A
BALDYLOCKS ECONOMY
The Well-Timed Strategy for Week Ending March 2
by Peter Navarro, Ph.D.
with Andrew Vaino
February 25, 2007
The
Market Edge Market Summary
http://www.marketedge.com/
A hotter than expected CPI report coupled
with a push in oil prices above $61 a barrel dampened enthusiasm for
stocks last week as several of the major averages posted losses for the
week. The DJIA, which set a record high (DJIA � 12786.64) on Tuesday
traded lower for the next three days to end the week in the red. For the
period, the DJIA lost 120 points (-0.94%) closing at 12647. The
NASDAQ bucked the trend as it managed to rally to a six year high on
Thursday sparked by favorable comments coming from the semiconductor
group. For the period the NASDAQ gained 18 points (+0.75%) and closed at
2515. Year-to-date, the Dow is up 1.5% while
the NASDAQ has gained 4.1%.
Navarro's Big Economic Picture
The BaldyLocks Economy
When Anna and Britney and the Oscars dominate the news cycle, you know we are in a dead zone. Will Goldilocks shave her head and your portfolio? Stay tuned for the Ides of March.
This Week's Market Movers
The economic reports come fast and furious at the end of the week (auto sales, personal income, construction spending, ISM) but none stands out as a likely big market mover. If I had to pick, I�d worry about a downside surprise from the ISM. Meanwhile, existing home sales on Tuesday and new home sales on Wednesday will take the pulse of a sector looking for a bottom. Risk is likewise to the downside here.
The International Scene - Technical Take
Improving ETFs include Europe and Emerging Markets. Deteriorating EFTs include Germany, China 25 (no change in range but continued deterioration), and India (which is rated a short sell). Gold getting a continued lift from inflation fears. Nonetheless, the planet remains bullish�
| Country or Region | ETF | This Week | Last Week | Two Weeks Ago |
| U.S. | SPY | Long, -1 | Long, -1 | Long, -2 |
| U.S. | QQQQ | Avoid | Avoid | |
| Europe | EZU | Long, 0 | Long, -1 | Long, -2 |
| Europe S&P Eur 350 | IEV | Long, 0 | Long, 0 | Long, -2 |
| - Germany | EWG | Long, 0 | Long, 0 | Long, -1 |
| Emerging Markets* | EEM | Long, 0 | Long, -1 | Long, -2 |
| Asia 50 ADR | ADRA | Long, -1 | Long, -1 | Long, -1 |
| - China 25 | FXI | Long, -2 | Long, -2 | Long, -2 |
| - Japan | EWJ | Long, 0 | Long, 0 | Long, 0 |
| - Australia | EWA | Long, 0 | Long, 0 | Neutral from Long, -2 |
| - Korea | EWY | Long, 0 | Long, 0 | Avoid, 1 |
| Latin America | ILF | Long, 0 | Long, 0 | Long, 0 |
| - Brazil | EWZ | Long, 0 | Long, 0 | Long, -0 |
| - Mexico | EWW | Long, 0 | Long, 0 | Long, -1 |
| India | IFN | Avoid | Avoid | -- |
| Gold | GLD | Long, 0 | Long, 0 | Neutral from Long, -1 |
*Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.
Vaino's Biotech
Corner
Getting a Charge
Out of Inovio
Inovio Biomedical (INO) is a small San Diego company seeking to improve chemotherapy in a shocking way. The chemical basis for Inovio is electroporation. In essence electroporation provides an electric pulse that disturbs the cell membrane, basically creating openings, through which a drug that would not otherwise be able to diffuse through is able to get inside the cell.
Inovio calls their treatment SECTA, short for Selective ElectroChemical Tumor Ablation. The idea has been best demonstrated using the chemotherapeutic bleomycin. Application of the electrical charge directly to the tumor�the technique is particularly amenable to skin cancers�greatly enhances the amount of bleomycin taken into the tumor, providing greater efficacy. This has the added advantage of reducing side-effects of the drug on healthy tissue.
