company's developing drugs are farther along the hit to lead process of drug development than previously thought and ready for clinical trials, additional funding would be necessary, hence more dilution.

A large risk associated with this speculative investment, depending on what type of investor you are, is time. With all of CoCrystal's current therapies in the hit to lead process, it can take years for any of CoCrystal's therapies to reach Phase III trials. However, since the company recently went public and is undergoing a number of changes through its recent merger, it should be expected that the company reveals its current status and strategy moving forward momentarily. The combined company's first earnings report should be released in late February, which should provide more clarity, and possibly a positive catalyst. The company has been developing its pipeline for six years, so at this point it is very likely that at least one of these therapies is on the verge of beginning preclinical drug development and clinical trials thereafter.


The combined annual deaths for the five viruses CoCrystal is targeting is more than 6 million, more than a billion people have been impacted by the viruses, and all of CoCrystal's therapies are positioned in a growing market with un-met needs. The opportunity for CoCrystal Discovery and its investors is exciting, and with shares currently trading near support at $0.55, and an imminent release of earnings, now may be a prime time for the speculative investor to open up a position in this company. If CoCrystal plays out like Dr. Frost's five-year 1000% Sorrento investment, shares of CoCrystal would be trading above $5.00 per share in 2019.

This early stage developmental company is utilizing a unique technology to develop potential breakthrough drugs, and the strong interest in early stage hepatitis C therapies by major pharmaceutical companies may lead to BioZone significantly appreciating in value well before the company enters Phase III trials and commercialization. Keep in mind that this company has been in development for six years, so there is plenty of progress to be reported, and when management releases an update on its line of potential blockbusters, and its timeline moving forward, the share price should act accordingly.

Addition information was sourced from CoCrystal's website.

After Quick Head Fake, Nokia Is Back On Track

By The Wall Street Fox → Sunday, February 9, 2014

Nokia (NOK) bucked the downward trend last week (spurred by latest earnings release) after news broke that the Finnish firm ended all litigation with HTC and entered a licensing agreement which entails Nokia receiving royalty fees from HTC and possible future collaborations. This is a very important agreement for all Nokia shareholders, and not because of the future revenue potential or confirmation of Nokia's strong patent portfolio. The future revenues Nokia will generate from this licensing agreement with HTC should be chump change when compared to Nokia's licensing deals between Apple and Samsung, but the deal paves the way for Chinese regulators to OK the Nokia/Microsoft tie-up. After dropping nearly 15% since Nokia did not announce the closure of the Microsoft deal or reinstatement of a dividend during its latest conference call, shares of Nokia have filled a number of gaps and with momentum building, accumulation increasing, and catalysts impending, Nokia seems poised to tear through the $8.20 triple top.

Nokia gained 12% in the past two trading days, and is sitting right below its 50 day moving average. Both the RSI and MACD indicators are pointing to a continued rally. Any close above the 50-day moving average would signal a continuation of Nokia's uptrend, and the catalysts that may supplement Nokia's impending breakout above $8.20 are not limited to any of the following.

Chinese Regulators OK Microsoft/Nokia Deal

Since European and US officials both approved Microsoft's $7.2 billion acquisition of Nokia's handset unit and patent access, all eyes have been on China, where regulators have been cautious to approve the deal because of Chinese phone manufacturers worrying about being subject to unfair royalty fees imposed by Nokia.

Nokia's recent agreement with Taiwan based HTC illustrates the feasibility of Nokia not overstepping any boundaries with its massive patent portfolio, and should help quell China's fears of Nokia imposing unreasonable licensing fees with Lenovo, ZTE, and other Chinese firms.

Official Close of Nokia/Microsoft Deal

Once Nokia gains approval from Chinese regulators, all major hurdles will have been cleared and Nokia will be set to officially announce the closing of the deal between them and Microsoft. The official infusion of $7.2 billion cash will allow Nokia to announce and commit to its future business strategy, reveal a new CEO, and officially state how it intends to redistribute excess cash to current shareholders. Some analysts expect that Nokia may return up to $4 billion to its shareholders. Even when Nokia's dividend cut was well known and anticipated last January, shares still took a 10% tumble when the news was officially announced. Although Nokia's reinstatement of a dividend is highly anticipated, I believe the price action will behave similarly to when the dividend cut was announced, but in the opposite direction. A recent report has speculated that the Nokia/Microsoft deal closure will occur around the week of February 24-27, during the 2014 Mobile World Congress.
Announcement of New Nokia Brand

Recent reports also hint that Nokia may be revealing a brand new hardware brand that focuses on wearable devices. Nokia seems to have experienced a rough breakup with its hardware division, and the company has rebounded to the emerging smart watch/smart glasses, etc. market. The speculative report also hints at a Nokia smart watch coming in Q3 of 2014.

