The bear case is gaining strength

• SELL EXFO near $6.90

• SELL JDSU near $16.20

Recently we have become less optimistic about the short term outlook for the US equity markets. The combination of rising energy prices and the collapse of the sub-prime mortgage lenders could continue to pressure consumer spending. Yesterday, Greenspan’s prediction of a recession rattled the markets. Although some market commentators argue that Greenspan has a less than stellar track record of financial predictions, his words still carry weight, and we think Greenspan’s prediction of a rescission is likely to continue weighing on the minds of investors.

Today the bears will be out in full force. Rising tensions in Iran and Afghanistan, a big drop in the Chinese markets, and a sharp decline in durable goods orders will all add fuel to the fire on a market that was already showing signs of weakness.

Although we still think that both JDS Uniphase and Electro Optical Engineering will have strong upcoming quarters, we are taking profits for the time being. We will consider buying back both of these positions if the markets stabilize and the near term outlook for the market improves, but for now we think it is prudent to take some money off the table and decrease our number of open short term positions.

Cash rich small biotechs are starting to get some attention

• BUY OLGC near $1.78, set stop loss at $1.55 (cash per share price)

• BUY INHX near $1.75, set stop loss at $1.50 (30% below cash per share price)

In the last few trading days there has been increased interest in a few beaten down small biotechs. The first of these was Icogen (Nasdaq: ICGN) which rose from $1.80 to $3.00 in just a few trading days last week. There was no new news about Icogen during this time period. Although Icogen insiders did make some substantial purchases in early February, this news was already available before Icogen started its run.

On Friday NeoPharm Inc. (Nasdaq: NEOL) was up almost 30%. Like Icogen, there was no news released about NeoPharm on Friday. Both of these companies are downtrodden biotechs with a high percentage of cash per share and somewhat recent negative clinical trial results.

Before its recent rise, Icogen had a market cap of about $40 million, cash of about $30 million, and $1.5 million in debt. After backing out the cash and debt, Icogen had an enterprise value near $11.5 million. NeoPharm’s enterprise value was even lower before Friday’s run. At Thursday’s close, NeoPharm had a market cap of about $50 and an enterprise value around $5 million.

In August of 2006, Icogen announced that it would discontinue its phase III trial of ICA-17043 for the treatment of sickle cell disease after an independent data monitoring committee performed an interim safety, efficacy, and futility analysis. In December of 2006, NeoPharm announced that its phase III trial of cintredekin besudotox, a proposed treatment for brain tumors, failed to show statistically superior results compared to MGI Pharma’s (Nasdaq: MOGN) Gliadel Wafer.

Both Icogen and NeoPharm dropped about 75% after releasing disappointing phase III trial results. Since then their respective negative phase III announcements, both of these companies had traded relatively flat until the recent moves.

From time to time the market tends to give increased attention to a specific category of stocks. Right now it appears that traders are focusing on long forgotten small biotechs that are cash rich and have low enterprise values. When a company has a low enterprise value and a healthy cash position, any positive news, or even a rumor of positive news, can have a dramatic short term effect on the share price. Additionally, these companies often make attractive takeover candidates because the acquirer can gain access to valuable intellectual property at bargain prices considering the low enterprise values.

At Wall Street Mayhem we believe that the trend of increased attention for small biotechs that have strong cash positions and low enterprise values has a good chance of continuing. Analysts agree that biotech mergers and acquisitions will continue to increase in 2007. Although the M&A activity involving larger biotechs will get the headlines, acquisitions involving small biotechs with low enterprise values could be an enticing way for big pharmaceutical companies to grow their pipelines.

Orthologic (Nasdaq: OLGC) and Inhibitex (Nasdaq: INHX) both have similar investment profiles to those of Icogen and NeoPharm. Orthologic has a market cap of about $73 million, $64 million in cash and no significant long term debt. After backing out the cash, Orthologic has an enterprise value just north of $9 million. Inhibitex has a market cap of about $53 million, cash of about $64 million, and debt of a little less than $4 million. After backing out the cash and debt, Inhibitex has an enterprise value that is negative by about $7 million.

