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Bob Flaherty Rides Again! Welcome to our sixth issue of Flaherty Financial News Newsletter. If you have not already done so, please join our financial family. To receive our next issues of Flaherty Financial News Newsletter  and also our sister Flaherty Special Situations Newsletter simply go to our website www.flahertyfinancialnews.com and opt in as a reader. You can opt out any time too.

The Invisible Man Returns (Part Three)

Late last month I telephoned former star investigative reporter Richard Stern, who now heads an investor relations firm, to ask if Dick had opened up my October 4 emailed expose Part One "The Invisible Man Returns; Jason Galanis Reappears." and Part Two dated October 23, both of which appeared in issues of our sister Flaherty Special Situations, archived at www.flahertyfinancialnews.com .  

 
Before I could get in another word, Dick responded, "Bob, I recently met with Jason Galanis..."

"Why did you meet with Galanis?" I asked in surprise.

"Jason wanted to hire us to represent Fund.com. Now what is this about your Invisible Man?

"Jason Galanis is the Invisible Man," I said. "My expose focuses on Fund.com and AdvisorShares and some other of Jason's other online financial research and education platforms."

"You and I live in a small world," said an equally surprised Stern, as we both laughed at the coincidence. 

Dick had a brilliant career going after bad guys for publications like The New York Daily News, Institutional Investor and Forbes, which he joined some time after I had retired in l981. On two exposes our reporting had overlapped. At Equities Magazine, the late Bill Reddig and I won a New York Deadline Club journalism award for an article which for the first time mentioned the notorious penny stock broker Blinder Robinson's nickname "Blind'em and Rob 'em."  Dick picked it up and the impact of our initial work was magnified. On a different story I spotlighted "Inside First Jersey" written by an anonymous employee still working there. Later I released another Jersey jab containing a colorful character's quote, "If I ever need a heart transplant I want Bob Brennan's because it has never been used." Dick later told me some of our First Jersey research had been helpful to him. I forget how. Sometime around l993 he joined his wife's IR firm. 

 
Reminiscing, Dick discussed how years ago a billionaire's son whose father he had written up favorably introduced him to Jason Galanis, who approached him to represent his online porno credit card processor. Suddenly, Forbes did an expose on how Galanis' notorious white collar criminal father, who had looted over $400 million from a fund, was involved in helping to run the porno credit card business from jail. Dick declined the account as too much trouble to handle.

"Good decision," I said encouragingly. "You can always get other clients, but you can't get a new reputation. I simply don't understand how Jason can attract guys from good companies and sometimes good schools." (The Invisible Man's collection includes leading players with degrees from Harvard, Yale and Columbia.)

"He has made a ton of money," Stern explained. "He's involved with lots of people and lots of companies. It is a small world."

"So far I haven't seen his name mentioned even once by Fund.com," I said, wondering how long that could last. "Except for everyday investors and readers, most of The In-Crowd already knows he's there."
"I think Jason wants to keep it a secret," Stern replied.

We joked, caught up a bit on personal matters like health and family, and then wished each other well. I figured we would bump into each other again over the next year or so at another cocktail party or funeral.

Meanwhile, trading in the shares of Fund.com (FNDM.OB-1.48) turned stranger. A lot of the trading seemed to take place late in the day and that portion was very bullish in direct contrast to earlier daily trading which was very bearish. In the last 12 months the stock has levitated from a dime to as high as $3.10, but it is down from $10.05 in Feb. 2008 according to Yahoo Finance. Average three months daily trading has been over 200,000 shares daily. Not long after Dick and I spoke trading dropped to only 500 shares one day and the next, again according to Yahoo Finance, zero.

The very next day Nov. 3 a press release announced: "Fund.com Retains Stern & Co to provide Media Relations/Public Relations Counsel."  Dick wrote, "We believe Fund.com is the right company at the right time."

