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Preview: Insiders Corner by Michael Brush

Insiders Corner by Michael Brush at Investorideas.com



Insiders Corner at Investorideas.com offers analysis of significant insider purchases at small-cap and micro-cap stocks. About Insiders Corner: Corporate insiders, as we all know, offer excellent signals about where the stocks of their companies might be



Updated: 2016-05-20T02:21:00.282-07:00

 



Cancer Drug IPO Sees Strong Insider Interest

2007-02-15T10:16:10.449-08:00

By Michael BrushExclusively for InvestorIdeas.comFebruary 15, 2007Initial public offerings (IPOs) that see lots of insider buying as soon as they come out have been doing well, so let’s try another one.I typically like to see big purchases – millions of dollars worth -- with these to make them work. That’s what we have with a Lexington, MA-based biotech company called Synta Pharmaceuticals (SNTA).An early-stage drug development company, Synta has a rich library of chemical compounds, small molecules and plant extracts that it mines for drugs that may some day battle scourges like skin cancer or inflammation-related ailments like rheumatoid arthritis.The company has two potential drugs moving into late-stage clinical trials, plus two in preclinical studies, and another in very early-stage development.Insiders vs. the marketSynta came public on February 6. It opened in a range of $9-$10, and it’s been there ever since. Three days after the start of trading, directors and line officers purchased over $10 million of the stock for $10 share – where you can buy it now.Besides the sheer size, another thing makes these purchases attractive. The stock had to be discounted by more than 30% from its proposed $14-$16 range to get the deal done. Plus the deal size had to be cut. That may sound like bad news, but the combo of insider buying on a deal that had to be discounted is bullish, to me. That’s because some of the best insider-buy stocks are the ones favored by insiders while the market is not so certain. That’s the case here.Here’s another plus. Synta hasn’t given up marketing rights to partners in exchange for cash. Instead, it owns the rights to all of its potential drugs in all markets and for all potential uses. Often, emerging biotech companies have to swap rights to some markets in exchange for cash to survive. Synta will probably have to do that at some point. But it’s a comfort to know it hasn’t yet. This means it has an ace in the hole for when it needs to raise cash – instead of what might be a more dilutive follow-on offer or secondary.Here’s a look at what therapies the company has in the pipeline.Cancer drugsSynta’s most advanced drug, which goes by the code name STA-4783 for now, is a compound that battles cancer by stressing out cells. It causes something called “oxidative stress.” The stress is more pronounced in cancer cells than in normal cells. It also causes more damage to cancer cells. What’s more, the response makes cancer cells more vulnerable to attack by the immune system and to a natural process in the body called “programmed cell death.” Many cancers occur because programmed cell death gets derailed, so too many cells grow.The compound STA-4783 seems to work well in combination with a chemotherapy treatment called paclitaxel, which is sold by Bristol-Myers Squibb under the name Taxol. In phase II trials, Synta has found that this one-two punch helps people with a form of skin cancer called metastatic melanoma. Melanoma is one of the deadliest forms of cancer when it is not caught early enough and removed.Synta has “fast track” status for this compound with the Food and Drug Administration (FDA) -- for the treatment of metastatic melanoma. The company hopes to start Phase III trials in the middle of this year. It also plans to start Phase II trials on other forms of cancer this year.Another potential anti-cancer drug in the pipeline is called STA-9090. It inhibits something in the body called “heat shock protein 90.” This protein regulates the activity of “signaling proteins,” like kinase proteins, that trigger uncontrolled cell growth. In preclinical trials, this compound has been effective in animal models of human cancers. The company hopes to file an “investigational new drug” application with the FDA in the first half of this year.A third anti-cancer compound, called STA-9584, may work by disrupting the blood vessels that supply tumors with oxygen and nutrients. It seems to work against established blood vessels, unlike “anti-angiogenesis”[...]



Three Tiny Mo-Mo Stocks for a Big Mo-Mo Market

2007-01-25T06:25:36.336-08:00

By Michael BrushExclusively for InvestorIdeas.comJanuary 25, 2007There’s so much bullishness in the market now as indices and many stocks hit all-time highs, you need to be careful. Often when bullishness gets to these extremes, a pullback providing better prices lies around the corner. But if you insist on jumping on the bandwagon and buying stocks trading at or near all-time highs, why not go along with insiders who are doing the same? That’s what you have with three small, uncovered companies: Tix (TIXC), which sells discount show tickets in Las VegasIntegrated Electrical Services (IESC), an electrical contractorFRMO (FRMO), a sophisticated investment research shop whose revenue is growing rapidly along with client assetsAll three of these companies have had great runs, and they are trading at or near twelve-month highs – if you ignore few anomalous trading days for FRMO at the end of December. What’s even better, insiders have been buying all the way up, including at recent prices. That shows a kind of moxie that says these little momentum names are headed even higher. If you follow insiders into these three stocks, just remember as always to have a time horizon of at least a year or two – as insiders typically buy with the same kind of outlook. Tix (TIXC) What goes to Vegas stays in Vegas – and not only because the house odds are stacked against you. Long gone are the sweet deals -- unless, of course, you are flexible and you stop by any of the four Vegas ticket booths of Tix4Tonight. Tix4Tonight, a division of Tix, sells tickets for Las Vegas shows at 50% off the original box office price, on the same day of the performance. The outfit has non-exclusive agreements with about 60 of the roughly 80 shows in Las Vegas at any given time. It offers tickets for about 50 shows each day. Business is booming. Revenue doubled in the third quarter of last year to $1.4 million, and the company reported three cents a share in earnings. Tix also looks financially sound. It has about $1.2 million in cash and minimal debt, and it produced about a half a million dollars in cash in the first nine months of the year, up from $44,000 in 2005. Last summer, Tix launched Tix4Dinner, which offers reservations for discounted dinners at a set time at restaurants on the Las Vegas strip. This business contributed little in the third quarter. But it just started, and insiders apparently see big things ahead. Since December 19, they have purchased $442,000 worth of stock for prices between $4.41 and $4.93, according to InsiderScore.com. The stock recently traded for $4.85. A director named Benjamin Frankel was recently selling, but that doesn’t bother me. He also sold a year ago at 50 cents a share. Integrated Electrical Services (IESC) When builders need an electrician, they call Integrated Electrical Services. Operating out of 121 locations in 48 states, this company does the wiring for everything from office buildings and power plants, to airports, theaters, stadiums, high-rise residential buildings, factories, and hospitals. You might have second thoughts about buying shares of a company with exposure to the housing market. But I wouldn’t worry about it. Commercial construction is booming, and this company has gotten anywhere from 58% to 66% of its revenue from commercial and industrial work in the past three years. Shares of the company, which was in and out of bankruptcy last year, are being accumulated by Tontine Management, a contrarian and value-oriented hedge fund. Tontine bought $2.8 million worth at $18.02 on January 3. Company insiders have purchased $120,000 since mid December for prices between $14 and $20.16. The stock recently traded for $22.80. FRMO (FRMO) FRMO conducts investment research for hedge funds and mutual funds, with a focus on ferreting out intellectual property that is undervalued and in the early stages of development. It must be doing a good job, because research fees are growing leaps and bounds. Fees collected from one client called Kinetics Advisers’ Hedge Funds gr[...]



Look Out Energizer Bunny, Here Comes the Fuel Cell Battery

2007-01-18T09:20:42.386-08:00

Wouldn’t it be nice to get a month out of your cell phone battery without having to recharge? That may sound far fetched. But it’s the kind of mileage you could see from fuel cell-based batteries in a few years. The futuristic battery is based on what’s called direct methanol fuel cell technology (DMFC). An Albany, NY-based company called Mechanical Technology (MKTY) has a version of the battery that can last for over 90 hours. Plus it probably won’t blow up in your lap. Of course fuel cells, like many other kinds of “alternative energy,” are one of those areas that hold plenty promise -- and let down -- for investors. So if you buy shares of Mechanical Technology, limit your exposure and be prepared to think long term. “This is one of our most speculative stocks,” agrees Edward Guinness of the London-based Guinness Atkinson Alternative Energy Fund (GAAEX), which holds the stock. “We are in it eyes wide open coming up against crunch time. The problem is it they are nearly a year and a half from hitting a revenue upswing. The next 18 months are going to be key.” But like Guinness, I’ll give Mechanical Technology the benefit of the doubt as a speculative play -- because insiders have been buying the stock. In November insiders purchased $262,000 worth for $1.81-$2 right before the stock shot up to nearly $3. Then chief executive Peng Lim bought $20,000 worth in the pullback in late December. You can get it even cheaper now at around $1.80. I’d be a buyer, for the following reasons. Strong partnerships Mechanical Technology is developing fuel cell batteries with several high-profile partners, including the Duracell division of Gillette, the cell phone maker Samsung, and the U.S. Air Force and the Army. It has a low-powered battery for consumer applications (called Mobion-1) that packs a lot more power than standard lithium-ion batteries – the kind you use now. One problem: The battery is still too big. Mechanical Technology is also developing high-powered versions of this battery for use by the military (Mobion-30) in applications like satellite communications systems. The company is in the demonstration phase for each. But it hopes to be selling the military batteries in 2008. End of the road for lithium-ion Makers of lithium-ion batteries been cramming more and more energy into smaller batteries, and they’ve pushed the limits. The result has been exploding batteries – which recently lead to a massive laptop battery pack recall by Apple (AAPL) and Dell (DELL). The whole affair heightens the interest in fuel cell batteries, believes Rodman & Renshaw analyst Amit Dayal. Besides, portable digital gadgets will continue to demand more memory and computing power to handle more complex tasks. This calls for more power – and fuel cell batteries may be the answer. Pure methanol Mechanical Technology develops fuel cells in its MTI MicroFuel Cells division. Rodman & Renshaw’s Dayal thinks the company’s direct methanol micro fuel cells are superior to those of competitors because they run on pure methanol, which means they produce more power. The batteries operate on a small cartridge of methanol, and they can be “recharged” instantly by putting in a new cartridge. Bigger potential upside With a market cap of just $55 million, Mechanical Technology looks like a better deal than competing plays like Medis Technologies (MDTL) which has a market cap ten times the size. “There is significantly more upside in Mechanical Technology if this does take off,” says Guinness. Cash burn By a rough calculation, Mechanical Technology seems like it could go a year or more without another dilutive capital raise. It looks Mechanical Technology used up about $13 million to $14 million in cash in 2006. As of early November the company had $5 million in cash. It also held shares of Plug Power (PLUG), which the company helped found, worth $11.6 million. It December, it raised $10.3 million by selling stock to RG Capital Management based in the Cayman Islands.[...]



