Small Cap Network Blog

Though not necessarily our usual ’small cap’ fare, we still think we have to point out something most of the market seems to be missing….a mini-bull market may be starting - or perhaps we should say restarting - in the biotech arena.

The AMEX Biotech Index (BTK) is up 9.5% from lows hit in early March, which easily tops the S&P 500’s 4.5% gain during the same period. On a six-month basis, biotech’s 9.5% rally tops the SPX’s 6.4% gain. Over the last two years, the biotech index is up by 52.9%, versus the S&P 500’s 22.6% run.

The point is, we see a distinct advantage in biotech stocks right now….an advantage we don’t think is likely to go away anytime soon.

So what’s the deal? Is it cyclical? Well, yes and no. It’s cyclical in the sense that biotech can come and go over time, but biotech rarely moves in tandem with the market’s overall bull/bear cycles. However, knowing biotech how we know biotech, it is indeed cyclical….just on a different schedule than almost all other stocks. From that perspective, it looks like a secular bull market for biotech.

In any case, the chart explains why now may be a great time to start looking at this hot spot.

You don’t have to look at this image too long to figure out the bigger trend is to the upside. If you want a piece of the action, we’d say all you really need to do is look for a dip to buy on. Though the index is up well off recent lows, on a macro level, we’re still on the low end of a bullish trading zone….one that’s guiding the index upward.

The reason we’re excited is, once these rallies get started, they’re capable of moving the index 20% to 30% higher, or more.

And for what it’s worth, we don’t think you have to look past our website for a couple of names we feel are worth considering. CEL-SCI (AMEX: CVM) is starting to show us more upside than downside, while BioCurex (OTCBB: BOCX) is looking attractively-priced as well.

And by the way, our track record with biotech picks is pretty darn solid. Aside from making some big gains a few different times with BOCX and CVM, Novelos Therapeutics (OTCBB: NVLT) - which we featured early last year - is up by 50% over the last six months, and seems poised to stay on that roll.

While NVLS may be history, we feel CEL-SCI and BioCurex have the exact same kind of potential, and you may not necessarily have to wait all that long to tap into it. Of course, as always, we think the best time to claim your stake is when nobody else is even thinking about a stock…..kind of like now. In both cases, the companies have demonstrated a legitimate and viable idea in the war on cancer. 

Although we have to continually clean out older stock ideas to make room for new ones, for the ones we found compelling, we may still follow the story - and the chart. Over the last few days, we’ve seen not one, but two of our 2006 trading ideas really come to life. Hopefully you stuck with them, even if we couldn’t.

First up, Novelos Therapeutics (OTCBB: NVLT). After a year-long downtrend, the volatility that was stirred up in Q4 of last year was enough to at least break the stock out of the rut. Since then - and for the first time in more than a year - we’ve started to see the stock make higher highs and higher lows. Still volatile? You bet….maybe even more so. But, it’s an impressive recovery all the same….made even more impressive by the fact that it wasn’t news driven. There was a bullish opinion issued by a reputable research firm around the time of the upside reversal, although we doubt that was the key reason. In any case, the chart’s looking a lot better.

Specifically, shares are back above the 200 day moving average line, for the first time since late 2005. We think that’s a pretty straight-forward indication that the momentum has shifted for the better. From here, I’d say don’t expect any less volatility. It’s possible a support line (dashed) has been established in the short run. That may be a better entry spot - if it dips - for anybody still interested in the opportunity. 

The other blast from the past is Execute Sports (OTCBB: EXCS), We blogged a couple of the recent news items, but we think it’s well worth being a little more explicit….it looks to us like the stock may finally be coming to life. Shares made a huge upside breakout a few days ago, and have followed through reasonably well. Apparently sales are just sky-rocketing.

You might recall we were big fans of the company and the success they were creating, but being as small as they were ($2 million in annual sales), the idea never seemed to get traction within the investment community. Looks like that changed in the last couple of weeks….somebody’s obviously buying the stock now. We think it may be worth a look if you have a little speculative itch you need scratched.

Although news can always drive charts in the short run, truthfully, we’d rather see a stock make moves without needing news - good or bad - to get going. Why does it matter? The news-based volatility is short-lived, only lasting as long as the news echoes (which isn’t very long). Stock trends set in motion relatively slowly, by the market’s natural and nominal pressure, tend to have some longevity.

With that in mind, and in the absence of any news behind the movement, we think shares of CEL-SCI Corp. (AMEX: CVM) and Novelos Therapeutics (OTCBB: NVLT) may be worth a closer look. Both have the appearance of the early stages of a rally.