The real elephant in the room is the Nokia X (Normandy), which is a low grade Lumia 520 that runs a forked version of Android, and employs a user interface that slightly resembles the Windows Phone box look. Reports of the phone being listed on several Asian commerce websites imply that the product will indeed see the light of day. The big question is will Microsoft be selling this phone under a new brand name? Or has Nokia retained the rights to its "Normandy" phone and will they be selling the Android device under a new brand name? The codename for the device is also symbolic, and it may very well serve as the turning point Nokia has been looking for since its multi-year downward spiral.

Keep in mind that Nokia is no longer attached to the shackles of Microsoft, and with a new brand name, Nokia has the ability to develop, build, and sell any piece of hardware for either Android or Windows. Whether it is a new line of smart phones, smart watches, smart glasses, or nothing at all is anyone's guess, but the upcoming 2014 MWC should provide more insight into Nokia's future and act as a positive catalyst for the share price.

The overall market is on thin ice, and though bouncing off of key support, any broad selloff should translate into a selloff for Nokia, and impede on Nokia's trek higher. There is also the chance that Nokia stays in quiet mode until the Annual General Meeting on June 11th. If the company keeps mum on a future dividend, future business strategy, and new CEO until then, I expect shares to remain trading range bound.


Nokia's recent patent win with HTC confirms the Finnish firm's ability to monetize off of its gold mine of a patent portfolio. The OK from Chinese regulators, official closure of the Microsoft deal, and impending reinstatement of a dividend should boost shares and help broaden the investor base for Nokia. The strengthening NSN division is on track to sustaining high single digit gross margins for the foreseeable future, and continues to act as a solid foundation for Nokia as they explore other opportunities in the tech world (HERE, Advanced Technologies, Hardware?). Nokia seems to be setting up for a continued rally, and may serve as a solid swing trade in the next few days. In the long term, I still retain my bullish outlook for Nokia, and do not plan on trimming my core position until the share price reaches double digits.

Neovasc Part III: An Undiscovered Gem In The Medical Device Industry

By The Wall Street Fox → Tuesday, February 4, 2014

Canadian based medical device company Neovasc Inc (NVCIF) is an undiscovered gem, a true diamond in the rough (Cliché? Yes. But true? Yes!). After covering this promising company in two previous articles last fall, shares have nearly doubled, and the company's future prospects continue to shine even brighter thanks to the successful implantation of Neovasc's novel Tiara device in a human being, and a lengthy bullish analyst report released last week from Euro Pacific Canada. Although it may be difficult to stomach purchasing a volatile stock that recently jumped almost 40% in one trading session, the fundamentals behind this company are too strong to ignore, and a quick glance at Neovasc's operations help explain why this company is still severely undervalued, trading at a current valuation of $240 million. Here's why I have continued to buy shares of Neovasc (as recently as yesterday).

Brief Overview

Neovasc specializes in developing medical devices for the cardiovascular market. The company operates three divisions, and all of them have a strong future outlook, and will generate significant value for all shareholders. Here are some quick facts highlighting the company.
  • Neovasc has received investments from both Dr. Phillip Frost and his company, Opko Health (OPK).

  • Insiders own more than 75% of the 57 million shares outstanding (fully diluted basis).

  • Company operates one profitable division that achieves gross margins of 40%+. Division develops bovine tissue to be utilized in human implantation of cardiovascular medical devices (aortic heart valves, stents). The division has experienced dramatic growth, and will continue to do so as the cardiovascular device market balloons higher.

  • The profits derived from this operation are used towards developing two novel cardiovascular devices that serve an un-met market, the Reducer and the Tiara.