An Unconventional Energy Player in the Driver’s Seat

2007-01-11T07:55:07.733-08:00

Our energy bets are bruised and battered, and it’s easy to see why. By Michael BrushExclusively for InvestorIdeas.comJanuary 11, 2006Investors had big bet on energy stocks, but now that crude oil has fallen 9% this year and 30% since last summer, hedge funds are heading for the exits. Is there any end in sight? It may be just around the corner. The eerily warm weather in much of the U.S. is about to "turn on a dime," predicts AccuWeather.com forecaster Joe Bastardi. "Those who think that this winter is going to remain mild are in for a shock," he says. "A week from now, we'll start seeing truly cold air across much of the country, and we expect this change to last.” By the end of the month, people in the Northeast will be shoveling out their driveways, and today’s mild weather “will be a distant memory," he says. I wouldn’t be surprised. A sharp reversal in the second half of winter can be common when an El Nino pattern causes unusually warm weather in the first half – the case right now. The arrival of cold winter weather to the environs of a good portion of the world’s energy traders in New York will likely reverse the negative psychology towards the sector – and put a bid under our energy stocks. Besides a change in the weather, these factors should support higher energy prices: Strong global growth and demand from countries like China and India. Tensions in the Middle East -- which have moved off the front pages but haven’t gone away. Underlying shortages of natural gas in Northern America where prices are higher compared to a few years back because all the easy reserves have been exploited. We’ve even seen a little insider buying in this pullback. Insiders recently bought at Weatherford International Ltd. (WFT) click here). Aubrey McClendon and other top execs at Chesapeake Energy (CHK) were recently buying (click here). There were also buyers in late December at Abraxas Petroleum (ABP) (click here). Panhandle Royalty Here’s another energy stock where a savvy director recently stepped up to buy: Panhandle Royalty (PHX). This is a micro-cap natural gas company with solid holdings in two of the hottest natural gas plays around: the Fayetteville Shale in Arkansas and the Woodford Shale in Oklahoma. The buyer was Robert Robotti, a money manager at Robotti & Company Advisors. Specializing in small-cap names, his firm has beaten the market consistently over years. On January 8, Robotti bought $291,000 worth of Panhandle Royalty stock. That took his position up to 576,000 shares, according to Insiderscore.com, or 6.8% of the company’s shares outstanding. Cooperative beginnings While most energy companies have to lease land, take on most of the investment risk and giving up a big part of the profits as well, Panhandle Royalty is on the other side of this equation. It owns big swaths of energy-rich land in Oklahoma, New Mexico, Texas and some other states, thanks in part to its humble origins as an energy cooperative eight decades ago. The company was founded in the Oklahoma Panhandle in 1926 as the Panhandle Cooperative Royalty Company. For years it functioned as a co-op based on a simple principle. Any single individual in that area at the time might own land with rich energy reserves. But it wasn’t a sure thing. Given the uncertainty, wouldn’t it be better for lots of landholders to pool their land and then share equally in any finds? A lot of people thought so, and the co-op was born. It converted into a company in 1979, and it still holds 260,000 acres in energy-rich regions. It holds “unconventional resource plays,” meaning the energy is tougher to get out. It’s usually done through horizontal wells. But a little math – and speculation – shows the potentially huge amount of energy Panhandle Royalty controls in these unconventional plays, which now get a lot more attention because natural gas prices have gone up so much. Fayetteville and Woodford Let’s take Panhandle Royalty’s 9,000 acres in the Fa[...]



Out of the Sick Bed and Still in the Pink: Insiders Love Owens Corning

2006-11-09T06:36:10.046-08:00

By Michael BrushExclusively for InvestorIdeas.comNovember 09 2006 Back in early October, insiders at wall board maker Eagle Materials (EXP) stepped up and bought shares in their company big time. But I took a pass on writing about the stock for Insiders Corner – or buying it for my personal portfolio – because at the time there was so much anxiety about how demand for housing was falling through the floorboards. Bad move. Eagle has risen over 20% since then to trade at $40 from $33 or so where insiders bought. I should have known that would happen. As a rule, when insiders place bets against a crowd whipped up by a frenzy of negative headlines, you make money betting with the insiders. It hurts to miss a fairly obvious move like the big one-month gain in Eagle Materials. But it comes with territory when you are in the market. Besides, it’s the future that matters, not the past -- and now the market is giving us another chance. Let’s take it. A second chance Another building supply company – Owens Corning (OC) – recently came public. The move saw a flurry of buying from a parade of insiders on Nov. 7. A dozen insiders, from chief executive David Brown to the vice president for siding solutions Brian Chambers, stepped up to buy more than $1.3 million worth of stock at $27.40. It makes a lot of sense to join them, and here’s why. Based in Toledo, OH, Owens Corning is a leading producer of residential and commercial building materials. Saddled with asbestos claims, the company went into bankruptcy in 2000. It came out and began trading a few days ago. Owens Corning is no small-cap stock. It has a market cap of $1.5 billion. But from time to time we go outside the small cap realm of this column, when compelling insider signals arise. That’s the case here. The company had net sales of $6.7 billion in the twelve months ending in September, during which time it had adjusted pro forma operating income of $561 million. Owens Corning has a healthy amount of cash flow, plus lots of cash. The company has $1.5 billion in cash, or around $26.5 per share, which is near the recent share price of $27.75. True, it also has $3.2 billion in debt. But the stock trades for a paltry trailing price earnings ratio of 2.3. And it has a miniscule price to sales ratio of .22. Compare that to 2 and .75 for Eagle Materials and USG (USG), another company that makes wall board. Ok, they are not entirely comparable businesses, but the gap still seems too big. Why is Owens Corning trading so low? Investors are concerned about weakness in the housing sector, of course. But they may be making a mistake, for two reasons. First the Fed seems to be done raising interest rates, so the worst may be over for residential housing. I’m not saying the market will bounce back next quarter. There is still a lot of speculative buying to shake out. But the shock phase is probably behind us. The National Association of Home Builders thinks 2007 housing starts will be 1.62 million, just below the seasonally-adjusted rate of 1.665 million for August. Yes, that’s down sharply from the two million seasonally-adjusted starts for August 2005. But it would represent a leveling off of sorts, compared to August of this year. Worries about a slowdown in the economy are probably overdone, as well, which we’ll get to in a moment. More than just housing Next, the company actually gets a lot of revenue outside of home construction, even though it may be best known for its pink insulation. Owens Corning has a lot of moving parts. But to simplify things – and see how much revenue comes from hot areas like commercial construction – let’s break the company down into four categories. Insulation Owens Corning is North America’s largest insulation producer. It gets about a third of its sales from insulation. Sure, 60% of that is linked to new residential construction in the U.S. and Canada. That hurts. But 19% comes from commercial and industrial building[...]



Brand-X Airplane Parts Maker: Cleared for Take Off

2006-10-26T10:14:00.356-07:00

By Michael BrushExclusively for InvestorIdeas.comOctober 26, 2006If you look out the window next time you are on a plane and see a simple white engine with unadorned black lettering – sort of like a box of off-brand macaroni – don’t be too surprised. The age of generic replacement parts for airplanes is upon us. Of course, you probably won’t ever fly on a plane that has an entirely “generic” engine. They’ll still be made by the three trusty, dominant jet-engine builders: General Electric (including CFM International); Pratt & Whitney which is a division of United Technologies; and Rolls Royce.But the replacement part business is another matter. For years it has been a lucrative playground for these big-three plane engine makers. Using the power that comes with oligopoly, they’ve force regular price hikes of 5%-12% a year for parts on the airlines, air cargo companies and the military. They’ve made good use of the old “razor and blade model” so idolized by Warren Buffet. They’ve sold the engines cheap and made their money on the replacement parts. But now, a small Hollywood, FL-based company called HEICO (HEI) hopes to change all that. HEICO makes generic replacement parts that are cheaper than those produced by the big engine makers. In partnership with Lufthansa Technik, which has a stake in HEICO and is one of the biggest companies in the world doing aircraft overhauls, HEICO wants to break open the replacement parts business and get a bigger foothold. Putting up resistanceThat’s been hard to do because the big engine makers want to protect their lucrative aftermarket for replacement parts. So naturally they have raised questions about the quality of generic engine and airplane parts, known in the industry as “PMA parts.” PMA stands for “parts manufacturer approval,” or the regulations under which these parts are given the green light. But in early 2006 Pratt & Whitney announced it was moving into the generic plane parts business itself. It’s developing parts for the CFM56-3 engine, one of the most popular engines. Made by CFM International, the engine is used in the Boeing 737 and the Airbus A320 planes. With one of the big three jet engine makers going into the generic parts business, it has a newfound respect. Wind at its backIn other ways, HEICO now has the wind at its back. Right now, generic parts only account for 2% of the $14 billion parts market. So there is plenty of room to grow. Consider these trends that may help. Around the globe, the aircraft fleet is aging. And it is being used a lot more, as air travel has bounced back. That means more wear and tear. So maintenance is growing. As most travelers know, airlines are looking everywhere to cut costs including under your pillow -- that is back when they used to give you a pillow. So it stands to reason that airlines welcome generic parts – parts that represent 60% or more of the cost of an overhaul. HEICO has over 5,000 parts approved – including things like combustion chambers, compressor blades and seals. It hopes to have 350 new parts in 2006. But there is much more room to grow here, too. There are anywhere from 10,000 to 20,000 parts in jet engine platforms. HEICO struck a deal with the China Aviation Import and Export Group Corporation (CASGC) last February. Owned by the Chinese government, CASGC purchases the aircraft and engines for Chinese government airlines. The agreement allows HEICO parts to be sold in China – giving it exposure to robust economic growth in China. HEICO also has partnerships with American Airlines, United Airlines, Delta Air Lines, Air Canada and Japan Airlines. These partnerships help it get a better handle on what parts to make. Besides trying to build the market for generic airplane parts, HEICO should continue to grow through acquisitions. It has purchased 27 small businesses in aerospace, defense, and electronics since 1996. Growth through acquisi[...]