In the following days other releases came out about on new acquisitions and a letter of intent to acquire a majority interest in an alternative management company with about $1 billion under management and comments about providing financial services like more actively managed  ETFs and educational and research platforms for everyday investors. Material mentioned complex transactions with the mysterious Caribbean bank associated with Jason and planned involvement with people's retirement plans and solving their bad credit problems. A paid-for-positive report on FNDM.OB was posted by related firms using  reassuring words like "Integrity Media Report" and "SmallCapSentinel," but the name Jason Galanis didn't appear. Where is the transparency at this ETF IPO initiator? In one way this word does fit. Who is more transparent than an Invisible Man? 

Invisibility can be contagious! Some front men around Jason also appear to be actually fading. About Nov 9 on the Yahoo Finance message board a wildly bullish posting appeared by someone with the handle haonh981. Haon backwards is Noah, the first name of the CEO of AdvisorShares, whose last name Hamman starts coincidentally with H. This ETF initiator is partially owned by Fund.com. Galanis has interests in both entities. "Watch it move!!!" Haon hyped. Fund.com was "in the same league as Google set in the context of the financial industry."  "- the next global household name for fund management, as it brings the elite fund mangers to every investor in very country worldwide."

Haon mentioned good things about ETF manager Harry S. Dent Jr. No quarrel with his praise, but his effort lacked balance. Let's help out by adding the trouble with Harry. Haon failed to mention Dent's silly prediction of Dow 40,000 "How to Profit from the Greatest Boom in History: 2006-2010" before the Dow tanked to Dow 6547. DENT is an ETF of ETFs concept, and like Bernie Cornfeld's decades ago discredited Fund of Fund idea, the biggest flaw is that in comparison with regular funds the expense ratio will be obscene. Besides the already public actively managed Dent Tactical ETF (NYSE:DENT), Haon noted two more ETF IPOs are in the pipeline WCM/BNYMellon Focused Growth ADR ETF (NYSE:AADR) and Legacy Long/Short ETF (NYSE:HDGE). How many CEOs do you know who go anonymously on Internet message boards to hype their shares or prime the pump for their upcoming offerings? Must be some other guy. If not, I don't think Haon has this invisibility thing down pat yet.

Watch how like he does I can also become invisible. Bob spelled backwards is Bob. O.K. I'll leave this invisibility game to the pros. Still, is this backwards name hanky-panky aimed directly at everyday investors on Fund.com's Yahoo Finance message board kosher? Here is one financial journalist who is at least willing to ask the question.

As for FNDM.OB becoming The New Google, frankly, I prefer the original. But that is beside the point. If investors have adequate information they are free to make their own decisions. Our late guru Sir John Templeton couldn't resist P/Es of Two but he only found them in companies that everyone else was fleeing and the press was knocking which was why each bargain share was packed with value. Sir John usually turned out to be right. Difference of opinion is the way our financial system is supposed to work. But is the game at FNDM.OB fair? Everyday investors being pitched don't know The Invisible Man is associated with many of the insider players on many different units of his spreading financial spider's web. LET THE SUNSHINE IN!!!

Not once, not twice, but three different times over 20 years between l961 and l981 I was proud to be Forbes Mutual Fund Editor. (Actually, I complained about being overworked each time.) But gaining perspective was my reward. If I believe anything, I believe that regulators have bent over backwards to protect the small fund investor and keep the fund field clear as a goldfish bowl. I don't think Jason Galanis' secret can last; especially at what is being billed to the public as the initiator of America's largest actively managed EFT fund DENT. In the meantime, welcome to The In-Crowd. You too know Jason's secret. He's there. Investors beware! 
 
Beware why? Ignore his father going to jail for looting  $400 million from a fund. Forget his brother going to jail for manufacturing and distributing  the drug Ecstasy. Jason was also arrested, but the  charges were dropped. Focus on Jason's own track record. Read the old online  Forbes articles bringing up the Colorado bank blowup, the hushed up Cargill grain loss  scandal affair, the class action law suit for understatement of online earnings dependence on pornography , the Penthouse SEC earnings manipulation fraud charge, for changing a loss to a profit, and unauthorized CEO electronic signature used to fake Sarbanes-Oxley certification requirements? In 2007 a judge felt all this was serious enough to bar Jason Galanis from serving as an officer or director of a U.S. public company for five years. Could this be why Jason is keeping his behind the scene involvements secret?
Considering Jason's track record above, don't everyday fund investors and online readers have a right to know The Invisible Man is behind the scenes? Shouldn't acknowledging his presence be the minimum protection and disclosure required at public companies and especially those involved in launching new actively managed ETF IPOs and handling other people's money? After all the scandals when will everyday investors get a break and get the disclosure they deserve? What isn't there can't be read. It is just that simple.-bob spelled backwards

