Independent Security Analysis. Technical Analysis. Fundamental Analysis. Trade Ideas.

Independent Security Analysis. Technical Analysis. Fundamental Analysis. Trade Ideas.

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The Advaxis (ADXS) Trade

By The Wall Street Fox → Thursday, February 26, 2015
A long position was entered in Advaxis (ADXS) on February 18th in the $7.50s, to be treated as a swing position. Shares were bouncing off of a double bottom pattern which fueled the speculative trade. Besides the established double bottom, the short term downtrend was broken, MACD was beginning to turn bullish, and RSI was moving higher after bottoming out.

Advaxis develops immunotherapies for cancers and other diseases. It's currently focusing on HPV related cancers. The immunotherapy sector has been all the rage recently (KITE, JUNO), and at a current market cap of $210M, and a phase 2 drug candidate gearing up for phase 3 tests, ADXS could fetch a much higher valuation.

Consider this, Bristol Meyers just bought Flexus for $1.25B. Flexus, like Advaxis, develops immunotherapies to treat different cancers, however, unlike Advaxis, Flexus' lead drug candidate is still in preclinical stages. There seems to be a fundamental mispricing for Advaxis.

Advaxis is part of several collaborations with some big pharma names, such as Merck, Incyte, and AstraZeneca, and a lead drug developer from Merck recently switched jobs to join Advaxis as Chief Medical Officer.

The pop from $7.50s to $8.00s on February 18th was caused by the completion of an offering at $7.50 with Adage Capital, a successful healthcare hedge fund that now owns 20% of ADXS. The stock dropped hard in late January after a misleading short article was published by Richard Pearson, who profited by taking a short position before releasing the article and then sold into the heavy volume sell off. In reality, all he did was create a buying opportunity which I thank him for, as all of his bearish points have been dispelled by the recent Adage Capital deal and Adam Feuerstein from The Street.

What you have here is a textbook technical swing trade that is backed up by some strong fundamentals. This stock has been playing very well with its 50 day ma, the MACD is just turning positive, and RSI can move a lot higher. ADXS will continue to be held as a swing position until it decisively breaks below its 50 day MA.

Beware of Forcefield Energy (FNRG)

By The Wall Street Fox →
ForceField Energy (FNRG) has been popping up a lot on recently, so I took a look at the company. I have never seen such an overbought stock before in my life, with a current RSI reading of 94.

This stock has seen a sharp increase in volume in late January/February, primarily driven by paid promotion from Red Chip TV and The Dream Team Group. A fake research report on the company was issued by CapRock Research, which gave a "conservative" $8 price target. CapRock is connected to Small Cap IR, which is a subsidiary of The Dream Team Group, a stock promoting firm.

Of the 9 PRs released for FNRG in 2015, 5 of them have been related to paid stock promotion.

Given the company's current financials, and its bloated $135M market cap valuation, I would steer clear of this promoted stock. FNRG's cash per share is $0.03, and its book value per share is $0.26.

*No equity position in FNRG is being held, and there is no future plan to trade this stock.

TransEnterix Q4 Earnings Review

By The Wall Street Fox → Wednesday, February 25, 2015
Some key highlights from TRXC's Q4 earnings call.
  • On track for submitting 510(k) filing to FDA in mid-2015 (July 1st target)
  • TRXC has not encountered any issues that would impact its timeline.
  • Feedback from SurgiBot operators has been "very positive."
  • "Our experience with training (surgeons to use the SurgiBot) thus far continues to confirm our belief, that the SurgiBot design, which mimics the motions of traditional laparoscopy, reduces overall training complexity and time, by leveraging the surgeons laparoscopic training and experience".
  • The number one drawback of robotic surgery, according to active robotic surgeons, is that they're required to be outside of the sterile field and away from their patients, the second and third most commonly cited drawbacks were the cost and size of the system. (SurgiBot solves all three of these drawbacks)
  • At the society of robotic surgery meeting last week, there were three podium presentations that discussed the SurgiBot system. 
  • Continues to experience high interest in SurgiBot from key opinion leaders.
  • "We continue to get a lot of inbound interest on the SurgiBot and we expect early commercial interest to be high."
  • "We do have quite a bit of interest from surgeons outside of the U.S."
I've been accumulating/following this company since 2013, but after hearing the language used in the Q4 earnings call, I have never felt more compelled to buy more shares for the long run. I will continue to accumulate shares until late 2015/early 2016 prior to FDA approval. My time horizon for this investment is long.