Insiders Go for Ghanese Gold Play Called Golden Star; Plus Updates on Three Energy Stocks

2006-10-05T07:44:07.833-07:00

By Michael BrushExclusively for InvestorIdeas.comOctober 05, 2006If you are a gold bug why should you be praying for rain in Ghana? Because water reservoirs are low in this West African country, and that’s cut electrical power which has forced gold mining companies to reduce production. That’s one reason investors who hold Golden Star Resources (GSS) have been in pain of late. Tiny Golden Star holds large chunks of land it what’s known as the Ashanti Trend in Ghana, a region long known for its abundant gold resources. From recent highs above $3.75 in May, Golden Star has tanked to below $2.50 – a 33% decline. Down here the stock looks cheap. It has a price to book ratio of 1.2, compared to levels twice that or more at many mining companies. That’s probably one reason insiders recently picked up $275,000 worth of the stock. Buyers included chief executive Peter Bradford, who spends most of his time with feet on the ground in Ghana – better to manage progress. (Golden Star is based in Colorado.) Bradford alone plowed $225,000 into the stock. Insiders bought at prices between $2.24 and $2.74 in late September. Over the next several months or so, Golden Star will likely expand its processing capabilities to handle different types of ore. This plus some other changes could more than double 2005 production of 200,000 ounces to over 500,000 ounces in 2007.That’s the game plan. The problem is Golden Star has had problems keeping promises on matters like earnings and costs, not to mention the quality of mines. So this stock is now the proverbial “show me” story. Normally “show me” stories are risky. But when insiders plow a substantial amount of money into a stock, it tips the balance in favor of success. That’s what we have here. Gun-shy analysts and investors are cautious, while insiders put money into the stock on a significant dip. Typically, these kinds of situations work out on favor of investors who are long. Golden Star’s main operating mines in Ghana are called Bogoso, Prestea, Wassa and the Prestea Underground. They are all in southern Ghana. Golden Star has proven and probable gold reserves of 3.8 million ounces and “indicated” gold resources of 3.62 million ounces.Show MeDespite its potential, Golden Star has several strikes against it. These are all pretty well known, so I’d guess they are priced in to the stock. But it’s always good to know what you’re up against when you are long a stock. Here’s a look. Poor track record. Golden Star has a record of missing expectations because of disappointing operating results and development delays. Its Wassa mine has operated below expectations since its start-up in April 2005. Illegal mining. Illegal miners in Ghana go so far as to carry out their own blasting operations which, of course, disrupt Golden Stars’ own efforts, delaying projects. Unlike Venezuela, where the government has aggressively moved out illegal miners, Ghana doesn’t seem to be doing as much. Funding needs. Expansion projects are costly and Golden Star may need to raise more money. This could be dilutive to existing shareholders. Power shortages. They’ve disrupted mining operations and exploration, as well as progress on the development of a new processing plant which would help Golden Star a lot. A nearby hydroelectric station in Ghana is operating at below capacity because of low reservoir levels. It’s recently rained a lot in Ghana, and utility officials are supposed to be meeting now to decide if they can up power production. Golden Star has diesel-powered generators but these cost about five times as much. Lukewarm ratingBecause of challenges like these, CIBC World Markets analyst Brad Humphrey recently cut his price target on this stock to $4.05 from $4.85, maintaining a lukewarm “sector perform” rating. He says investors now have a "wait and see" attitude, and it will take several quarters o[...]



Join a Veteran Value Investor for a Taste of Her Own Cooking

2006-09-07T07:36:56.186-07:00

By Michael BrushExclusively for InvestorIdeas.comSeptember 07, 2006In your hunt for market-beating stocks, wouldn’t it be nice to have a peek at the personal holdings of a successful money manager? Thanks to the rules that make insiders report their trades, you can do just that.The money manager is Susan Byrne, chief investment officer at Westwood Holdings Group (WHG). One of her biggest purchases recently for her own portfolio: $531,000 worth of her company’s stock. As part of her job at her Dallas-based firm, Byrne manages the Westwood Equity AAA fund (WESWX). It’s a large-cap value fund which was up 8.46% for the year as of the end of August, or 2.93 percentage points better than the S&P 500. The fund also beat its category by about three percentage points over the past three years -- with annualized returns of about 16%, according to Morningstar. Byrne and her team show other signs of success. Two new Westwood Holdings mutual funds for institutional investors are besting competitors so far this year by 5.2 percentage points and 2.3 percentage points, says Morningstar. They are the WHG SMidCap (WHGMX) and WHG Income Opportunity (WHGIX) funds -- up 9.6% and 6.7%, respectively. Returns like these helped Westwood pull in assets at a healthy clip last quarter. Average assets advanced 29% to $5.4 billion. That asset growth drove a 30% increase in advisory fees to $4.3 million. Overall revenue grew by 26%. Earnings per share, however, advanced only 5% to 18 cents because expenses grew at a rapid clip, too. But much of that expense growth came in the form of restricted stock – including a healthy dollop for Byrne. That creates a non cash expense which erodes earnings. But it doesn’t impact operating cash flow -- perhaps a better measure of performance. Operating cash flow advanced an impressive 58% to $2.35 million in the second quarter.This performance helps explain recent insider interest in the stock. But something else may be at work. Compelling buy signalIn her funds, Byrne likes to invest in value names that produce healthy quarterly surprises not fully recognized by Wall Street. That investing strategy may also be a big part of the reason why Byrne was recently filling up on her own cooking.Her company’s impressive 58% jump in quarterly cash flow announced at the end of July has moved Westwood stock up a scant 50 cents to around $19. After quarterly earnings were announced, Byrne bought $531,000 worth of Westwood stock, or 27,750 shares, at an average price of $19.14. The purchases are a compelling buy signal for at least two reasons. First, Byrne has served as chairman and chief investment officer of Westwood Management since 1983. So she knows the company well. Second, she already has a lot of exposure to the stock. She had 666,000 shares as of April. On top of that, she has an annual restricted stock grant of 50,000 shares a year for six years, starting this year. As an investment manager, Byrne knows it’s wise to diversify. Yet despite this exposure, she plowed about a third of her salary and bonus into open market purchases of Westwood stock in August. That’s either conviction or carelessness. Given Byrne’s years of experience in the markets, I’d bet it’s the former. Besides Byrne, a director bought $192,000 worth of stock for $19.20 in early August. Under the radarWestwood is not a high-profile name in money management like Fidelity or Vanguard. And you are not likely to hear it hyped on the financial shows any time soon. The reason: Westwood is tiny with a market cap of just $120 million. Plus it has zero sell-side analyst coverage -- and it probably won’t have any soon. That’s because the company throws off a lot of cash and it has little in the way of capital needs. So it’s not a prime potential client for the investment bankers on the other side of the Chinese walls from the analysts at the W[...]



Go East With CanWest for Canadian Oil Sands Riches

2006-08-17T06:57:15.573-07:00

By Michael BrushExclusively for InvestorIdeas.comAugust 17, 2006Stretching through the western Canadian province of Alberta is a 105 million-year-old geological structure known as the McMurray formation that may likely grant President George W. Bush one of his biggest wishes: Reduced dependence on Middle Eastern oil in the coming decades. The McMurray formation contains rich deposits of bitumen, a tar-like substance once used by indigenous Aboriginal people to water-proof canoes. These days, bitumen can be extracted from oil sands, refined into crude oil and processed into gasoline and diesel fuels. It takes about two tons of oil sands to produce one barrel of oil. But with oil up in the $75-a-barrel range, it’s worth it.Oddly, even though the McMurray formation stretches eastward into Alberta’s neighboring province of Saskatchewan, oil sands production stops abruptly at the border. This is strange because there is no reason to think oil sands don’t spread over into Saskatchewan. The question is: Are the deposits rich enough to be commercially viable?No one knows for sure. But a small, Canadian energy company named CanWest Petroleum (CWPC) is well on the way to finding out. It owns the rights to explore about a half million acres in Saskatchewan. And while initial tests can be described as “promising” at best, insiders at this tiny company seem to think they already know what’s in store. Since July 5, CanWest insiders, including a director and chief executive Christopher Hawkins, have purchased $2.5 million worth of stock at an average price of $4.88 per share -- or just above recent prices of $4.40. That’s a convincing wager. But before you plunk any money down on this unconventional Canadian oil sands play, just remember it’s a risky bet. After all, if it were a sure thing, the stock would not a bulletin board listing trading at $4.40. So don’t bet too much. There are, however, several reasons to think CanWest will strike it rich and the wager will pay off. A good portion of CanWest’s holdings are right next door to several successful projects in northern Alberta, notably one called Firebag, developed by Suncor Energy (SU). Initial results from CanWest testing looks positive, says Murray Gingras, an associate professor at the Department of Earth and Atmospheric Sciences at the University of Alberta, who has been following the company and exploration in the region. In the best sections of CanWest holdings drilled so far, the company has found bitumen saturation reaching as high as 18%. “Mineable grade is above 8%, and really good grade is 14% to 15%,” says Gingras. CanWest has also found bitumen spanning an average of 62 feet vertically, and as much as 91 feet in another hole. “Those are very promising numbers,” says Gingras. “Firebag has numbers like that for thicknesses, and it is one of the sweeter spots in the McMurray formation. If I were the president of the company I would be excited, too. The chances that they have an exploitable resource are good.”Next, however, the company has to determine how wide the deposits are. And that’s one of the wild cards, says Gingras. But CanWest has permission to drill 100 holes this winter, and that may put doubts to rest. “We will be pretty certain by this time this year,” Hopkins told me in an interview last week. How big could this play be? CanWest estimates that several blocks in one area explored so far may contain 250 million barrels of oil – though not necessarily commercially viable. The area in question is less than a half a percent of the land CanWest has permits to prove up. But here’s another way to look at it. Experts believe that Alberta’s oil sands region has enough bitumen to produce over 300 billion barrels of oil. The Saskatchewan land that Hopkins thinks could be exploitable make up about 20%-30% of the[...]