Orthologic recently received some positive news about a subset of patients involved in their Chrysalin phase III trial. Osteopenic women with unstable wrist fractures showed a statistically significant reduction of immobilization time when treated with Chrysalin. Previously, Orthologic had announced that the Phase III trial of Chrysalin in unstable, displaced wrist factures did not demonstrate a statistically significant benefit compared to a placebo. This post hoc analysis of the osteopenic subset of patients could breathe some new life into Chrysalin.

Shares of Inhibitex cratered in April of 2006 when the company announced that the Phase III trial of Veronate failed to meet its primary endpoint. Despite the recent positive news about a license and commercialization agreement with 3M for the development of diagnostic products using Inhibitex’s MSCRAMM protein platform, Inhibitex shares still trade below cash per share levels.

For the short term, Orthologic and Inhibitex are appealing trades. Small, cash rich, biotechs have received increased attention lately without significant news. Orthologic and Inhibitex could be near term beneficiaries to the move in this sector started by Icogen and NeoPharm. Orthologic and Inhibitex have both recently received some positive news, yet Orthologic has a low enterprise value and Inhibitex still has a negative enterprise value.

Although companies like Orthologic and Inhibitex are risky long term investments because they are burning cash and potential drug approvals are still years away, these companies make appealing short term trades due to the stability added by their cash stockpiles and the recent upside moves by similarly situated small biotech companies. From a risk/reward perspective both of these companies look like strong short term trades. The downside is limited by high cash per share levels ($1.55 for Orthologic and $2.13 for Inhibitex), yet upside potential could be high considering the strong moves of Icogen and NeoPharm.

Full disclosure: Wall Street Mayhem is long OLGC and INHX.

Update on Biomira Inc. (Nasdaq: BIOM)

• SELL BIOM near $1.21

This morning Biomira announced that the first patient has been enrolled in a global Phase III clinical trial assessing the efficacy and safety of Stimuvax for treatment of non-small cell lung cancer. The trial is being conducted by Merck KGaA and its US affiliate EMD Pharmaceuticals. This event entitles Biomira to receive a milestone payment from Merck, but the amount of the milestone is not being disclosed at this time.

This is the event we were looking for and although this event did not have a large effect on the share price, we sold our shares this morning. Stimuvax looks like a promising drug and we will consider buying Biomira shares again in the future, but for now we don’t see any short term catalysts for Biomira so we will watch from the sidelines. The next important event for Biomira will be either a new SEC filing or the next quarterly earnings announcement. One of these events will give investors the chance to find out the amount of the milestone payment by examining Biomira’s financial statements. This milestone payment amount is important because it could also shed some light on the royalty payment percentages Biomira would receive if Stimuvax is approved.

Update on Hurco Companies, Inc. (Nasdaq: HURC)

• Increase price target to $80

Last week Hurco reported strong results for the first quarter of 2007. Revenue came in at $46.9 million, a 46% increase from the first quarter of 2006. Net income totaled $5.4 million, up 78% from the $3 million profit in the year ago period. Gross margin increased to 37% compared to 34% in the year ago period.

Historically Hurco’s first quarter has been seasonally weak and often the first quarter results have come in below those of the previous fourth quarter results. Not so this time as first quarter revenue increased about 9% compared to the fourth quarter of 2006 and profits were about 15% higher than in the fourth quarter.

Hurco cited “a significant improvement in demand” as the primary reason for the revenue and profit increases. They went on to say that European demand was especially strong, but unit orders in North America and Asia declined. However, the company stated that unit orders in Asia declined “due to when the orders were placed”. Although we do not expect a big improvement in North American demand, this comment about Asian demand implies that some orders may have been delayed until the second quarter.

As mentioned in our previous Hurco article, after completing the Ningbo facility expansion, Hurco plans to “build machines that are specifically designed for the complexities of the Chinese market”. Therefore, we believe that demand and unit orders should increase in Chinese markets relatively soon.