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An October press release posted online proclaimed a venture with 3M to work on furthering development while  another release announced a collaboration with King Fahd University. "Bob, can you look and see what you think?" an intermediary relayed.  
Sleepily I went on the Yahoo Finance message board, but woke up reading a posting "Run as fast as you can from Larry and Mantra!!!" It referred potential investors to a March 5, 2008 Vancouver Sun article by its Ole Man River of Investigative reporting David Baines, "Shareholder déjà vu in Bulletin Board shams." 

Baines writes Larry Kristol is well known to him. He recalls that on August 28, 2003 Kristol was sitting in the driver's seat of a rented van with another man when drug detectives discovered $10,300 in U.S. currency on the floorboard. After claiming he won the money at a casino, Kristol changed his story and claimed it had been given to him by Sabir Khan, who had rented the van and had two prior drug-related arrests. Then Khan came out of a nearby restaurant and denied any knowledge of the money.

Meanwhile a drug-sniffing dog found even more smelly money, which detectives also seized. No charges were filed. Later Khan, claiming it was not drug money but for an investment in a company Kristol was promoting, tried to retrieve the $30,000. However, officials refused to return the cash, believing their Snoopy Sniffer police  dog, who I hope at least got a pat. And speaking of pampering pouches, Baines notes one of Mantra's seed shareholders was the president of a sham  OTC Bulletin Board company that went public "on the ridiculous premise that it was going to sell bottled water to dogs."
 
When I consider our huge national deficit and the need to reduce bureaucratic waste, I wonder if we shouldn't wipe out some of our regulatory procedures and train smart stock dogs to take over. Instead, of namby pamby thick unreadable prospectuses which in the end leave us unsure of what to do,   the stock dog would be our best friend and just sniff around the entrepreneurs and their backers. Investors could relax if our pal  wags his tail and gives a positive "Bow Wow!"  And we would all run when he growls "Woof, woof!"-RJF

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Recent Price:                                        $30.52
Market Capitalization:                             $192.3 million
52-Week Range:                                    $10.50 - $33.00
Shares Outstanding:                               6.3 million
Shares in Float:                                     4.1 million

Balance Sheet as of Sept. 30, 2009
Total Assets:                                        $12.3 million
Long-Term Debt:                                   $4.3 million
Total Equity:                                         $6.4 million
Book Value Per Share:                             $1.02

Pay attention to the dramatic advances by an overlooked biotech pioneer startup in injectable collagenase applications, with big near and long term upside potential, but little down side risk.

How many companies with only five employees have a stock market cap of around $200 million, and a share price which doubled to more than $30 in just the current year?  Quietly, overlooked Lynbrook, N.Y.-based BioSpecifics Technologies Corp. (Nasdaq: BSTC) has registered significant milestones uncommon to growing biotechs. Year over year quarterly revenue growth was more than 181% to $9.1 million. Trailing 12 month comparisons also provide pleasant surprises: gross margin of 96.2%; EBITDA of $4.2 million; operating margins of 45%; net income of $3.9 million and earning per share of $0.60.

BSTC's injectable collagenase will help regain motion more quickly for patients suffering from frozen shoulders or after knee surgery and prevent reoccurrence of painful side effects. It can help in two orphan designations. Longer term potential to help deal with multi billion in revenues problems from being fat, including ugly cellulite. It is a sleeper stock destined someday for the being beautiful and feeling young industry.   