The results of Phase 2 studies on head and neck cancer are impressive. Comparing efficacy of bleomycin along with bleomycin and electroporation, the number of complete and partial responses was signficant. To be clear, the number of subjects in these Phase 2 studies was small (total of 54 patients in 3 studies) and in only one of the three studies (of 25 patients) was control data with only bleomycin presented. According to the National Cancer Institute, annual treatment costs for head and neck cancer in the US is $3.2B. Inovio is currently pursuing two Phase 3 studies on head and neck cancer that are expected to be complete (according to the FDA) by August 2009 and November 2009, respectively.
Inovio (then Genetronic) published in 2005 results of a small (19 patient) clinical trial, in the journal Melanoma Research, in which the combination of electroporation with bleomycin was found to be beneficial in treating skin cancer. Pre-marketing approval for the treatment of skin cancer is being pursued in Europe. Though the thinning ozone hasn�t lately been receiving the same press as greenhouse gases, it remains a concern. According to a study published in 2005 in the British Journal of Dermatology, researchers expect the incidence of skin cancer even in The Netherlands�hardly a tropical paradise�to increase dramatically over the next decade. Inovio is also enrolling patients in a Phase 1/2 clinical study to treat breast cancer.
Inovio is using their technology to delivery DNA vaccines. Through Swedish partner Tripep they expect to begin a Phase 1 study on delivery of a DNA vaccine to treat hepatitis C early in 2007. They have also licensed this technology for DNA vaccine delivery to Wyeth Pharmaceuticals (WYE), and have licensing agreements with Merck (MRK) and Vical (VICL).
So, I really like the science behind this company, and they are pursuing good sized markets. I think the clinical results in oncology are encouraging, and the DNA vaccine delivery is an added bonus. The company�s financial situation isn�t too bad. Their most recent SEC filing (Q3 2006) had them with $6.3M net current assets and a burn rate averaging $3M per quarter. Since filing they completed a $15.25M round of financing, received $1.1M from the Department of Defense, and $4.5M from Wyeth. A more complete picture will be available when they file their 2006 10-K in a couple of weeks, but they are not in current danger of running out of money.
To be clear, this is a highly illiquid stock: market cap is barely over $100M and average (3 month) volume is 96K, so volatility is to be expected. My take is this is a good speculative stock. With big pharmaceutical companies on the hunt for biotechs, to me this seems a possible acquisition. Recall that back in October Pfizer purchased PowderMed, a private UK company that had developed a way to deliver DNA by precipitating it onto gold particles, for an undisclosed sum.
Biotech Corner Portfolio Update
No big changes. Novadel down a bit but, as mentioned in Blog on Wednesday, I�m not concerned. ELN off a bit from last week but am still confident Tysabri sales will exceed expectations and upcoming Alzheimer�s treatment will pay off. Conjuchem (CJBFF.PK) behaving nicely, as is last week�s stock Biosante (BPA). Not expecting anything interesting from HEPH puts until their fifth �tentative date� for a Project Bioshield procurement on March 7th. Positions have been updated on Biotech Corner page. Current holdings are up on average 43%.
© 2007 Peter Navarro & Andrew Vaino
Andrew Vaino is a Ph.D. chemist who spent two years at The Scripps Research Institute in La Jolla, CA, working in the laboratories of Nobel-Laureate Barry Sharpless and Kim Janda. He currently teaches at The University of Maine, where his research group is focused on exploring the interface between enzymology, organic chemistry, and nanotechnology.
“Any trader or investor who ignores the power of macroeconomics over the world’s financial markets will, sooner or later, lose more than they should and if they are trading on margin, perhaps more than they have.”-- If It’s Raining in Brazil, Buy Starbucks
Peter Navarro is a business professor at the University of California and the author of the best-selling investment book If It's Raining in Brazil, Buy Starbucks and The Well-Timed Strategy. His latest book is The Coming China Wars: Where They Will Be Fought, How They Can Be Won.
Contact Information
Peter Navarro Irvine, California USA | Email | Website | Editorial Archive