In addition to expected growth in Chinese markets, Hurco is now expecting growth in India as well. CEO Michael Doar recently stated, “I am also pleased with the positive response to our participation in the Indian Machine Tool Exhibition 2007 held in Bangalore, India. Our focus on making machine tools that are powerful, yet easy to use is a natural fit for the Indian market. The integrated control and software on the Hurco machine tools that simplifies programming and machining processes is especially appealing to shop owners in India who face high employee turnover and an unskilled to semi-skilled labor force.”

The combination of machines that are specifically tailored for Chinese markets and the new focus on Indian markets should drive significant Asian growth at Hurco. We view the CEOs latest comments about the Indian market as further validation of our Asian growth expectations.

Currently only one analyst actively covers Hurco. Due to the recent growth and the prospects for additional growth in Asian markets, we believe that additional analysts will start coverage on Hurco soon. Even after the recent rise in share price, Hurco’s current P/E stands at about 18 and a conservative forward P/E (without factoring in much Asian growth) is about 12. These are very reasonable ratios for a company with a proven track record and excellent growth prospects.

Although we typically do not put much credence in analyst ratings, academic research has shown that the impact of analyst initiation is greater than the impact of a recommendation by an analyst who already covers the stock. Initiation of coverage increases liquidity and creates higher levels of investor interest in the stock. Hurco is perfectly positioned to take advantage of an expected increase in analyst coverage.

Despite the 43% increase Hurco shares have experienced since our initial buy recommendation, Hurco’s valuation is still relatively low considering the growth prospects at Hurco. Therefore, we have raised our target price on Hurco from $50 to $80 and Hurco remains a core position in our long term portfolio.

Full disclosure: Wall Street Mayhem is long Hurco

Back to the future with the iRobot Corporation (Nasdaq: IRBT)

It is 2007, a full seven years into the new millennium, yet robots are still largely restricted to the pages of science fiction novels. What happened to the utopian dream of the 1950s era futurists? Why don’t we all have robot butlers, flying cars, and vacation homes on the moon? Unfortunately, there are still significant technological and economic barriers which are keeping the fiction in these science fiction predictions. The iRobot Corporation hopes to change these realities by bringing robots into our homes and onto distant battlefields.

iRobot was founded in 1990 by roboticists from MIT. The founders of iRobot have impressive credentials as CEO Colin Angle designed the behavior-controled rovers for NASA’s 1997 Mars exploration, and co-founder Dr. Rodney Brooks is the director of the MIT Computer Science and Artificial Intelligence Lab. The company’s goal is too create robots that can perform dull, dirty, and dangerous duties in a safe and efficient manner.

The robots iRobot creates are powered by iRobot’s proprietary AWARE Robot Intelligence System. This system allows the robots to navigate through complex situations. The AWARE system allows iRobot Roomba and Scooba robots to maneuver around household furniture and it allows the iRobot PackBot Tactical Mobile Robot to search abandoned buildings and help find and dispose of explosive devices.

The iRobot product line consists of the Roomba vacuum, the Dirt Dog vacuum, the Scooba moping robot, and various configurations of the government and industrial PackBot robot.

In the home robots division, the Roomba has sold over two million units since its 2002 introduction. Although these sales represent a market penetration of under 2%, Roomba owners have largely been satisfied and reviews of the Roomba are usually highly positive. Although Roomba is designed to work on all varieties of household floors, some reviews show better results on hard floors than on carpet.

Scooba was introduced in May of 2005 and despite some problems with the original batteries, consumers were largely happy with the performance of Scooba. Although Scooba may require more than one use for overly dirty floors, it works well if used regularly on moderately dirty floors. Although iRobot claims that Scooba works on sealed hardwood floors, the solution for the Scooba is co-branded by Clorox. Since Clorox is better known for more harsh cleaning solutions that would damage hardwood floors, Scooba is a tough sell for hardwood floor owners. Scooba’s original price was high and initial sales disappointed. However, Scooba’s price was reduced and iRobot is still positive about the potential growth of the Scooba line.