BioSpecifics is a biopharmaceutical company engaged in the development of first-to-market injectable collagenase for multiple indications in the U. S. It has a "marquee partnership" in an important development and license agreement with Auxilium Pharmaceuticals Inc., (Nasdaq:AUXL-34.85). This Malvern, PA specialty biopharmaceutical company focuses on developing and marketing to urologists, endocrinologists, orthopedists and select primary care physicians. With 2008 revenue of over $125 million, Auxilium recently had a market cap of $1.6 billion and a related licensing deal with Pfizer, the world's largest pharmaceutical company.
Auxilium will market BioSpecifics' truly revolutionary product - injectable bacterially -derived  collagenase known as Xiaflex™ -- for clinical indications in orphan -designated  Dupuytren's contracture , Peyronie's disease and also for  Frozen Shoulder. Auxilium also has options to all indications using Xiaflex for non-topical formulations, such as treatment for removal of cellulite.

The confusing medical names can be a turnoff so let us explain a bit about some of the conditions under their umbrella. The first is where painful contracture of the fingers creates a condition popularly known as "claw hand" where fingers curl up. It can become hard to type on a computer or do other normal activities like shaking hands without distress or pain.  The second condition refers to curved penis, which also can be painful and obviously lead to embarrassing problems in bed. Frozen shoulder can result from arthritis and other problems and limit mobility. The big deal about Xiaflex is that it dissolves tissue protein collagen, which causes so many problems in the human body.   

 
Xiaflex has completed phase III clinical trials for the treatment of Dupuytren's contracture, and the biologics license application is under review at the FDA for its treatment. Xiaflex is in phase IIb of development for the treatment of Peyronie's disease and is in phase II of development for treatment of Frozen Shoulder syndrome. BioSpecifics also has a focus on the development of collagenase for various other clinical indications, including lipomas and cellulite.
Besides handling domestic marketing, Auxilium has signed a sales and marketing agreement giving Pfizer exclusive rights to commercialize Xiaflex in the 27 countries of the European Union (EU), and 19 other European and Eurasian countries. In return, Pfizer made an upfront payment of $75 million to Auxilium, and an additional $410 million to be provided in milestones.

This is wonderful news for Biospecifics President and CEO Thomas Wegman, 54, who has spent more than 30 years in the biotech industry.  The development and success of Xiaflex is the culmination of a mission that began more than a half century ago in l957, when his father, Edwin H. Wegman, founded the company. No get rich quick invent a miracle quickly guys here. Boston University graduate Tom. Wegman has served as an officer at BioSpecifics for more than 15 years and has been a member of the Board of Directors since 1994. Prior to his appointment as President on October 17, 2005, he served as the Executive Vice President. He has more than 30 years of experience in the biopharmaceutical industry managing company operations, drug development, licensing and registration.

From 1978 to 1983, he managed the production, marketing and foreign registration activities related to an avian vaccine business, Biota NV. Wegman has been instrumental in licensing technologies from universities for use by BioSpecifics and is the author of a number of U.S. and foreign patents in the field of life sciences.
Dr. Raghuram Selvaraju, head of Healthcare Research at Hapoalim Securities USA, Inc., issued a well reasoned 43-page report on BioSpecifics. He projected that BSTC had the potential to outperform the market, setting a 12-month share price target of $40. Actually, Flaherty Financial News Newsletter thinks BSTC stock could double if it isn't acquired first.  

Auxilium's nearly half billion dollar partnership with Pfizer, Inc. to market Xiaflex internationally offers additional compelling reason to rank BioSpecifics as a solid investment, presuming the company can gain final approval to begin manufacturing the drug later this year or early in 2010. This not only makes the stock an attractive near term investment prospect, but also positions it as an equally attractive acquisition target at a significant premium.

"We believe that Xiaflex has blockbuster potential," said Dr Selvaraju in an on-air interview with Bloomberg TV. "Both Dupuytren's contracture and Peyronie's disease are orphan-designated disorders that constitute significant unmet medical needs which are inadequately addressed via surgical means and for which no effective pharmacological therapeutics exist."

From his view the analyst felt that the risk profile of Xiaflex was encouraging. Xiaflex had a focused mission of dissolving collagen deposits, and that the product has demonstrated promising results in well-controlled Phase 2 and Phase 3 trials. Moreover, Xiaflex has demonstrated a clean safety profile to date with no serious adverse effects occurring. Thus the Biologics License Application, filed by Auxilium, was accepted and accorded Priority Review by the FDA. Less than three months later, in mid-September, a 12 member advisory panel voted unanimously to recommend FDA approval of Xiaflex to be commercialized.