  • The Reducer is a fully developed (and tested) catheter based treatment for refractory angina. This is a heart disease that severely limits the day-to-day activities of its victims. The Reducer has shown to be a safe, effective, and minimally invasive treatment thanks to years of study data. Neovasc recently reported positive top line results of its large COSIRA trial. The device was CE marked in 2011. The Reducer is positioned in a growing multi-billion dollar market

  • The Tiara is a catheter-based device that treats mitral heart valve disease, or mitral regurgitation ((MR)). This is a life threatening disease, and surgery is currently the only viable treatment, and is not possible for a large population of patients due to the strenuous operation. MR valves have lagged behind aortic heart valves due to the complex anatomy of the mitral heart valve. Neovasc has received key patents that protect its proprietary technology. This technology allows the Tiara to be implanted in a minimally invasive procedure in a short period of time. The company has had successful trials implanting the device in porcine, live sheep, and now a human. The mitral heart valve market is in its infancy, and would represent a multi-billion dollar market.
The Tiara Milestone

Shares of Neovasc rocketed 35% higher Monday morning after news was released stating that physicians at the St. Paul's Hospital in Vancouver, BC successfully implanted the Tiara in a 73-year-old male patient. The PR is so exciting it is not even worth trying to regurgitate it for you. Here are the highlights below.
The transapical procedure resulted in the elimination of mitral regurgitation and significantly improved heart function in the patient, without the need for cardiac bypass support and with no procedural complications.
This 73 year-old male patient had severe functional mitral regurgitation and was considered an extremely high-risk candidate for conventional valve repair or replacement surgery. The transapical implantation of the Tiara valve was completed quickly and without complications. It resulted in a well-functioning bioprosthetic valve with no significant paravalvular leak or residual MR. -Dr. Cheung (Surgeon)
We are very pleased that this first implantation went so smoothly and that the patient's outcome to date is so positive. His recovery has been uneventful, and we will continue to follow him closely over the coming months. The ability to implant a prosthetic mitral heart valve using a transcatheter, minimally invasive approach instead of conventional open chest, open heart surgery would provide a much-needed alternative for the many patients who are considered at high risk for conventional surgery. -Dr. Cheung (Surgeon)
The Tiara has a long way to go before it becomes a commercialized device ready for sales, but the promising results from the first procedure bode well for MR patients, Neovasc, and its shareholders.

The Analyst Report

On January 28th, a 54-page analyst report, authored by Douglas W. Loe, PhD MBA and Associate Siew Ching Yeo of Euro Pacific Canada, was released detailing the ins and outs of Neovasc. The extensive report set a buy rating on Neovasc with a 12-month price target of $8.00. The report was released on the company's website, and can be found here.

Anyone with time, or any prospective investors should read through the report, as it goes into detail the science behind the devices, and the promise behind them. I have provided some snippets below.

While the above table lays out the long term potential for Neovasc and the number of positive catalysts that should boost the share price, the below paragraph sums up why Neovasc is a potential takeover target for big name healthcare companies, and how much value they could fetch for some of their products, or rights to their products.

Source: Euro Pacific Canada

I could go on forever, so I will stop there. I strongly urge anyone interested in the company to read the full report.


Despite Neovasc's bursting potential, the small cap company seems to have gone unnoticed by the market. This is a thinly traded company that is extremely volatile, and subject to 20%+ swings in a trading session. High volume for this stock is approximately 70,000 shares, and some day's only 3,000 shares trade hands. Normally the bid and ask is spread by nearly a dime or more, so expect to book a small loss as soon as you purchase (or sell) this security.

This stock has received minimal attention from most of the market because it's listed on the Toronto Venture Exchange, and its US listing is traded over the counter. I believe this is an opportunity any investor can capitalize on as long as you hold out for any completion of the milestones listed above, or an acquisition/licensing deal with the company. I view this as a long-term investment, but with so many upcoming catalysts, two life changing devices, and a growing cardiovascular market, I believe shares of Neovasc will reward current investors before the end of 2014.

Neovasc will report earnings in mid-February, so investors who do not have an appetite for risk may want to hold off until the upcoming numbers are released. Capital expenditures relating to the testing of the Tiara may have increased, but the core businesses' strong growth and gross margins should continue to impact Neovasc's financial health in a positive way. The company's profitable tissue division prevents the company from having to dilute shareholders and issue shares. The company has not conducted an offering since 2011.

Investors must always consider the risks associated with the failure to gain approval for a medical device.


Neovasc offers a compelling risk/reward profile for any investor who can "set it and forget it." Neovasc has so many different routes to take with its three compelling business divisions that there is no telling which way, or when the company will go. The recent analyst report and positive Tiara implantation back up my bullish thesis behind this promising small cap medical device company, and I view any pull back as a buying opportunity.