TransEnterix Bullish Thesis + Earnings Preview

By The Wall Street Fox → Tuesday, February 24, 2015
TransEnterix is a minimally invasive surgical company founded in 2006 that originally sought to revolutionize general surgery through the use of flexible catheter-based technology. Soon enough, the SPIDER surgical system was born. The SPIDER is a disposable, manual surgical device that utilizes a single incision about the size of a dime to introduce various tools and a camera into a patients abdomen in order to carry out specific operations. The SPIDER is the first device to introduce true left/right hand instrumentation, enhanced flexibility and articulation, and internal triangulation in a patient side surgical platform.

To date, surgeons have carried out more than 4,000 operations since the device received FDA approval in 2009.

After TransEnterix conducted a soft launch of the SPIDER, they began receiving feedback from surgeons which led them to question whether or not the company should continue with its original plan of ramping up commercialization efforts and expanding its sales force for a global roll out of the SPIDER. While feedback was positive from surgeons, they kept mentioning specific qualities of Intuitive Surgical's da Vinci system that would be beneficial to have included in a patient side surgical platform like the SPIDER. Basically, surgeons wanted the best of both worlds.

In 2012, TransEnterix was at a crossroads: either continue commercializing a product it's been developing for years (and spent roughly $76M on), or shift gears entirely and focus on developing a patient side surgical robotic platform for general surgery. The company ultimately decided to take what it learned from the SPIDER and include that core technology as the base of their new device, the SurgiBot.

It is important to note that there are key factors that differentiate the SurgiBot from ISRGs da Vinci System. These factors include price, mobility, tactile feedback, patient side operation and more. The SurgiBot will cost ~$500,000 compared to da Vinci's ~$2 Million price tag. TransEnterix's low price point allows the company to target the 3,000+ small-medium sized hospitals and 5,000+ private surgery centers that have not yet invested in robotic surgery because of its steep costs. The SurgiBot is mobile and can easily be wheeled into operating rooms while the da Vinci takes up a lot of real estate and usually remains installed in the same operating room. The SurgiBot has full tactile force feedback, which makes navigating around a patients abdomen much easier for a surgeon, the da Vinci does not have this crucial capability. The SurgiBot allows the surgeon to operate in the sterile field, scrubbed in right next to the patient, where as the da Vinci has the surgeon out of the sterile field, working on the patient from a remote console several feet away. This is just a bare minimum, basic summary...a lot more detail can go into how the SurgiBot differentiates itself from the competition.

Now, fast forward three years and TransEnterix is on the verge of submitting their 510(k) filings to the FDA. If all goes as planned, the company will receive FDA approval in late 2015/early 2016 and begin selling the device shortly after. The company originally planned to submit the SurgiBot to the FDA in December of 2014, but a 6 month delay announced during last quarters earnings pushed that filing back to mid 2015. This delay led to a more than 50% decline in share value, which is when we were pounding the table to add more. It should be noted that this delay was not caused by drastic changes that were necessary for the SurgiBot to gain FDA approval, but rather for last minute tweaks (in some instances the relocation of a few screws) that required rigorous testing/validation.

After accumulating such a massive position in TransEnterix (relative to our entire portfolio) over the past year, a reflection is needed. Below are just a few bullet points that led to such a high conviction long thesis.

  • TransEnterix is backed by "smart money." 5 different healthcare oriented venture capitalists funded the company while it was private. Dr. Phillip Frost and Dr. Jane Hsiao of Opko Health invested in 2013 when TRXC went public through a reverse merger with SafeStitch Medical.
  • BlackRock acquired a ~6% stake in the company. Other institutional names invested include Vanguard, Putnam, Fidelity and more. Roughly 65% of the company is owned by institutions and insiders.
  • TransEnterix has high quality management. CEO Todd Pope was former CEO of Cordis, a billion dollar unit within Johnson and Johnson. Mohan Nathan comes from Intutive Surgical. CFO Joseph Slattery played an instrumental role at Digene.
  • TransEnterix has worked together with the FDA for the SurgiBot submission. The company conducted a formal pre-submission filing with the FDA, received feedback, and incorporated that feedback into their final 510(k) filing. The FDA also signaled that TransEnterix would be able to utilize the human data from the 4,000 surgeries conducted with the SPIDER as data for the SurgiBot submission. These factors drastically de-risk the FDA approval process.
  • TransEnterix already has a customer base and is a known presence in the surgical business following its launch of the SPIDER system. The company has experience with FDA submissions/approvals and product launches. 
  • The surgical robotics market is growing, has barely been penetrated by competition, and the SurgiBot is a compelling product that solves many solutions hospitals/surgeons/patients are seeking. This supports a long term, rapid growth thesis for TransEnterix.