Under terms of the agreement with Auxilium, BioSpecifics is to receive a flat rate, low double digit royalty on net sales of Xiaflex worldwide, regardless of the indication in which the product is used. In addition, BioSpecifics will receive a percentage of all non-royalty payments received by Auxilium from sub-licensee parties to whom Auxilium assigns Xiaflex rights. In the case of Pfizer, BioSpecifics will receive 8.5% of all milestone payments achieved. Thus far, BioSpecifics has received $15 million, not including the $6.4 million representing its share of the upfront payment provided to Auxilium by Pfizer.

This arrangement is a highly advantageous company maker for BioSpecifics. First, it provides a guaranteed revenue stream from any indications from which Xiaflex can be deployed at a flat, unchanging rate - which could prove highly lucrative, particularly if the product is developed in larger indications such as treatment of cellulite. Second and important in a moment of flight from risk by investors, it effectively removes the late-stage development risk from BioSpecifics, which is only required to develop the product candidate in target indications up to the point of clinical proof-of-concept. Finally, the arrangement with Auxilium makes it difficult to imagine a scenario in which, if Xiaflex is commercially successful, Auxilium would not elect to acquire BioSpecifics. Of course, Pfizer could decide to get in the marrying act too and buy them both.

Meanwhile, as the medical community awaits the clearance to use Xiaflex, surgeons nationwide have already weighed in on its potential benefits. Dr. Rod Hentz, who has been a member of the Stanford University School of Medicine for more than 30 years, became focused on hand surgery, especially in treating patients suffering from Dupuytren's contracture.  For decades, the standard treatment has been surgical excision of the cords of abnormal tissue that disfigure the hand.  When he became aware of the developments in injectable collagenase as a surgical alternative, Dr Hentz and his colleagues began to share thoughts with another medical team at The State University of New York's medical school at Stony Brook, Long Island.

Next, Dr. Hentz was asked to participate in two clinical trials of injectable collagenase -the first by BioSpecifics in l999-2000 and more recently by BioSpecific's strategic partner, Auxilium Pharmaceuticals. Presuming FDA approval, Dr Hentz believes both plastic and orthopedic surgeons will embrace its use as an alternative to upper hand and limb surgical procedures.

In commenting on the importance of using Xiaflex on the treatment of Peyronie's disease, Dr. Martin Gelbard of U.C.L.A, a board-certified and renowned urologist, and a physician consultant to BioSpecifics, anticipates that urologists worldwide will embrace the use of the company's pioneering Xiaflex injectable collagenase product in seeking better non surgical clinical outcomes from this painful and embarrassing penis condition.

Since Xiaflex is currently close to commercialization in the U.S., Dr. Selvaraju believes an acquisition offer is likely to arise in the near term. Therefore, investors in BioSpecifics could both share in the upside potential from future applications of Xiaflex as well as business development initiatives by Auxilium,"and may be able to capitalize on a potential acquisition of BioSpecifics by Auxilium that could come at a significant premium-based on previous acquisition transactions in the healthcare space." From the viewpoint of several plastic, orthopedic and urologic surgeons interviewed, Xiaflex has the potential to offer multiple applications, and have as meaningful a place in biotechnology as Allergan's iconic BOTOX now has.
In a world where everyone is looking short term and the long term is lunch, dare we suggest readers look beyond just the near term orphan uses to something much more exciting? What will be the commercial size of the market for Xiaflex treatment of cellulite? No one knows what that might be, assuming all the FDA testing and regulatory hurdles are overcome. But no one in the know doubts it could be a multi-billion dollar market. And if the trend for everyone wanting to be one of the beautiful people and look like a movie star or model continues, early investors in BSTC will be cheering the parade all the way to the bank. -RJF

CONTACT INFORMATION:
BioSpecifics Technologies Corp.
www.biospecifics.com
Contact: Thomas L. Wegman, President & CEO
35 Wilbur St.
Lynbrook, NY 11563
Phone: 516-593-7000
Fax: 516-593-7039
 
We wish you and your loved ones a Happy Thanksgiving. Forget all the upsetting constant bombardment of extreme shifts from good to  bad and back again  daily  news on the mass media. Instead, calmly remember how blessed we all are to be born in a country where we are free. Our forbearers weren't and that is why they fled to our shores. Be grateful for what we have and let us do our share to improve our country so our children and grandchildren will be freer to grow and to become the best persons they can be. 