Rounding out the home robots division is the iRobot dirt dog introduced in September of 2006. This is a puzzling addition to the iRobot lineup as it is basically just a Roomba painted yellow. The Dirt Dog is marketed as a “workshop” robot and iRobot claims that the Dirt Dog uses a more powerful brush designed to pick up small nuts, bolts, and other shop floor debris. Even if the Dirt Dog does have a more powerful brush than Roomba, why does the Dirt Dog cost less? We think the Dirt Dog has limited consumer appeal and it presumably has lower margins than Roomba.

In the Government and Industrial division iRobot products include the PackBot Scout, the PackBot Explorer, and the PackBot EOD. iRobot has sold over 800 of these robots and they recently received an additionally US military contract valued at $16 million. Growth of PackBot sales has been strong and the company exceeded 2006 expectations for PackBot revenue. PackBot’s have been credited with saving lives in Iraq and the company claims that military personnel have been very satisfied by the PackBot performance and ease of use. iRobot has many research and development projects underway to expand its portfolio of government and industrial robots.

iRobot has a market cap of about $375 million, a P/E of about 110, about $70 million in cash and no significant long term debt. Although the P/E is high, the market cap is reasonable for a company with significant growth prospects and a valuable portfolio of intellectual property.

iRobot recently reported disappointing fourth quarter results. Revenue and profits were slightly lower than analyst expectations as the company swung to a quarterly net loss of $1.8 million. Guidance was also somewhat disappointing as the company said they expected 2007 income to be in the range of $2-$4 million. The stock responded accordingly closing Friday at $15.90 down nearly 20% from its pre-earnings price.

On the positive side, iRobot did report a small incremental increase in margins and they reported strong results for the Government and Military division. They also forecast strong growth for the second half of 2007. This growth will be driven by a new product introduction, but iRobot declined to supply any details about the new product. If this new product is in the same category as the last “new” product the Dirt Dog, iRobot will be in trouble. In other words, if this summer iRobot comes out with a new product called the Dirt Cat which is really just a Roomba painted orange, investors should run of for the hills. However, Wall Street Mayhem expects this summer’s new product to be a legitimate new product. Previously management has hinted at the possibility of a clothes folding robot, a bathroom cleaning robot that could clean toilets and walls (hopefully not at the same time), and various industrial robots including a MicroRig designed to carry payloads into oil wells.

Since its IPO in late 2005, investors in iRobot have been consistently disappointed. Investors that were willing to pay high multiples for shares of iRobot have been expecting stronger growth than iRobot has produced. As a result, iRobot’s market cap has been cut in half since its IPO.

Insider selling has continued to pressure iRobot since the lock up period expired in May of 2006. To make matters worse, iRobot management seems genuinely confused about why the insider selling has caused disgruntled shareholders. The simple concept of supply and demand appears to be too much for these MIT roboticists to understand. Despite the negative publicity, when asked about insider selling in an article in TheStreet.com, CEO Colin Angle recently stated, “We will look at how the program has been perceived and how we can tweak it. But diversification is something that we are committed to.” In many contexts commitment to diversification is a good thing, this is not one of those contexts. iRobot could have said, “we are committed to creating additional downward pressure on our share price” and the take away message for shareholders would have been the same. In order to stop creating additional downside pressure for iRobot shares, insider selling does not need to be “tweaked”, it needs to be eliminated. To be fair it is not at all unusual for a newly public company to see considerable insider selling. However, without significant concurrent positive catalysts, it is obvious that this selling contributes to lower share prices.

iRobot has yet to prove that it can turn its robotics expertise into a company that consistently makes money. However, robotics is clearly a large growth industry and iRobot is a leader in this industry. iRobot’s products are useful and the company has millions of satisfied customers. The PackBot has experienced impressive growth and it is credited with saving lives in Iraq. Margins are improving at iRobot and market penetration is still low despite high levels of customer satisfaction.