TransEnterix will report Q4 earnings tomorrow before markets open. Because the company ceased sales of its previous product to focus on developing the SurgiBot back in 2012, revenues hold little weight here. What does hold weight is the status of the current FDA submission/approval timeline for the SurgiBot, the current and projected cash burn rate, and commercialization plans.

TransEnterix has enough cash to make it through the end of the year, and a recently announced $25M at the market offering should help the company make it through the initial commercialization stage of the SurgiBot if they indeed are on schedule.

The risks that lie ahead include: TransEnterix delaying the FDA filing again due to some unforeseen hiccup (it's happened once, it can happen again), the FDA pulling an about face and informing TRXC that they actually need to conduct human trials for SurgiBot approval instead of utilizing data from the SPIDER operations, which would delay them by roughly 3 months. In short, the only real risk is that this gets delayed by a few more months, which would indeed destroy value in the short term, but in the long term the thesis would remain unchanged.

Here is my 100% speculative opinion on why I believe TransEnterix is on schedule with their mid 2015 FDA filing of the SurgiBot:

  • TransEnterix has a presentation at the RBC healthcare conference the day after earnings, and another the following week at the Raymond James healthcare conference. Typically, a company would shy away from announcing disappointing news at earnings, and then reiterate that disappointing news at two healthcare conferences directly after earnings. 
  • A brand new re-designed website may signal that the company is preparing for the initial stages of hiring a sales force. From the website on the career page, "Due to the volume of inquiries received, we regret that we cannot contact all applicants personally."
  • When TRXC announced its 6 month delay in November, it also announced the resignation of its COO, who was responsible for the R&D of the SurgiBot and its developmental timeline, among other duties. Following his departure, Todd Pope oversaw the R&D of the SurgiBot, as the company decided not to immediately hire a replacement COO. TransEnterix recently posted a new job position for a R&D director, which signals to me that Pope is ready to pass on the torch because the bulk of the work has been done and the SurgiBot is near ready for FDA submission. Introducing/training a new R&D director in the midst of a frenzied rush to speed up the development of the SurgiBot to reach its mid 2015 timeline does not make sense if they are indeed still falling behind schedule. This new R&D Director signals that the company is done with the bulk of the work associated with SurgiBot development/FDA filing and is ready to train a R&D director to lead the development of future products/tools/enhancements for the SurgiBot.

Technically speaking, TransEnterix has a fugly chart. The stock is in a clear downtrend, consistently getting rejected at that purple downtrend line. However, it has been putting up a sustained fight, and a decisive break above that trend line leaves for lots of ground to be recovered. The stock did hold its 50 day for a brief period of time, but recently broke below it. If a decisive sell off occurs, there is a lot of room to move lower. 

Other Surgical Robotic companies include MAKO, Mazor Robotics, Hansen Medical, Stereoaxis, and Imris.

CoCrystal Pharma (COCP) Bull Thesis

By The Wall Street Fox → Sunday, February 22, 2015
It's been roughly one year since initiating a position in CoCrystal Pharma (COCP) at $0.56, and a fresh recap of the investment thesis helps reason why it's still being held.

CoCrystal, at this stage, is solely an investment in the people behind the company, which include Dr. Raymond Schinazi, Roger Kornberg, and Dr. Gary Wilcox.

Dr. Raymond Schinazi recently merged his company, RFS Pharma, with CoCrystal in November. RFS Pharma was founded by Schinazi in 2004. More than 90% of HIV patients take a drug developed by Schinazi. Schinazi was the founder of Pharmasset (acquired by Gilead for $11B in 2012), Triangle Pharma (acquired by Gilead in 2003 for $464M), and Idenix Pharma (recently acquired by Merck for $3.9B). Quite a track record for Dr. Schinazi.

Roger Kornberg is a nobel laureate who identified the role of RNA polymerase II and other proteins in transcribing DNA, and he created three-dimensional images of the protein cluster using X-ray crystallography. Kornberg utilizes the same crystallography technology when developing potential drug candidates at COCP.

Dr. Gary Wilcox played a key developmental role in the creation of Cialis while serving as VP at Icos, which was eventually acquired by Eli Lily for $2.3B in 2006. Following the sale of Icos, Dr. Wilcox and a former Icos researcher, Sam Lee, created CoCrystal Pharma.