CEL-SCI has been tough to own since April. After hitting a high of $1.78 on April 4th, it’s been nothing but downhill since. But, just over the last three days (including today, October 5th), we’re seeing a slightly different complexion. For the first time in months, CEL-SCI shares are above the 50 day line for a reason other than some explosive, border-line psychotic, move. Being undervalued, and seeing them just quietly work their way back above the 50 day line, has the qualities of the early stages of a nice upward move. From here, resistance at 68 cents is kicking in. If CVM can break that barrier, the upside path will be much easier to follow.

Novelos shares pretty much look the same, at least in terms of what’s different now. The 50 day moving average for NVLT had actually been a resistance line until September 25th, when a big rally pushed shares well past the intermediate-term moving average. The next day, buyers were deservedly tentative, as the stock opened even higher, then sank a little throughout the day. There has been no comfort since then, as shares have been unable to get past the high of 96 cents reached on September 26th. If anything, it looked like NVLT was going to roll over and sink under the 50 day line again. That is, until today. Shares are up nicely, with outstanding volume behind the rally. So for the time being, it seems like the bulls are going to hold their ground. A break past resistance at 96 cents, though, would make it much easier for NVLT to break loose to the upside.

Don’t forget, SmallCap Digest offers free stock ideas and market commentary through our e-newsletter. Be sure to sign up today using the link in the top left corner…and don’t forget to respond to the confirmation e-mail.

Congratulations are in order for Novelos Therapeutics (OTCBB: NVLT); the company just enrolled its first test patient in its U.S. NOV-205 trial. Novelos’ NOV-205 compound is a promising drug designed to fight hepatitis-C. It showed efficacy against hepatitis-B and C cases in Russian trials, and now the company will seek to confirm its effectiveness as they enter Phase 1b testing in the United States.

If the story seems ‘familiar, but not really’, we’re not surprised…most of the recent Novelos chatter has actually been about NOV-002, which is their company’s lung cancer treatment currently in Phase 3 testing. We haven’t heard much about the hepatitis treatment in the shadow of NOV-002, since the lung cancer treatment is much closer to being brought to the market.

As participants in the global community, we’re excited to see progress being made in the fight against lung cancer as well as hepatitis. Chronic hepatitis-C is estimated to affect 170 million people on a global basis, with 4 million new infections each year. So, the need is clear, and we applaud the work.

That said, being investors, we also see Novelos’ opportunity. We already know the cancer market is roughly worth $10 billion to $20 billion a year, with some estimates being even higher. But, we weren’t aware the hepatitis market is expected to be about $3 billion this year. That’s a big piece of pie, but the mind-boggling part is how fast it’s growing…by 2010, it’s projected to be more than an $8 billion opportunity worldwide.

Of course, the other side of the coin is ‘does it work?’ Although it’s only in Phase 1b testing in the U.S., in other geopolitical regions so far, the results have been good.

In the Russian trials, based on clinical studies in hepatitis-B and C patients, NOV-205 greatly reduced or eliminated hepatitis viral levels 30 days after treatment. It also significantly improved serum biochemical markers of liver damage. This is actually a huge advance when given the specifics of the situation. See, the biggest portion of chronic hepatitis-C (genotype 1) patients don’t respond well, or permanently, to current methods of treatments. Essentially, if they are ‘non-responders’, which half of them are, there is no viable treatment. However, with NOV-205, new alternatives are in the development pipeline.

Our take on Novelos stock? You’ve got to like a company that has more than one way to win (like a lung cancer treatment and a hepatitis treatment). And, you’ve got to like a company that has new stuff to roll out over the next few years (NOV-002 is currently in phase 3, while NOV-205 is on Phase 1). So, sure, NVLT has a lot of potential. We have no doubt things will remain volatile - and perhaps even frustrating at times - for shareholders. Meaningful test results for Phase 1b aren’t expected until early 2007. However, investors should also keep the bigger opportunity in mind, which could take years to fully materialize.

In the meantime, it sure looks like NVLT shares are itching to come up and off those recent new lows. The stock is significantly above the 50 day moving average line for the first time since December. And, clearly something has changed for the better as of Monday, at least to someone big enough to push the shares from 72 cents to 86 cents. That brief flash of bullish may also be an institutional tip-off. We shall see. 

Novelos Therapeutics (OTCBB: NVLT) just announced their receipt of a notice of allowance from the U.S. Patent & Trademark Office regarding the composition and method of use of NOV-002…the company’s primary cancer treatment. Or, to say it in plain English, Novelos’ application to patent a slight improvement of (or use for) NOV-002 has been approved, further defending the company from someone else copying this amazing drug…and how it’s used. It’s the fifth such U.S. patent of their intellectual property of NOV-002.