For now, iRobot is still on the watch list at Wall Street Mayhem. Valuation for iRobot is now reasonable and the company has the potential for strong growth, but we are waiting to see reduced insider selling and the introduction of at least one innovative and useful new product. Right now we don’t see a significant near term catalyst for iRobot, but if one presents itself we will be buyers of iRobot.

Full disclosure: Wall Street Mayhem has no position in IRBT

Update on Microvision Inc. (Nasdaq: MVIS)

Microvision had a nice little move at the open this morning.  We sold our position in Microvision at $3.47. The event we were looking for has passed so there is no reason to continue holding the stock.

Although this trade had a much more modest return than our previous Inside Wall Street related pick Access Pharmaceuticals, 3% is a good return considering the limited risk due to the short holding period.

If you missed this trade, sign up for email alerts so you can get the Wall Street Mayhem trade recommendations as soon as possible.

Update on Nexen Inc. (NYSE: NXY)

The Nexen calls (NXYBL.X) were exercised at $60. We were hoping that Nexen would close on Friday just under $60 so that we could keep the stock and sell the March calls which were trading at an ROI of about 5% before Friday’s late move. As expected we lost 2.6% on the Nexen shares, but after factoring in the 5.1% profit made by selling the calls, the total trade still netted 2.5%. Not bad for a 16 day holding period.

Will Microvision Inc. (Nasdaq: MVIS) experience the Business Week Effect?

• BUY MVIS near $3.34

• SELL MVIS at or near the open on Tuesday (market closed Monday)

Microvision is a small company involved in the development of light scanning technologies for high-resolution displays and imaging systems. The company provides its partners with integrated photonic modules that are used as the display and imaging engine for a variety of products.

Microvision has a market cap of about $132 million, $14 million in cash, and about $5 million in debt. The company has had flat revenues and has lost about $30 million a year for the last three years.

This week’s Inside Wall Street column in Business Week has a positive article about Microvision. The article focuses on Microvision’s prototype cell phone projector that was unveiled at the Consumer Electronics Show in Las Vegas last month. The article mentions that Microvision is in talks with major cell phone manufacturers about potential partnerships for this product.

Recently, some of the small companies that have been featured in Business Week’s Inside Wall Street column have received significant positive moves as a result of these articles. Access Pharmaceuticals was a big beneficiary of the Inside Wall Street column as it soared over 200% after being mentioned in Inside Wall Street.

Previous Wall Street Mayhem trades based on the Business Week effect have performed well including Thermage, American Oil & Gas, and Shanda.

This “Business Week effect” does not necessarily last long, but it has recently proved to give certain small cap stocks a consistent boost at the start of Monday’s trading. Although the Business Week articles are available on-line on Thursday evening, we believe that the effect a Business Week Inside Wall Street article can have on a stock is often more pronounced on Monday, after the print version of Business Week has been circulated. Certain stocks with small floats and low average trading volumes tend to have a strong open on Monday after readers see the articles in Inside Wall Street over the weekend. We believe that Microvision is one of these stocks and that Microvision will open higher on Tuesday (the market is closed on Monday).

We are not expecting a huge move out of Microvision at the open on Tuesday as Microvision’s average trading volume is higher than most of the companies that have really moved based on the Inside Wall Street articles. However, the underlying technology profiled in the Microvision article is enticing and should lead to increased investor attention on Tuesday morning.

We do not have any idea if Microvision’s cell phone projection display technology is viable and can be turned into a money making commercial application. However, the correlation between these Business Week articles and the underlying stock movement on Monday has been clear lately and we think Microvision will continue this trend.

Full disclosure: Wall Street Mayhem is long MVIS and plans on selling MVIS on Tuesday.