 
No one knows the future but you do know the past and you can look around you at today.  The global stock market is filled with outstanding long-term   value and who really cares? The few who are not frozen with fear and buy a diversified batch of quality global stocks and mutual funds at bargain prices to hold for the long run should do well. At least such contrarians always have.  With trust in God and in ourselves we will meet all the challenges ahead. Fortune Favors the Brave!  Bob Flaherty

 

GIVE Flaherty Financial News A TRY!: If you have a good company or fund which only needs more exposure to become better known, we know how to make enterprises come alive and to put your activities into perspective using words ordinary investors can understand.  In addition to just doing regular financial reporting, Flaherty Financial News Newsletter  also offers for a properly disclosed fee sponsored distribution over the Internet of ideas we uncover. Also we offer more detailed sponsored company profiles and separately BUY reports in Flaherty Special Situations Newsletter, which can be distributed beyond our core base. We will also carry banner advertisements. For details, please contact our President and Publisher Brian Flaherty at 914-539-0688.  brian@flahertyfinancialnews.com  

Disclaimer and Safe Harbor Statements:  Disclaimer: This Flaherty Financial News  Newsletter contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, and actual circumstances, events or results may differ materially from those projected.  We caution readers not to place undue reliance on any forward-looking statements and to supplement this newsletter with specific company SEC filings and their own research. Please be aware that there is risk in every company stock that you buy. Coverage or other mention of a stock in this newsletter is neither an offer nor solicitation to buy or sell any securities mentioned. We are not investment dealers or investor advisers registered with the SEC or State Security Authorities.  We do not guarantee all the information in this newsletter is correct or will be updated. Remember some errors are inevitable. Reproduction without written permission is forbidden. No individual at Flaherty Financial News Inc. is a shareholder of BioSpecifics  Technologies Corp. profiled in this issue  and our policy forbids editorial from buying or selling a featured stock until this issue is out at least ten business days after its issue date of November 24 , 2009.  BioSpecifics did not pay a fee to Flaherty Financial News Inc. to be selected to be profiled  in this Flaherty Financial News Newsletter  issue or for initial extra Internet distribution. BioSpecifics  may or may not decide to pay for further distribution. BioSpecifics  may or may not buy a PDF of its profile   to make reprints or for website posting for $2,000.  In cases where a report or profile is subsidized, readers should consider such subsidized articles as paid advertorials and understand that sponsored material will not be as objective as non sponsored editorial. As FNN editor I always reserve "Final Copy Responsibility" on what to include and what to leave out of every issue. We have tried to be objective, but may have failed. We are not security analysts or stockbrokers engaged in buying or selling, but financial journalists with all the many failings of that profession. You readers must decide the merits of each company yourself and whether to invest.  -Bob Flaherty, Editor
 
Flaherty Financial News Inc. (FFN) and its newsletters Flaherty Financial News and Flaherty Special Situations are not registered as broker dealers or investment advisers with the U.S. Securities and Exchange Commission or any state securities authority. Our newsletters and their information and content providers make no representations or warranties of any kind in connection with the subject matter, performance or suitability of the information contained in the publications for any purpose and are not liable for the timeliness, accuracy or completeness of the information. The information is provided for general information purposes and is not a substitute for obtaining professional advice from a qualified person or entity familiar with your personal circumstances. Please seek the help and advice of professionals as appropriate regarding the evaluations of any specific security, report, opinion, advice or other content. FFN is not responsible for trades placed by recipients. All opinions expressed, information and date provided are subject to change without notice. FFN, its officers and its employees may have positions in and may from time to time make purchases or sales of the securities discussed or mentioned by FFN. (However, we will avoid front running and the buying or selling of any security about to be discussed until ten business days after our particular report is released to the public.) FFN shall have no liability for any newsletter that is lost, intercepted or not received in a timely manner, or not received at all, for any reason. -RJF