Insiders Fill Up on Water Shortage Play

2006-07-20T07:00:06.536-07:00

By Michael BrushJuly 20, 2006While potential shortages of energy grab the headlines every day, it’s actually a shortage of another essential ingredient of life that may get us in the end: drinkable water. Photos of the earth from the recent space shuttle trip reminded us that our blue planet is awash in water. But very little is available to drink. About 97% of it contains salt. Two thirds of the remaining 3% is locked up in polar ice caps. That leaves about 1% of all the earth’s water for us -- and much of that is polluted. The upshot: There are now shortages of fresh water on every continent, says Brean Murray, Carret & Co. analyst Michael Gaugler. The Southwestern region of the U.S., of course, has had problems for years. In China and the Middle East big projects are under way to create new supplies. Parts of Africa and India have shortages that create ongoing crop failure and mortalities. These trends have sparked investor interest in water-related stocks -- or the companies that not only sell water but also supply the equipment that purifies it and desalinates it, and pipes it to your kitchen. So it should be no surprise that insiders were buying heavily when some of the stock of one of the biggest water infrastructure equipment companies, or Mueller Water Products (MWA), was spun out of its parent company. In the first ten days of June, they purchased $3.4 million worth of Mueller stock for prices between $15.26 and $16. Mueller was only taken over last year by its parent – the conglomerate Walter Industries (WLT). But now Walter Industries has reversed course in an effort to increase shareholder value by hiving off various divisions. Mueller, as a leading supplier of water infrastructure equipment and a pure play in this space, should benefit from the following big-picture trends. Water scarcity. Shortages of fresh water are a major problem in both developed and developing countries. Companies that sell equipment used to transmit or purify water should benefit. Infrastructure build out. The pipes, valves and pumps that transport water throughout many parts of the U.S. are over a hundred years old and in bad shape. So a major replacement cycle lies ahead. The Environmental Protection Agency (EPA) estimates that the U.S. will have to spend about $277 billion by 2019 on water infrastructure. (The Congressional Budget Office puts the number at $12.2 billion to $21.2 billion a year, which works out to about the same as the EPA estimates.) Of that $277 billion, the EPA thinks transmission and distribution will take the lion’s share -- or $184 billion over the next two decades. Treatment is next on the list, with $53 billion in expected spending. That’s bad news for people who pay the water bills. But it’s good news for Mueller since these are two of its strong suits.Abroad, developing countries like China are in the early stages building out their water infrastructure. Mueller doesn’t sell in China yet, but it’s working on it. Consolidation. There are about 54,000 water companies in the U.S. – many of them tiny, serving just a few thousand customers. They don’t have the money to upgrade their systems or meet tighter regulations being imposed by the EPA without increasing rates too much.A better option may be to sell out to larger water companies that can deal with these challenges. These pressures will lead to a wave of consolations, says Gaugler, of Brean Murray, Carret. As the consolidation trend plays out, the infrastructure upgrade will kick in to higher gear. RisksThough Mueller stands to benefit from all these trends, there are near-term risks for the stock. Walter Industries still has to spin out 80% of Mueller shares. That will happen in the second half of this year. That could cause selling pressure since many investors simply sell stock that gets s[...]



Potential Heart Attack Cure Could Reward Investors Big Time

2006-07-06T06:57:56.410-07:00

By Michael BrushJuly 06, 2006When doctor Mark Hyman is out promoting his popular book “Ultraprevention : The 6-Week Plan That Will Make You Healthy for Life,” he likes to point out that inflammation is the scourge behind many of the main ailments that do us in. Inflammation, of course, is our body’s reaction to problems like infection. It’s part of the healing process. But when it turns into a permanent condition lasting for years inside our arteries, it is the main culprit causing heart attack and stroke. Hyman suggest diet and lifestyle changes to correct the problem. But an Alpharetta, GA-based biotech company called Atherogenics (AGIX) thinks it has a silver bullet – a drug that safely blocks inflammation in the arteries. The stock market is not so sure. Since the start of the year, Atherogenics’ stock has declined to $13 from $21. Down here, however, insiders have shown their confidence. They recently bought $850,000 worth of the stock for around $13. The giant pharmaceutical company AstraZeneca (AZN) is also a believer. At the end of last year it entered into a co-marketing deal in which it helps fund Atherogenics in exchange for a piece of the action later. If the insiders are right and the compound ultimately makes it to market, investors who buy now will be amply rewarded. A.G. Edwards & Sons analyst Alexander Hittle estimates the market for the drug will be $2 billion by 2010, of which Atherogenics would get half. He thinks that kind of potential revenue could help propel the stock to $45 -- for a cool triple if you buy now. The company has other irons in the fire – potential cures for other inflammation-related ailments like organ transplant rejection, rheumatoid arthritis and asthma. But for now it’s all about the silver bullet against the inflammation in our arteries that leads to heart attack and stroke. That’s one reason why betting along with the insiders here is a risky venture. Brean Murray, Carret & Co. analyst Jonathan Aschoff, for example, thinks the drug will fail. That’s why he has a $2 price target on the stock – which would mean if you buy now you will lose most of your money.I’d just take his warning as a reminder of the risk inherent in all biotech companies. Given the level of insider buying recently, I’d put a small amount of money in this stock for a potential three bagger. Here’s a closer look. InflammationInflammation is the body’s normal reaction to fight infection, disease and injury. It generates signals that recruit leukocytes – which destroy infection and remove debris from the area around an injury. That’s all good. But when inflammation persists for years, the leukocytes that it continues to attract can worsen the inflammation and cause problems like atherosclerosis. Atherosclerosis leads to the buildup of plaque along the arteries which reduces or blocks blood flow – causing heart attack or stroke. Atherogenics’ silver bullet, called AGI-1067, works by blocking proteins that make genes produce other proteins that cause the inflammation. The compound may also block oxidants that cause inflammation. It does all this without compromising the body's ability to protect itself against infection, says the company. The ultimate testA phase III study of AGI-1067 launched in June 2003 may be proving the company right. It is known as Aggressive Reduction of Inflammation Stops Events (ARISE). Researchers are giving AGI-1067 to a sample of people at high risk for coronary disease, heart attack and stroke – hoping for a lower-than-expected number of negative outcomes like these. While the study won’t close until August, so far the numbers look good. Fewer people than expected are having these problems. It’s hard to know just yet whether this is due to any positive effects from AGI-1[...]



Weight Loss Website Could Fatten Profits, Plus Two Stocks Where Insiders are Buying the Blow Up

2006-06-29T06:54:38.296-07:00

By Michael BrushJune 29, 2006Unlike many of the obese people that eDiets.com (DIET) tries to help, the company’s shares have lost a lot of heft lately. Since earlier this year, the stock of this thinly traded dieting website founded in the early days of the dot com era has been nearly sliced in half – falling to $4.70 from $8.60.It’s easy to see why. The company is in the midst of management turmoil with one CEO departing – apparently because of a disagreement with the board on a strategy shift -- and another one not yet in place.It recently pushed back the launch of an “infomercial” that was supposed to help save the day by spreading the word about eDiet.com’s move into delivery of healthy food to dieters. The website makes money by selling subscriptions to get information like meal and fitness plans and dieting tips which presumably you can find elsewhere, and subscriber churn is high since people tend to stay on diets only briefly. Insiders still buyingGiven these kinds of negatives, why would insiders buy? Because they belong to a hedge fund that is taking a huge position in the company and putting a director on the board to oversee changes that should make the stock go up. The hedge fund is Prides Capital and the board member is Kevin Richardson.Here is the plan. That infomercial which was supposed to hit the airwaves recently will most likely be pushed back to late summer. Managers apparently didn’t think it got the message across that eDiet.com’s delivered meals are fresher and better than those of competitors. If shareholders who buy now ever make any money out of the stock, it’ll be because largely this meal delivery system takes off. Canaccord Adams analyst Scott Van Winkle estimates that if eDiets.com penetrates just 5% of its subscriber base, or 10,000 customers, it would bring in $91 million a year. That would nearly triple current revenue. The company’s delivered meals go for around $20 to $35 a day. Van Winkle thinks the meal delivery service will generate $7 million in revenue this year and $13 million in 2007. The company has a database of five million email subscribers, and between one million and two million visitors go to the website each month. The company should be able to leverage this user base through activities like advertising, licensing and e-commerce. The company recently purchased a profitable business called Nutrio, which provides online wellness plans to corporations. There’s no shortage of potential customers. About two-thirds of Americans are overweight and 30% of U.S. adults – more than 60 million people -- are obese. About a third of the people in the U.S., or 71 million people, are on diets. “The company is dramatically expanding its ability to monetize its subscriber base, in our opinion, which should ultimately drive higher revenue and earnings,” says Van Winkle. He has a $7.50 price target on the stock. It recently sold for $4.70. Buying the blow upTwo companies recently saw significant insider buying after their shares blew up because of bad news. Shares of Jos. A Bank Clothiers (JOSB) have fallen nearly 40% in June due to lowered earnings expectations and a sense among some investors that the company took too long to reveal a negative shift in the mix of product sales that began playing out back in February or March. Insiders recently bought around $150,000 worth of stock for about $24. Ryan Beck & Co. analyst Margaret Whitfield recently upped her rating on the stock. She has a price target of $35. Shares of Actuant (ATU), which makes tools components and motion control systems used in industry, also broke down in June, slipping to $48 from nearly $67 in May. The break down in June came after Actuant released earnings. “Management, in its attempt for tr[...]