JDS Uniphase (Nasdaq: JDSU) should benefit from increased demand for optical capacity products

• BUY JDSU near $15.80

• SELL JDSU at $20, set stop loss at $14.50

JDS Uniphase returned to profitability last quarter largely due to rapid growth of its test and measurement equipment division. The stock is down about 11% since it reported earnings due to guidance that was slightly below what the street was expecting.

JDS Uniphase has a market cap of about $3.35 billion, cash of about $1.2 billion, and debt of about $900 million. Although the company does not have a trailing P/E, based on current analyst estimates the forward P/E is about 25.

Two days ago Credit Suisse raised its rating on Ciena from “neutral” to “outperform”. This morning Citigroup raised its rating on Ciena from a “hold” to a “buy”. Ciena shares have responded this morning and are up 4%. However, in the same research note Citigroup goes on to say that JDSU is still their top pick for optical capacity exposure. Citigroup raised Ciena’s rating because they believe orders for optical capacity products are strong and Ciena derives 75% of their revenue from these products.

JDS Uniphase is up a little over 1% today, but it is lagging the gain by Ciena as it has for the last few weeks. Over the long term there is a high correlation between the stocks of Ciena and JDS Uniphase largely because both companies are driven by the underlying demand for optical communication equipment. Recently these stocks have diverged, with Ciena outperforming JDS Uniphase by about 30% in the last three months. We believe that the long term correlation between these two stocks will hold. Although JDS Uniphase took longer to return to profitability than was expected by most analysts, they are still benefiting from the same underlying demand trends that are buoying Ciena.

Although Wall Street Mayhem still thinks optical test and measurement equipment pure play Electro Optical Engineering is the best way to benefit from increasing demand for optical capacity related equipment, JDSU looks attractive at these levels as well. Demand for JDS Uniphase’s products should continue to grow and the company has returned to profitability after a seven year hiatus.

The increased demand for JDSU’s products is being driven by competition between cable and traditional telcos to provide all inclusive packages including phone, television, and internet as well as increased bandwidth usage due to the popularity of high bandwidth internet video applications such as You Tube. These underlying trends are showing no signs of slowing down and companies like Electro Optical Engineering and JDS Uniphase are well positioned to benefit from these trends.

Although JDS Uniphase has made mistakes and has lost some market share since its dominance during the dotcom boom, the return to profitability and the current demand trends make JDS Uniphase a buy at these prices.

Full disclosure: Wall Street Mayhem is long JDSU

Novadel Pharma Inc. (AMEX: NVD) could be poised for rapid growth

• BUY NVD near $1.70

• SELL NVD at $3 or in early April, set stop loss at $1.40

Novadel is a pharmaceutical company that develops oral spray formulations for a broad range of marketed therapeutics. The company’s oral spray technology enables rapid drug absorption into the bloodstream.

Novadel has a market cap of about $75 million, about $22 million in cash ($14 million was recently received through a private equity offering) and about 250K in debt.

In November of 2006, Novadel announced that they had received marketing approval from the FDA for Nitromist. Nitromist is an oral spray that is used to treat attacks of angina pectoris due to coronary artery disease. This was Novadel’s first product approval utilizing the company’s proprietary oral spray technology.

Novadel gained approval for Nitromist using the 505(b)(2) regulatory pathway. The 505(b)(2) route allows companies to obtain FDA approval for new drug applications by relying, in part, on the FDA’s findings for previously approved drugs. This is significant because this approval has paved the way for Novadel to gain accelerated approval under 505(b)(2) for the five other drugs in their pipeline. All of these drugs also use Novadel’s oral spray technology to increase the speed of absorption by allowing the drug quicker access to the bloodstream. Since all of the Novadel pipeline drugs are reformulated versions of approved drugs, they should all qualify for the 505(b)(2) approval pathway. Novadel could be considered a generics company, but through the use of their oral spay technology, they are trying to create value added advantages which will help separate Novadel from most other generic drug companies.

