Four splendid efforts:
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A tragedy of the financial panic and flight from risk is that the stocks of several very worthwhile efforts have fallen:
Here are four I particularly like both for what the management is trying to do and as investment homeruns if they succeed. The first three sponsored our past newsletter write-ups on them when their stocks were much higher and the fourth simply fascinates me as an overlooked Gay Play which should be of vast interest to the gay community.
Back in December 2007 my single favorite stock for 2008 was and is BioSante Pharmaceuticals (Nasdaq: BPAX-then 3.73, now 1.67). Chairman and CEO Steve Simes continues to steer this pioneer in treating female sexual dysfunction toward the commercial goal post. Success will produce a product with annual commercial sales of over $1 billion. Because arch rival P&G has not even started U.S testing for safety of its products now being sold in Europe, BioSante should be the first to market in the U.S.A. Being first should make this exciting product a blockbuster. Right now Phase III trials for its LibiGel� are in progress. The goal is to bring sexual satisfaction to frustrated women as Viagra has for millions of men.
The market for women should be bigger than market for men. Will it even exist, you may ask? Right now many women are taking men's products because products more suitable for them are not for sale. If P&G does launch in the U.S, Simes believes his LibiGel� product can compete. P&G's European patch product can leave red blotches. His gel doesn't.
BPAX's team has shown determination, resilience and adaptability. It got an Elestrin product through the FDA to treat hot flashes in menopausal women. After its marketing partner was acquired and the acquirer had no interest in the product, Simes landed Azur Pharma as a marketing replacement. BPAX just received $3.3 million and if sales materialize could take in as much as $144 million. That will be peanuts compared to LibiGel� which has explosive potential.
BPAX remains an open Flaherty Special Situation BUY.
Last issue mentioned Generex Biotechnology Corp. (Nasdaq:GNBT-0.60) pioneering oral insulin absorbed through the lining of the mouth. Big rivals have dropped out as their sponsored entries delivering through the lung appeared to cause cancer. Now Generex's oral product has just started being sold commercially in India. GNBT does many other interesting things like delivering some medicine in the form of chewing gum. But for now the spotlight is on this effort to pioneer oral insulin. Management continues to make steady progress. GNBT stock, which has an all-time high of $22, is way way down 93%. In April 2008 Flaherty Special Situations recommended it at $1.04. It is still a BUY
Finding an artificial blood substitute is like the search for the Holy Grail and CEO art Bolton of HemoBioTech, Inc. (HMBT.OB-0.95) continues to seek it. Over $1.5 billion has been spent as over a dozen mostly giant prior pioneers tried but dropped out when their products proved toxic. That is, they killed people. But there is a global shortage of blood because of accidents, war, medical needs, lengthening life spans and an ever increasing world population. Meanwhile, diseases like HIV and hepatitis make our natural blood supply more questionable.
The commercial global market for an artificial blood substitute would be $25 billion and discovery of one would take its place beside the Salk vaccine and Antibiotics. There is little daily trading in HemoBioTech stock and it is being ignored by the media and by investors. It does need to raise millions to get the stage where the product will attract a large wealthy strategic partner. Currently the product is being tested in India and hopefully soon in the U.S. If successful, this product would be one of the most important breakthroughs of this century.
Also because of its work developing the blood substitute with the help of Texas Tech, HemoBioTech has received an exclusive world license from Texas Tech to market purification technology to remove pathogens, (including viruses and prions such as Mad Cow disease) from animal-derived fluids meant for human use. By itself this offshoot would be important. But for now the focus must be on carrying on the work on the artificial blood substitute.
One of the most thrilling efforts ever and so far it is being ignored. This open June 2008 Flaherty Special Situation at $1.00 is still a BUY.
A Gay Play: My friend Ray Dirks had me break bread with a Swiss-based Mymetics Corporation (MYMX.OB-0.13) that is trying to develop a vaccine to prevent AIDS. Since it was recognized in l981 over 25 million worldwide have died from the disease and another 33 million are currently infected with HIV. Here too the big companies have tried to develop an AIDS cure and failed miserably. A vaccine would let a lot of sexually adventurous people do safely what they are not supposed to do and also save millions of lives. Alas, MYMX also needs to raise many millions to prove enough so that some rich White Knight will ride in and finish the job. Besides AIDS, MYMX is developing a vaccine for Malaria, an old ill which continues to take a terrible toll every year.