Five More Stocks Insiders Like in the Current Weakness

2006-06-01T09:01:56.476-07:00

By Michael BrushJune 01, 2006Is it over yet? Judging by the dramatic pullback in most stocks Tuesday, there’s still more to go on the downside for stocks – especially economically sensitive names that do worse when economic growth is lousy. These are some of the stocks investors are selling the hardest. Investors are concerned that economic growth is slowing, or else it is too hot which will mean central banks have to continue to raise interest rates and kill growth, anyway. You really can’t have it both ways. But market observers are in fact arguing both sides – which suggests the current market weakness is irrational. I’m still in the camp that says there is further decent economic growth ahead. Insiders at many economically sensitive companies seem to agree because they keep buying in the current weakness. Here’s a look at five more, as a follow up to last week’s Corner on the same theme (click here). Two energy playsIf the U.S. and global economy were really about to slow down, you’d expect energy prices to cool off. Energy company insiders aren’t buying it. Chesapeake Energy (CHK) chairman and chief executive Aubrey McClendon plunked down $11.9 million to buy shares in his company in the current sell off. He bought shares for $28.35 to $31.15 between May 16 and May 22. Chesapeake, the second largest independent producer of natural gas in the U.S. after Devon Energy (DVN), has spent over $7 billion during the past seven years building an impressive base of natural gas reserves. At the end of March it had enough proved reserves to support a net asset value per share of $55, assuming natural gas prices of $8 per MCF. The stock recently sold for about $30. McClendon also has a great record as an insider. On average, his stock has gone up 55% in the six months after he buys, according to Thomson Financial. The stock has practically doubled since we first featured Chesapeake here because of strong insider buying in January 2005 (click here). McClendon’s recent buying tells me you should expect much more upside from this stock. Insiders have also been taking advantage of the current weakness to buy more shares of Petrohawk Energy (HAWK), another oil and gas company with assets in and around Texas and Louisiana. The company has been growing rapidly through acquisition. Like Chesapeake Energy, Petrohawk has oil reserves, but it is mainly a natural gas play. Two titanium playsNL Industries (NL) and Titanium Metals (TIE) are part of a complex constellation of companies controlled by titanium titan Harold C. Simmons. NL Industries, through its subsidiary CompX International, makes precision ball bearing slides, ergonomic computer support systems and tumbler locks, among other things. NL also owns a significant interest in Kronos Worldwide (KRO) which makes titanium dioxide pigments used to brighten coatings, plastics and paper. Titanium Metals produces a variety of titanium products for aerospace, industrial and military uses. Both companies are essentially controlled by Simmons, who owns them through a complex web of trusts and companies called Contran and Valhi (VHI). Shares of both NL Industries and Titanium Metals are down dramatically in the current market weakness. NL is down also because it used to make lead pigments used in paint, and now it’s the target of lawsuits by people claiming personal injury from the lead. But the weakness in these two stocks doesn’t bother Simmons. He has recently been buying shares of both NL Industries and Titanium Metals at around current levels. He’s got an excellent track record, according to Thomson Financial. Stocks he buys inside his constellation of holdings have gained anywhere from 32% to 176% six months after he buys, during the past [...]



Complete Your Energy Stock Portfolio With This IPO

2006-05-11T07:24:34.300-07:00

Given the strength of energy stocks for the past two years, it’s no wonder companies in the sector are rushing to come public and take full advantage of the exuberance.That’s the cynic’s view, and there may be something to that.But a savvy investor watches the energy sector initial public offerings (IPO) to spot the ones where insiders are buying the most, and considers going along with them to profit from further strength in the group, instead of giving in to cynicism. We saw a great example of insider buying at an energy sector IPO recently at Complete Production Services (CPX), a Houston, TX-based energy field services company. Of course, you have to believe that energy prices will stay firm to follow insiders here. I believe energy prices will stay high -- as I am in the camp that says demand from India and China and solid overall global growth will continue to support energy prices. Another factor is the unease and political risk in several energy producing countries like Nigeria, Venezuela and the Middle East itself (http://moneycentral.msn.com/content/P71425.asp). Unfortunately, the price of oil includes a several dollar “terror premium” that probably isn’t going away any time soon. If you agree that high energy prices are here to stay for awhile, then you might do well to join insiders in buying shares of Complete Production Services.The Full MontyThis energy field services company came public on April 21 just below $27.50. Within a few days, insiders registered $4.5 million worth of purchases at $24. Ok, they got a great deal, since the stock has never actually traded as low as $24. Nevertheless, that’s a sizable amount of buying that shows a solid vote of confidence. As the name suggests, Complete Production Services offers a full range of energy services, from drilling through closing up a well down after it runs dry. The company operates throughout the Rocky Mountain region, and in Texas, Oklahoma, Louisiana, Arkansas, Kansas, western Canada and Mexico.Complete Production Services has at least three factors working in its favor. * Maturing energy fields. Conventional North American oil and gas reservoirs are maturing and production rates are dropping off. So energy companies have to drill more wells, just to stay even. That means more work for Complete Production Services. * High-tech solutions. Energy companies are turning to unconventional resources since the easy pickings are scarce. This means exploiting energy in tricky formations like “tight sands” which are rock structures that are not very porous; shale, or fine-grained sedimentary rock; and coal seams that contain coal bed methane. To go after these kinds of resources, energy companies have to use more sophisticated technology and engineering. So they turn to specialized energy services companies like Complete Production Services, which has the right stuff. * Local guidance. But to know exactly what kind of equipment and techniques work best, it helps to consult locals who understand the turf. “Our local and regional businesses, some of which have been operating for more than 50 years, provide us with a significant advantage over many of our competitors,” says Complete Production Services. They have extensive expertise in the local geological basin, and they also have long-term relationships with many customers.The bottom line: Demand for energy field services is so tight and the insider buying in this stock was so big, I believe this company is a buy right here. But the stock has been volatile since it came out – which is typical of an IPO – so it will pay to be patient or use limit orders to buy. DisclaimerAt the time of publication, Michael Brush owned shares of Complete Pr[...]



A Natural Hedge Against the High Cost of Filling Your Tank

2006-05-04T07:56:19.850-07:00

Since I wrote a column on ethanol a month ago (http://moneycentral.msn.com/content/P148882.asp), ethanol stocks haven’t looked back. They’ve continued a sharp ascent that began early this year when President George Bush touted ethanol as a way to reduce our oil dependency.More recently, ethanol got a boost as a replacement for the additive methyl tertiary butyl ether (MTBE), which until recently was used to make gasoline burn cleaner. The additive may cause cancer, and Congress has declined to offer refiners protection from legal liabilities from the use of MTBE. For a quick look at charts showing the impressive strength of most of the Ethanol plays, click here (http://rampantspeculations.blogspot.com/). These kinds of moves have many investors wondering, is it too late to buy? We got an answer of sorts last week when an insider at Green Plains Renewable Energy (GPRE) bought shares of his company – which is building ethanol plants. It wasn’t a huge purchase. The Great Plains director bought $63,000 worth at $42.17. But given how much exposure he already has to the ethanol industry and how much the stock has gone up since his company’s initial public offering in March, we will take it as a buy signal nevertheless. On the surface, it’s pretty easy to guess why he bought the shares. Green Plains Renewable Energy should build at least two ethanol plants in Iowa which could be quite profitable – given the price of gasoline. How profitable? We’ll get to that in a moment, but first a little background. A Quick OverviewIn Brazil, they make ethanol from sugar cane. But here in North America we typically use corn. The corn is first ground into flour and put in a tank with water and enzymes to break down the starch. Next, the mash is mixed with yeast in fermenting tanks. It then gets distilled, and voila! You have “grain alcohol” – exactly the same stuff that may have been responsible for at least one night you’d rather forget in college. (Ethanol makers put in additives at this point, which make it undrinkable.) A byproduct of this process is “distiller’s grain,” a mash that’s used as animal feed. In its wet form, distiller’s grain only lasts a few days, depending on how hot it is. So unless there’s farm nearby, ethanol makers have to dry the stuff out so it can be stored and shipped. This matters to investors, because as much as a third of the cost of producing ethanol can come from this drying process. So as an investor, give extra points to companies located close to farms – like Green Plains Renewable Energy and Pacific Ethanol (PEIX), in California. Green Plains Renewable Energy has an edge here because it’s plants will be located in Iowa, so it won’t have to pay much to have corn shipped to its plants.We typically think of ethanol as an octane enhancer or something used to stretch a gallon of gas. But it’s better to look at ethanol as “gasoline made from corn.” It’s entirely possible that one day lots of cars will run on near-pure ethanol, a substance called E-85 which is a blend of gasoline and around 70% to 85% ethanol. That’s the case in Brazil. Here on this continent, we just need more cars that use the stuff, and more service stations that offer it – no short order. Green Plains Renewable EnergyFor openers, Green Plains Renewable Energy plans to build an ethanol plant in Shenandoah, Iowa for about $83 million. The plant will produce around 50 million gallons per year. Down the road, Green Plains Renewable Energy plans to build at least one more plant, if not more. In theory, these plants will be profitable, assuming gasoline prices stay high. At roughly the current prices of corn and the nat[...]