CoCrystal has access to two  X-ray crystallography labs, one of which is through Stanford. Due to their high costs, there are only a handful of these labs in the world.

CoCrystal is developing novel therapies, utilizing X-ray crystallography, to treat various viruses, including Hepatitis C virus, the influenza virus, Dengue virus, Norovirus, and HRV. Right now, all potential drug candidates are in its pre clinical stages, so not much should be expected of this company for a long time, and they will need to dilute shareholders and raise money in the future, so beware. But, considering the people and technology behind this company and a long term horizon, it remains a speculative buy.

A potential HCV drug candidate, should be finishing pre clinical and entering clinical stages sometime in 2015.

It is also worth considering that CoCrystal Pharma is backed by Dr. Phillip Frost and Dr. Jane Hsiao of Opko Health. Both serve on the board and are investors, as is Opko Health and Teva Pharmaceuticals.

This is a risky, money burning machine with zero revenues/profits and is in just the beginning phases of creating a viable drug candidate. Assess your risk and time horizon before any consideration.

Small Caps and Mid Caps Break Out...Will Transports Follow?

By The Wall Street Fox → Thursday, February 19, 2015
Over the past few trading sessions, key indexes with technical significance to the overall stock market have been breaking out of their respected trading ranges, and some have been notching new all time highs. Will these breakouts serve as another head-fake for the market and move lower, or are these signs that the market is ready to continue its trend higher?

Small Caps have decisively broken out of its 1+ year consolidation range and is now displaying some relative strength as it continues to record new all time highs. Small caps tend to correct and recover before the overall market does. A break above this one year consolidation range is significant because it signals that investors may now have a larger appetite for risk than originally expected.

Mid Caps have proven to be the true winner performance wise. The index has been eking out new highs at the top of resistance in a long term rising channel. The break above the neckline of the inverted head and shoulders pattern signals that there are more highs to be made in the future, but it should be noted that the index can only flirt with the upward channel resistance for so long, and there are multiple support levels that would prove to be healthy consolidation zones, unless of course, mid caps decide to break above its rising channel and declare it support, as it was for almost all of 2013.

Components of the DJ Transports were very close to decisively breaking out of the recent down trend today, until they ultimately sold off to end right on top of resistance. If the transports fail to break out, it will send a conflicting message to investors who are watching the two charts above. It is also important to note that the transports failed to make new all time highs when the market did back in December. The transports need to break above resistance to confirm that the market is indeed ready for even more upside.

Today the Fed signaled that a rise in interest rates may not occur until later in the year. This helps set the stage for more upside in U.S. equity markets. There is a lot of headline risk out there right now, between Greece, Russia and ISIS, the West coast port shutdown, the 7 month oil plunge, and possible stagnation in global growth, but headline risk is always out there, whether it's Ebola, the fiscal cliff or...Greece. While it may look scary now, the market always seems to overcome headline risks, and when you look back, they looks like tiny pebbles rather than boulders.

With Upcoming Earnings, Castle Brands Has Some Work To Do

By The Wall Street Fox → Monday, February 16, 2015
As we await Castle Brand's upcoming Q3 earnings release, it's clear that the stock may break down from current levels. ROX could not hold its 50 day MA and is now in the midst of consolidating near support. The stock is now hugging its short term trend line and a step lower would be bearish. ROX has proven that it can bounce back quick, and positive earnings can act as a potential catalyst for that to occur, but a decisive break below the triangle illustrated below would spell trouble for short term investors.

For me, the fundamentals of ROX trump technicals when it comes to decision making. As a long term investor with a relatively low cost basis, and as an avid fan of Dark n' Stormy's, I look forward to following ROX's consistent progress, growth, and pending profitability. As long as I'm buying Gosling's Rum/Ginger Beer, I'm long ROX.

Longer Term S&P 500 Measured Move Suggests 2,300 Target

By The Wall Street Fox →
When you look at the S&P 500 on a monthly basis, you can clearly see the ~750 point trading range the index was bound to for 16 years, followed by a decisive breakout in 2013.

Keeping with this longer term perspective, it's easy to chart a possible road map for the S&P over the next few years. Taking the 750 point trading range and adding it to the key breakout level in 2013 yields a measured move target of 2,300 for the S&P. How it gets there, there's no telling, whether it be violently or sluggish, but there's no doubt that this level is in the trading cards for long term bulls.

If this long term road map proves correct with the 2,300 target, then the next logical step would be a steady decline to the 2013 breakout level near 1,550. Old resistance tends to act as new support, and support eventually gets tested.