Wealthy Swiss backers have taken this startup this far and maybe they will continue to ante up if others don't. Maybe not. People of a Gay persuasion would like to see a company like this make it. An enormous amount of capital and effort already has been devoted to AIDS. This one is too interesting not to let you know about. Just suppose with some extra venture support it could work!
New Jewels to make us drool!
Two investment giants who have gone to their reward shaped much of the way I look at stocks of all sizes. Sir John Templeton and the late Ralph Coleman, Jr., founder of OTC Review, now Equities Magazine, used to argue that if you bought a stock with real value low enough and were correct that it had enough staying power to weather a storm, at some unpredictable time in the future when it became popular you could sell for a nice sometimes fabulous gain. You just had to have the guts to buy when it was a bargain and forget about it until the cold turkey became a hot potato. So easy to say; so hard to do.
Bob is still bursting with new ideas! Everywhere upset CEOs complain of recently depressed stocks which are unbelievably undervalued and a screaming bargain. Of the seven stocks we covered just last issue; five have declined even further in price. Two have P/Es low enough jewels to make us drool. DRI Corporation (Nasdaq:TBUS-0.91) has a trailing 12 month P/E of slightly over 4. China Direct Inc. (Nasdaq:CDS-1.51) has a trailing 12 month P/E of 2.1 and expects higher sales and earnings next year. Proven performer Bridgeline Software (Nasdaq:BLSW-0.72), with a market cap which is under 40% of its trailing 12 months revenues, is another stocking stuffer. Naturally, the global storm will affect this trio as it will everyone else, but judged by their intrinsic value in a normal year, all are super values. China Direct also is interesting because it is a proxy for the tremendous value I see in the stocks of China in general. Unusually high annual growth rates and incredibly low P/Es. Someday in the future I think the stock of each of this trio will be up over 200% and probably a lot more.
While the mass media screams about the recovery of the large indexes, micro cap stock prices are in dire straits, generally invisible to all but a few of us micro-cap mavens. That is because first, there is a flight from risk, and this means switching from risky tiny stocks to larger ones. Second, hedge funds are liquidating stocks, starting with their smallest to cover margin calls and their own fund redemptions. After all, hedge funds were only supposed to go up. Third, developmental stocks which need to raise more capital to grow or even to survive next year are in dire straits because many investors are frozen with fear and funds retain their own reserves to convince outsiders they are solvent. Most lenders will only give you more money when you don't need it.
Tax Time Thinking. Those lucky (?) readers who have big capital gains this year as their mutual funds sold stocks with big gains to handle hedge fund redemptions, need tax losses. So it is prudent for them and also for everyone to look at our remaining stocks and decide if they should be held or if they should be sold for tax losses to offset any gains.
In June 2008 Flaherty Special Situation put out a BUY on USCS.OB then $0.165 and now $0.05. CEO Bob Dultz has assembled an attractive junior gold with important finds and states it should be fine as long as gold stays above $600. Long term it should and the current flight from risk will pass. US Corp remains a BUY.
In June 2008 we also put out a BUY on ITEX.OB, then $0.89 and now $0.50. We continue to believe barter leader ITEX is an ideal base for rollups and remains a BUY. Management knows what it is doing.
FOR WHOM THE SELL TOLLS! Last newsletter we put out a SELL on QPC Lasers, which had excellent technology but made the only management's uncorrectable error of running out of cash. In better times, QPC could have raised growth capital. But for tiny tots these are terrible times.
Tiny start ups which need to raise capital are in dire straits today. Our world has changed dramatically since last summer when we put out a recommendation of GTXO.OB, then $2.67 and now $0.16. A recent sponsored report reiterated that the stock of that tracking devise maker could soar to $3.30, but so far orders and sales have come in a lot slower than we had originally expected. The same is true at our recommendation on Brite-Strike (BSTI.PK) then $0.52 and now $0.014. BTSI has a wonderful little tactical attacker repellant blinding flashlight and some wonderful ideas to help reduce assaults on women. But as a car needs gas, tiny start ups need capital to grow and BSTI's team simply didn't raise enough to make its ideas come true -at least so far. With a sigh, for those who need tax losses we would also SELL BSTI.
As for our open BUYS we expect when the stock market recovers to someday put out SELLS on each at a fine profit above our original recommendation price. Like the sun, the next bull market will also rise.
MERRY CHRISTMAS AND A HAPPY NEW YEAR! While we hope to get out at least one other issue before yearend, in case we don't my son Brian and I wish each and every reader a happy and peaceful holiday and a prosperous 2009 -
Bob Flaherty & Brian Flaherty