A Wireless Hookup for Your Portfolio

2006-04-20T07:12:36.343-07:00

By Michael BrushApril 20, 2006 For years, pundits have wondered how the Internet and television will merge to form one home entertainment system in your living room. A tiny Fremont, Ca.-based company may have the answer – or at least a piece of it. Pegasus Wireless (PGWC), whose top managers were behind the development of a wireless transmission system known as Wi-Fi, introduced a wireless connection device earlier this year that may do the trick. The device carries high-definition streaming video from your personal computer to your TV. Known as the WiJET, this gadget is one of several wireless consumer electronics goodies Pegasus hopes to have in stores by Christmas. Others include a Wi-Fi based universal remote, and wireless stereo headphones. More cool wireless consumer electronics products are in the works. “We have a whole bunch of consumer devices that will be pretty neat,” says Pegasus Wireless president Jasper Knabb. Will these products sell? After all, consumer electronics is a notoriously tough segment of retail -- where giants much larger than Pegasus duke it out through a combination of design breakthroughs and margin-crushing price concessions to the major retail chains. Huge insider buyingPegasus Wireless insiders sure seem to think they can pull it off. In the last seven months, insiders bought a whopping $14 million worth of stock. The buys include purchases in the $10 to $14 range -- or not far from where the stock recently changed hands. Most of that buying has come from Knabb himself, a multimillionaire who sold his first business – a console game development company -- for $80 million when he was just 22. Now in his late 30s, Knabb – along with other top managers at Pegasus – has one of the more unusual pay packages in corporate America. Knabb gets no salary. Instead, he received 1.2 million options with strike price of 32 cent a share, for his first two years of work. Beyond that, he hopes to realize a big piece of his payoff through exposure to Pegasus stock – a major reason he has been buying. Knabb is already ahead of the game. He bought $1 million dollars worth at $2, and $9.2 million worth at prices ranging from $7 to $9. The stock recently traded for $13. It’s worth noting that many of these purchases weren’t your typical open market buys. Instead, they were linked to financing deals that helped fund acquisitions by Pegasus. But we’ve seen many cases in the past year where insider buying linked to financing deals -- and initial public offerings -- served as an accurate bullish signal. Besides, Knabb says he is not done buying, despite the recent stock advance, because he believes so much growth lies ahead. “We are just getting started,” he says. Other productsBesides devices that link computers to TVs, Pegasus makes several lines of wireless connection devices used to create outdoor wireless Internet hotspots and networks in the home and office. Other devices link computer networks in different buildings at schools or businesses. Pegasus products also connect computers to projectors for wireless PowerPoint slide shows. Going against the grain In the past several months, Pegasus has done a series of acquisitions that morphed it into a vertically-integrated business – the very kind of business model many companies have been running away from in the past few decades. Pegasus has the intellectual property. But instead of outsourcing manufacturing, it purchased controlling stakes in plants in China and Taiwan. And to reach customers, Pegasus bought a controlling interest in AMAX Engineering based in Fremont, Ca. AMAX sells computer systems and networking devices. But Peg[...]



Can You See Me Now? A Small Play on a Big Wireless Upgrade

2006-04-12T21:04:44.483-07:00

By Michael BrushApril 13, 2006 When you watch a movie that’s even just a few years old these days, one thing stands out: The cell phones are just too darn big. Wireless providers have done a great job of miniaturizing the handsets. Now for their next trick: Over the next few years, they hope to send movies themselves through those cell phones. They want to pipe other “multimedia” services through handhelds as well -- like music and interactive games. But none of this will work unless the wireless providers can get the bugs out of their networks so that those annoying signal drops have gone the way of oversized cell phones. After, with so many other places to catch a movie or sitcom, who is going to put up with disruptions in the latest episode of "Desperate Housewives" on a cell phone when you can see the show without hiccups over the Internet or on TV?That’s where LCC International (LCCI) comes in. For years, this tiny Mclean, VA -based company has been advising wireless providers around the globe on the best way to design networks – and helped them install and maintain them, as well. Now under the leadership of Dean Douglas, who took the helm last October, the company hopes to focus more on the higher-margin consulting work – just as wireless providers face their next big challenge of installing broadband pipes to accommodate new multimedia services. Douglas brings experience in wireless technology garnered while working at a Cisco (CSCO)-Motorola (MOT) joint venture called Invisix. He also worked with the IBM Global Services division of International Business Machines (IBM). Can you see me now?“As the carriers begin to move into multimedia applications, they will need to start thinking about reliability,” says Douglas. “Network reliability is critical.” Douglas believes LCC International can draw on its deep bench of radio frequency engineering expertise to help the wireless companies hit the right levels of reliability. The company has already worked on projects with high-profile players that needed enough networks reliable to carry entertainment. LCC International helped XM Satellite Radio Holdings (XMSR) design and build its satellite network. It has also already done work with Nextel and Cingular Wireless work on developing advanced networks. But will LCC International continue to win deals as wireless providers rush to install broadband pipes so they can offer multimedia apps? I can’t say for sure, but insiders seem to think so. And that is always a good start. Since December insiders have purchased $220,000 worth of LCC International stock for prices between $2.95 and $3.28. But the lion’s share of the buying occurred in the $3.18 to $3.28 range, not too far below recent levels of $3.70. To be sure, the company is tiny -- with a market cap of just $67 million. On the bright side, this means the company is off the radar screen for lots of investors. So there is plenty of money on the sidelines to come into this stock if the company really does catch the wave of coming upgrades at the wireless providers. LCC International still looks cheap with a price to sales ratio of just .46. Meanwhile, the company has a decent amount of cash to tide it over while it changes direction. It recently had around $14 million in cash or 57 cents a share. The company also has a decent backlog of at least $79 million worth of business. Big-picture trendsHere is a summary of some of the of the main sector trends that may drive growth for this company: Wireless providers are looking to offer multimedia services like mobile TV and music, interactive games, voice over IP (VoIP), and mul[...]



How to Trust but Verify in the Digital Age

2006-04-06T07:33:47.636-07:00

By Michael BrushApril 06, 2006 One of the safest ways to go bottom fishing for troubled companies that could spring back is to look for businesses with a treasure trove of cash. This cash – assuming there’s enough – can serve as a cushion to protect you from a sharp move down in the stock. Meanwhile, it gives the company some breathing room while it digs its way out of its hole.That’s exactly what you find with a little Berkeley Heights, NJ-based business called Authentidate Holding (ADAT). First, the cash: Authentidate had $52 million at the end of last year, which works out to $1.50 per share. The stock recently traded for $3.50. Now for the potential rebound. Authentidate has three lines of business, but its new chief executive is counting on one to take off and make this company soar again. The ticket out: Software-based products that help companies confirm that important business documents were sent and received – and not altered if the details of a transaction have to be verified later.“If you have a business process, especially one that spans across organizations, then very often one organization needs to prove to itself or someone else like a regulator that it has processed a certain type of content in a specific way,” says chief executive Surendra Pai. That’s where Authentidate comes in. Home medical equipment The company achieved a coup of sorts last December when it signed up American HomePatient – a large provider of home medical equipment like oxygen tanks and wheel chairs. American HomePatient is using Authentidate’s software to streamline the paper flow with doctors and Medicare or insurance companies. The system also creates an “audit trail” in case there is trouble down the road. Authentidate has a version of this product ready for companies that want to do everything electronically. But since doctors are still hopelessly stuck in the stone-age world of paper-based transactions, Authentidate had to tweak its offering to accommodate these digital laggards. In the system used by American HomePatient, doctors can still manage their side of the paperwork via fax – as they are accustomed. But fully electronic versions of Authentidate’s offering will probably make it to the market, too. Pai thinks this foray into the medical equipment field is just the beginning. He also sees applications for document verification in law. Authentidate is testing products in law firms in South Carolina. The service could also be applied in other professions like finance, or even to verify electronic voting. Only about 25% of Authentidate’s revenue comes from this more promising line of business. But that could change if recent growth trends are any indication. Revenue in this segment grew 13% in the last quarter of 2005 compared to the prior quarter. It came in at $1.25 million. The company also handles the technology behind the U.S. Postal Service’s electronic postmark offering. And it has a systems integration and a document imaging line. Some cloudsTo be sure, Authentidate has several clouds over it. Authentidate saw its finance chief leave at the end of January – not a comforting sign for many investors. And revenue is in decline. That’s just part of the shift from lower margin lines to the more profitable authentication software sales, says Pai.Not even that cash hoard is safe, as plenty of sharks are circling to try to sink their teeth into it. While the stock took a sickening plunge to $2 at the end of last year from $18 in early 2004, several law firms sued Authentidate. Some are claiming that the Authentidate’s secondary offe[...]