Zensana is Novadel’s formulation of ondansetron, the most widely prescribed anti-emetic (anti-nausea) compound used following chemotherapy. Novadel hopes that Zensana will be a faster acting and more convenient alternative to the tablet, intravenous, and suppository forms of the drug Zofran. After chemotherapy many patients have difficulty swallowing which could make Zensana’s oral spray delivery a welcome alternative for many cancer patients.

Novadel partnered with Hana Biosciences for the Zensana clinical trials. Under the terms of the agreement, Hana has the exclusive rights to market, sell, and distribute Zensana in the US and Canada. Novadel will receive a milestone payment from Hana upon approval of Zensana and royalty payments on sales of Zensana.

If approved, and doctors and patients perceive a benefit to using Zensana instead of Zofran (the advantage seems large when comparing Zensana to a suppository), the market for Zensana could be large considering that Zofran had sales of about $1.5 billion in 2005. Hana Biosciences and Novadel submitted a new drug application (NDA) to the FDA in August of 2006. The response from the FDA is expected by April 30^th of 2007.

Although Hana may stand to make more money than Novadel on Zensana sales, Novadel will receive a relatively high royalty rate from Hana. Novadel will receive royalties on a sliding scale that starts at 25%, declines to 15%, then returns to 25% with an annual reset. Additionally, the approval of Zensana would further validate Novadel’s oral spray technology and increase the approval chances for the rest of the Novadel pipeline.

The Novadel pipeline includes Zolpidem, an oral spray version of Ambien, and Sumatriptan, an oral spray version of Imutrex. These drugs both had positive data from pilot pharmacokinetic studies in 2006. Zolpidem and Sumatriptan should both enter pivotal trials in 2007. Zolpidem will compete with Ambien in the sleep aid market and Sumatriptan will compete with Imutrex as a treatment for migraine headaches. Both Ambien and Imutrex had sales of over $1 billion in 2006.

Only two analysts currently follow Novadel and they are both from small research firms, but they both have buy ratings and price targets between $4 to $5 for Novadel. One of these analysts is estimating that Novadel will earn $.05 a share on revenue of $7.8 for the quarter ending in April of 2007. This analyst also expects revenue to jump to $40.83 million for fiscal year 2008.

Although the promising pipeline, the Nitromist approval, the recent NDA of Zensana, and the expected jump in revenues all make Novadel a promising investment, the recent insider buying is what really makes Wall Street Mayhem excited about Novadel’s prospects. This insider buying has been substantial and consistent over the last two years. Insiders and 10% owners have made net purchases of $2.78 million in Novadel stock in the last year. Although insider buying does not always indicate a future rise in the value of a stock, it at least shows that management has confidence if the future prospects of the company. Additionally, substantial insider buying is relatively rare for small developmental stage biotech companies.

On February 13^th at 10:30 A.M. ET, Dr. Jan Egberts, the CEO of Novadel, is scheduled to provide a corporate update the Bio CEO & Investor Conference in New York City. Considering the potential of the Novadel pipeline, the relatively small market cap, and the recent approval of Nitromist, Novadel could receive increased investor interest due to this presentation.

Novadel is a high risk investment, but from a risk/reward perspective, Novadel looks like a good trade at this point in time. Due to the FDA approval of Nitromist, Novadel is less risky than most small biotechs because they already have an approved drug and the oral spray technology that is the basis for the rest of their pipeline has been proven to be effective in at least one application. Although Novadel may be more risky than the Wall Street Mayhem biotech pick Anika Therapeutics because Novadel in not yet profitable, Novadel already has an approved product and a clear path to profitability. In our opinion this makes Novadel much less risky than most small biotech companies.

Wall Street Mayhem expects Novadel to start receiving investor interest in the next few months as Nitromist sales start to ramp up and the FDA decision on Zensana gets closer. Although Zensana is less risky than most NDA’s due to the primary endpoints of bioequivalency and safety instead of the efficacy endpoints required for non 505(b)(2) drugs, we still plan on exiting this trade before the April 30^th FDA decision deadline for Zensana.

Full disclosure: Wall Street Mayhem is long NVD