The FedEx of Digital Content

2006-03-30T06:49:20.533-08:00

By Michael BrushMarch 30, 2006 If you produce video content that absolutely, positively has to get there on time, you turn to FedEx right? No way. Instead, you are more likely call a tiny Burbank, Ca.-based company called Point.360 (PTSX). In a digital age when time goes by too fast for TV producers and advertisers just like the rest of us, Point.360 helps media moguls meet their deadlines. Besides zapping high-definition (HD) versions of programs like ABC’s Desperate Housewives to Canadian broadcasters, Point.360 helps producers put the finishing touches on their product, convert it to new formats, and archive it safely. The company also restores old video content so it is more presentable in high definition – making it harder to see telling details like suspension wires that would otherwise catch your attention in HD format.Big insider betIn late March Point.360’s chairman and chief executive Haig Bagerdjian plunked down $220,000 to buy another slug of his stock at $2.20. That brings his position – accumulated over the years through open market purchases, private transactions and options – to 2.9 million shares, or an impressive 29.7% of the company.What’s going on here to explain this kind of conviction? “I believe in the future of the company. We are about to turn a corner,” says Bagerdjian.Bagerdjian took over leadership of Point.360 two years ago when the company faced at least two big problems. It had been doing a lot of acquisitions of companies in its field, and they weren’t integrated. Next, the company had a huge debt load. “I thought with my management skills I could integrate the company and pay down the debt,” says Bagerdjian.A work in progressBagerdjian inked a $10 million five-year term loan agreement with the General Electric Capital division of General Electric (GE) last January. Now the company is working on selling a building that came into the fold with one of its purchases. That should bring in another $10 million. Reducing debt will improve profitability and make the stock more palatable to investors. Right now Point.360 has an enormous $19 million in debt, a burden that almost rivals its market cap of $23 million. At least the company brings in a lot of revenue – or about $64 million a year. Besides shedding debt, Bagerdjian is working on getting out of lower margin businesses and taking on assignments that bring higher profits. For example Point.360 used to distribute content for an ad agency serving BMW Group. But Point.360 moved up the food chain and began working for BMW itself, taking on additional responsibilities like “tagging” and archiving along the way. “Tagging” is when editors add the section on the end of a car ad that refers viewers in a national ad campaign to their local dealers. “We went upstream to work with the brand owner and expanded the service offering,” says Bagerdjian. To deliver HD versions of Desperate Houswives on time for ABC, Point.360 developed a proprietary pipe that could handle the bigger HD content files without compromising quality. And as more and more content converts to HD, and more players – like the phone companies – move into sending digital entertainment into the home, the need to quickly zap rich, digital content to distribution points will only increase. Another layer of complexity will arrive as consumers download more digital content to their hand-held devices like cell phones. “When I look at what kind of requirements are put on studios and the content creators and the speed at which they have to get to market, I think we are[...]



Keeping the Bad Guys at Bay in the Internet Jungle

2006-03-23T06:17:19.806-08:00

It’s a jungle out there on the Internet where so many bad guys lurk -- trying to invade corporate networks, drop spyware onto your hard drive, or trick people into revealing personal secrets. So anyone who runs a corporate computer system knows it’s a top priority to protect networks from the bandits and pirates. Many small companies turn to SonicWALL (SNWL) for the products and software to get the job done. In what may be a sign of how aggressive the bad guys are becoming, SonicWALL had a great 2005. Its stock rose above $8 from below $5. But in a sudden reversal, SonicWALL shares gapped down and crashed hard to $6.50 earlier this year. The weakness came on news that SonicWALL purchased a smaller company in its space and issued earnings guidance that didn’t exactly jib with Wall Street expectations. That’s when insiders stepped up to the plate and bought shares – once again. Chief executive Matthew Medeiros purchased $100,000 worth at $6.75 in late February. That brought total insider buying since early December up to $515,000. Much of it was above current levels – meaning you can now get the stock cheaper than where insiders recently saw value. The buying was all in the $6.75 to $7.90 range. What do insiders see in the stock? Cash hoardSonicWALL came public in 1999, and it was smart enough to do a secondary near the peak for tech stocks, in March of 2000. The company still has about $240 million in cash left over, or around $3.70 per share. It’s using the money to buy back stock – always a good thing for shareholders – and acquire smaller companies to build out its product line. Acquisitions don’t always work out. That may be one reason investors sold SonicWALL after it announced yet another purchase in early February – this time buying MailFrontier, a company specializing in messaging security. But acquisitions are how SonicWALL plans to grow faster than the small-business information technology market, already projected to grow 7% to 10% a year. Before MailFrontier, SonicWALL recently bought a company specializing in data backup and protection called Lasso Logic, and enKoo, which offers a kind of virtual private network technology. As an outsider, it’s impossible to know whether these acquisitions will work out. But the solid insider buying while investors worry about these takeovers suggests they will be profitable. The razor blade modelNext, SonicWALL is the kind of company Warren Buffet would like if he purchased tech stocks. That’s because besides all the cash, SonicWALL follows the “razor blade model.” Instead of selling razors, SonicWALL sells the hardware behind intrusion protection systems. Then customers can buy more add-ons with new features, and they have to come back each year for the software upgrades. SonicWALL believes it can do a better job of selling more razor blades – the software and add-ons.International growth Right now SonicWALL only gets about 32% of its revenue from foreign sales, while peers get 50% or more. The company hopes to change that. “We believe Europe and Japan present the most immediate growth opportunities for the company,” believes Sterne, Agee & Leach analyst Andrey Glukhov, who has a buy rating and a $9 price target on the stock. SonicWALL recently formed a sales partnership with Cannon, which should help in Japan. The bottom line: Small Internet security companies face a tough challenge going up against giants like Cisco (CSCO). But SonicWALL’s products are cheaper, and easy to use. And if the company does a good job of digesting [...]



Chasing the Blues from Your Portfolio

2006-03-09T07:00:50.170-08:00

The next time you hear people moan about a tough day, you might remind them they should at least be happy they don’t have a problem that doctors call psychotic major depression (PMD). As the name suggests, this is a nasty mixture of depression and the delusional thinking or hallucinations that come from psychosis. It affects about 3 million people in the U.S. Victims of this terrible ailment often have to be hospitalized. But there are no treatments approved by the Food and Drug Administration (FDA). The two that doctors use – a kind of electro-shock therapy or a one-two punch of antidepressant and antipsychotic medications – either have serious side effects or they don’t work well. So psychiatrists and victims of the disease should be tuned in closely this year as a tiny and lightly-covered biotech company called Corcept Therapeutics (CORT) releases updates on studies on a drug that could offer a fix.The company – whose researchers have links to Stanford University – believes that the compound mifepristone may help combat the disorder. Mifepristone, also used to terminate pregnancies, may work by blocking receptors for cortisol, a stress hormone that may spark PMD. Corcept calls the drug Corlux. Early studies completed several years ago found that Corlux helps reduce psychosis in people who have PMD. The current studiesNow, Corcept has two Phase III studies on Corlux in the U.S. and one in Europe. It also has several studies on safety and tolerability, re-treatment, and the use of Corlux against Alzheimer’s disease. On the side, the company is working with Eli Lilly (LLY) to determine if Corlux can fight weight gain in people on olanzapine, a drug used to treat schizophrenia, bipolar disorder and dementia related to Alzheimer's disease. The FDA has granted “fast track” status for Corlux in use against PMD. It has also offered a “special protocol assessment,” which basically means the FDA and Corcept have agreed in advance on how studies should be done so they are good enough for the FDA, at least procedurally.Near-term catalystsThe key thing for investors right now is that Corcept may be releasing partial results from some of its Phase III studies throughout 2006. If they are positive, that will juice the stock. The risk is that even though Corcept has other possible uses for Corlux – like treating psychosis associated with cocaine addiction – the company is in essence a one trick pony. So by owning shares, you are essentially placing a bet that Corlux gets approved for use against PMD. This is what analysts call a “binary event,” which is sort of like betting on a coin toss – either you win or lose. Many investors shy away from this proposition as too risky. Edward Nash, who follows the stock at Stifel, Nicolaus & Company, for example, has a hold on the stock, using the rationale against “binary events.” Insider buysBut the significant dose of insider buying in this stock of late tilts the odds in your favor and suggests success is a better than a 50-50 proposition, I believe. Since the end of January, insiders have purchased around $364,000 worth of the stock. True, chief executive Joseph Belanoff has been selling small amounts. But this is not too troubling to me because he owns 2.9 million shares. Meanwhile, the company has around $30 million in cash – or about an 18-month supply if the recent burn rate is any guide. The company believes that’s enough to see Corlux through clinical development for the treatment of PMD. How much is the marke[...]



Custom Cancer Care With a Little Help from Giant Sea Snails

2006-03-02T06:08:19.553-08:00

One of the reasons we succumb to cancer so easily is that our immune systems are reluctant to attack it. Since tumors are a part of us, killing them is tantamount to self destruction, at least from the point of view of an immune system. Wouldn’t it be great if you could trick the immune system into ignoring its natural reluctance to attack tumors? That’s the strategy used by a cancer therapy being developed by the biotech company Genitope (GTOP). The process starts by identifying unique proteins on tumors and taking out a small sample. Those proteins are mixed with other proteins from giant sea snails living off the coast of California – of all things. They are grown into a brew that’s able to entice the immune system into attacking proteins like the ones on tumors. The mixture is injected back into your body where it arouses the immune system to kill the cancerous tumors which have the protein targets. The giant sea snail comes into play because the protein it contributes is highly “immunogenic.” That means the immune system reacts strongly to it -- and anything attached to it. “If you make enough of that target and activate the immune system against that target, you can apparently eliminate or at minimum control any of the residual tumors,” says Genitope chairman and chief executive Dan Denney.Low cost manufacturingThis ingenious approach, which Genitope calls “MyVax,” has actually been known to work for a long time. Cancer patients were treated at Stanford University as long ago as the late 1980s. “About half of the patients immunized starting in 1988 have gone out very far in time and have never relapsed. It is looking like these patients may never relapse,” says Denney.So why isn’t everyone using MyVax? The techniques originally used to produce the tumor protein brew were not commercially viable. That’s where Genitope comes in. The company has developed a system of “gene amplification” for growing the anti-cancer brew. The technology is called Hi-GET.The target cancersGenitope is in late stage, phase III, testing of MyVAx for use against follicular non-Hodgkin’s lymphoma (NHL), a cancer that begins in cells in the immune system. “Follicular” means the lymphoma cells are grouped in clusters or follicles in the lymph node. This cancer strikes about 55,000 people a year in the U.S. It is the second most prevalent NHL worldwide. If tests prove beyond a doubt that MyVax works, Denney predicts it could be on the market in two years. WR Hambrecht analyst Patrick Flanigan estimates annual sales could reach to $500 million. But you won’t have to wait for two years for the stock to move. As early as this summer, Genitope may present convincing data that MyVax works against lymphoma. It’s hard for anyone to know how these studies will turn out. But a Genitope director’s recent purchase of $212,000 worth of the stock at $8.50 suggests Genitope may be on the right track. Other potential therapiesGenitope is also doing early phase testing of MyVax testing against chronic lymphocytic leukemia, another market that could be worth $500 million in annual sales. MyVax will also likely also be tested for use against other kinds of lymphoma and NHL. The company is also developing monoclonal antibodies – a class of therapy made famous by Rituxan, Avastin and Herceptin from Genentech (DNA). Success of drugs like these has helped Genentech stock more than double in the last year. Monoclonal antibodies work by attacking tumors direct[...]



Putting the World in Your Pocket With a Cell Phone

2006-02-23T07:05:50.543-08:00

In the beginning, cell phones were just phones. And that was good enough. Now they take pictures and shoot short video clips. Or they let you play games and surf the net to download cool ring tones. Down the road, your phone will basically be a full-fledged multimedia center – sort of like a TV, DVD player and iPod wrapped up into one. It’s all part of the evolution of mobile phone operators as they morph from being simple phone service providers to outright media companies. There’s good reason for this change. With competition knocking the profit margins out of basic phone service, these companies know they have to move into higher-margin media content to thrive. Besides, people will always want cooler toys. Behind the scenes, however, these new features are putting fresh demands on the guts of the cell phone. In particular, memory and processors will have to become a lot more robust and flexible. Where will all the computing power and storage come from? Right now, industry observers are watching as phone providers re-work combinations of different kinds of memory to get the job done. One format, called NOR, is good at storing application code. Another, called NAND, is a lot slower, but it is cheaper and good at storing data – like songs inside portable music players. A third wayA chip company recently spun off from Advanced Micro Devices (AMD), meanwhile, has been working hard using a proprietary technology to find a third way. Known as Spansion (SPSN), the company is applying a technology called MirrorBit, to create a hybrid of NOR and NAND. The hybrid is called MirrorBit ORNAND. Spansion believes MirrorBit ORNAND is faster and more reliable than current forms of memory used in cell phones. So it should be better at supporting multimedia features. The technology is also “scalable,” which means handset designers can scale the flash memory they order depending on how complex they want their phones to be. Industry analysts and investors are not so sure about all this. In a recent note on Spansion, Deutsche Bank Securities Ben Lynch wonders whether MirrorBit ORNAND will be a success. He notes that the new approach is only now being tested by customers with no real public feedback to date. Many investors seem to share the uncertainty. Spansion was spun out in December, but to get the deal done banks had to lower the offer price, says Lynch. Buoyant insidersInsiders, in contrast, are fully confident. “We had to invest a ton of money without having instant gratification,” chief executive Bertrand Cambou told me in a recent interview. In short, he says, the company has been in research and development mode, with little revenue to show for it. But all that is about to change, he believes. “Now we are at a position where we are ready to blossom and explode as a powerhouse in this space,” says Cambou.The cynic’s view, of course, is that chief executives are always bullish on their business. But Cambou is a bull who puts his money where his mouth is, and that’s exactly what we look for here at Insiders Corner. Shortly after his company came public, he purchased $653,000 worth of the stock at around $13. A director also made a big purchase at about $15.60 recently, rounding out the total insider buying so far to $1 million. That’s a good signal. Of course, not every cell phone user is going to want to put a media center in his pocket. But many will. How many? A cell phone market strategy consultant called iGillottRe[...]



Reloading the Insider Matrix

2006-02-16T07:22:48.970-08:00

As any investor can tell you, the purpose of a stop loss order is to set an automatic trigger that gets you out of a stock without emotional drama when it starts to sink – so your losses don’t multiply.It’s simply too easy to trick yourself into staying with a losing position that chips away at your balance daily – as you cling to hope. That’s why, as a rule, we dump positions in the Insiders Corner portfolio whenever they decline 25%. No questions asked. So it hardly makes sense to circle back now and reopen positions that have stopped out. But I am going to do it anyway with two stocks that tanked in the past few months and stopped out: Peregrine Pharmaceuticals (PPHM) and Fossil (FOSL), a retailer.Peregrine PharmaceuticalsWe suggested Peregrine last summer at around $1.25 (click here). But then the stock drifted steadily lower to around 90 cents a share, stopping out of our model portfolio. The stock recently snapped back to life and surged to about $1.50, apparently on exactly the kind of news flow we were expecting. This suggests more upside -- because it’s easy to map out similar catalysts this year. Besides, the potential for this company’s main compound in fighting many common viruses and cancers is huge. Peregrine’s a novel compound seems to work like this. Essentially, when cells in our bodies get infected or altered by viruses and cancers, they change in the following way. As cells get stressed by these ailments, they get confused about some of their maintenance tasks. One result is that phospholipids normally found on the inside of cell membranes wind up on the outside. This has two key implications. When viruses leave the cells they’ve infected, bits of the membranes from those cells envelope those virus particles. The exposed phospholipids on those membranes serve as targets for Tarvacin, Peregrine’s lead compound. It’s similar with cancers. Stressed by cancer, the cells in blood vessels feeding cancer cells also get confused about their maintenance tasks. So the internal phospholipids end up on the outside of the cells. Bingo, another target for Tarvacin. Tarvacin works essentially by attaching to problem cells and suppressing the signals from them that throw off our immune system. This way, our immune system can key in on the problem cells and destroy them. “Tarvacin reprograms the body’s own natural defenses to recognize and fight disease,” says Peregrine chief executive Steven King. Tarvacin could work against a broad range of viruses, including the ones that cause influenza and Hepatitis B and C, herpes, West Nile, Dengue, HIV, SARS, avian flu and many of the potential bio-terror “hemorrhagic” viruses, like Ebola. Early studies in animals also show that Tarvacin acts as a kind of vaccine against further infections of the virus it was originally used to treat. Tarvacin may also work against several kinds of cancer, so the potential is huge here, too. Blockbuster anti-cancer therapies like Avastin and Rituxan from Genentech (DNA) produce billions of dollars a year in revenue, and Tarvacin could be in this league. Peregrine also has a compound it is testing for brain cancer, called Cotara. It seems to work by gathering in dead cells inside tumors and serving as a kind of magnet and anchor for radiation treatments that fix to the Cotara, destroying tumors from the inside out. Peregrine jumped to $1.50 per share from about 90 cents in early January, apparentl[...]



Snipping Genes to Cure Diseases

2006-02-09T07:48:41.683-08:00

When U.S. President George Bush asked Congress to write laws that would ban “human-animal” hybrids last week in his State of the Union speech, it was a chilling reminder of the more bizarre implications of the genetic research going on around us.So it’s comforting to remember that the miracles of genetic modification are also being tapped to protect human life and treat diseases.A good example of these efforts is a Cambridge, Mass.-based company called Alnylam Pharmaceuticals (ALNY), where a director recently bought a big slug of stock, worth $1.3 million.Running interferenceAlnylam – named after a star in the constellation Orion – works in an area of science called “RNA interference.”You may remember from biology classes that RNA, or ribonucleic acid, is a chemical that plays a role in the creation of proteins inside cells. Since most ailments can be traced back to the production of proteins, knowing how to stop RNA from making proteins means you have the keys to preventing all kinds of diseases.This technique is called RNA interference, or RNAi for short, and it’s the main focus at Alnylam. “What we can do with our RNAi technology is stop those diseased proteins from being made in the first place,” says Alnylam chief executive John Maraganore.RNAi works by slicing certain genes in our bodies, to disable RNA from producing specific proteins. It can also be used to attack viruses by disabling the genes inside of them that help the viruses reproduce.If RNAi therapies ever see the light of day, patients will likely take them via regular injections, or inhalers.Embarrassment of richesSince proteins are at the root of most diseases and even problems like chronic pain, the potential here is huge. “There could be a whole new class of drugs based on RNAi,” says Maraganore. “We have an embarrassment of riches in the different diseases we can tackle.”Here’s a brief look at some of the main ones Alnylam is working on first.* Bird FluNo one knows whether the H5N1 avian flu virus will ever make the jump to humans in a way that causes widespread problems (http://moneycentral.msn.com/content/P132582.asp). But it might. That would be devastating for us. But it could light a fire under Alnylam stock. That’s because the company believes its RNAi can neutralize the bird flu virus. Alnylam hopes to file an investigational new drug (IND) application with the Food and Drug Administration as early as the second half of this year in this area.* Respiratory Syncytial Virus (RSV)RSV is the leading cause of lower respiratory infections in infants. There are millions of cases in the US each year. Alnylam recently started enrolling patients for Phase I trials of a potential RSV therapy, to test for safety and dosage levels. It could release results in the first half of this year. The therapy could work by delivering a drug to the lung to neutralize a gene in the virus, preventing it from reproducing.* Neurological diseasesSince ailments like Parkinson’s disease, Alzheimer's disease and cystic fibrosis can all be traced back to the production of certain kinds of proteins inside cells, RNAi might work against these problems, too. Alnylam is also in the early stages of trying to apply the technology to help regenerate nerves damaged in spinal cord injuries or stop certain kinds of pain.Success factorsSo many biotech companies sound so promising when you talk with the scienti[...]