As a reminder, their NOV-002 is an incredibly promising treatment of several types of cancer…and it’s in phase 3 testing (the last stage before final FDA approval) as a treatment against lung cancer. In fact, the use of NOV-002 against lung cancer has been ‘fast tracked’ by the FDA, meaning the time required to get the drug pushed through as an approved treatment has been shortened.

NOV-002 is in phase 2 testing as a treatment of ovarian cancer as well as acute radiation injury. For those two uses, the drug would have to proceed to phase 3 testing before getting the FDA’s widespread use approval.

To say this patent is a light at the end of the tunnel wouldn’t be quite accurate. The passage into phase 2 and 3 testing, as well as the fast track status for lung cancer treatment, is the proverbial light at the end of the tunnel. The patent just insures that Novelos will be able to exclusively make and market the drug once it gets all the required approvals.

Speculative? Certainly - all drugs pending an FDA approval are speculative. But just think what a huge victory it will be for shareholders if and when NOV-002 is approved for all of its potential uses.

It may be worth reviewing our coverage of Novelos within the blog, as well as our newsletter archives. You can see prior Novelos blog posts just by clicking on the ‘NVLT’ link in the right hand column. To see our full newsletter coverage of Novelos, click on the ‘archive’ tab above, then select ‘Novelos Therapeutics’ from the scroll-down menu.

Tis the season…earnings season, that is. We’ve highlighted the earnings results of Execute Sports (OTCBB: EXCS), Biocurex (BOCX.PK), CEL-SCI (AMEX: CVM), and Network Installation (OTCBB: NWKI). However, there are a few more of our companies with recently-submitted results to review. They’re all listed below, with a quick summary, as well as a link to the full quarterly report.

Novelos Therapeutics (OTCBB: NVLT) reported a loss of 4 cents per share for their 2nd quarter of 2006, versus a 5 cent loss for the same quarter a year ago. For a six-month period - the first half of their fiscal year - a per-share loss of 8 cents is a penny better than the 9 cent loss for the equivalent period last year. For the full 10Q, click here.

Sense Holdings (OTCBB: SEHO) posted a loss of 1 cent per share for their most recently-completed quarter - the same loss they saw in Q2 of 2005. On a six-month basis, the 4 cent loss is 2 cents greater than the loss incurred for their first half of last year. For the full 10Q, click here.

Xtreme Companies (OTCBB: XTME) filed a 30 cent quarterly loss, compared to a 3 cent loss for the second quarter of last year. On a six-month basis, the company incurred a per-share loss of 85 cents, versus a 10 cent loss in the first half of 2005. For the full 10Q, click here.

In all cases, don’t assume the current numbers tell the whole story. Read the fine print, and read the news. Case in point - Network Installation. A year ago, the company had no earnings, but was incurring a lot of debt. The books didn’t indicate a major acquisition was being made, however, so the stock spent the better part of the last twelve months moving lower. Had you read the non-numerical information, you would have known about the acquisition…and you would have been paid well for it. NWKI shares are up 72% in the last two days, on earnings news. Very few people saw it coming. Needless to say, we’re glad we were watching it closely, and told you about the opportunity earlier this year.

The idea is particularly applicable to Xtreme, which posted dreadful numbers. The thing is, those figures also include some key accounting adjustments. You should also be aware the company has undergone a major overhaul in recent weeks, and is now operating under a strategic plan quite different than the one that yielded its six-month results.  

Don’t forget, SmallCap Digest offers free stock ideas and market commentary through our e-newsletter. Be sure to sign up today using the link in the top left corner…and don’t forget to respond to the confirmation e-mail.

Great news for Novelos Therapeutics (OTCBB: NVLT) today…the company’s cancer drug NOV-002 has been ‘fast tracked’ by the FDA for use in treatment of lung cancer patients. The special status should mean a shortened review time before the treatment gets final FDA approval.

The FDA’s intent with the accelerated plan is to get a possible treatment ready for public use when there is not a viable treatment currently available. Under the accelerated plan, Novelos will be allowed to submit data about NOV-002 results in installments, rather than in a complete body at the end of the current testing phase. The fast-track plan, technically called a ‘rolling review’ by the Food and Drug Administration, means the company will be able to provide and receive more immediate feedback, which could potentially shrink the FDA review time to six months rather than the usual twelve months.

As far as shareholders are concerned, this is obviously a big victory. The NOV-002 drug is possibly going to get early approval for treatment of advanced non-small cell lung cancer (NSCLC). NSCLC accounts for more than 80% of lung cancer, and current methods for treating NSCLC are only about 5% to 35% effective, depending on the timeframe. Of the 175,000 Americans who will be diagnosed with lung cancer this year, 160,000 are expected to die. If NOV-002 can even just slightly top the results of current treatments, it could be a windfall for the company.

As for shares, don’t assume the last few months are an indication if what’s in store for the long-term future. And even in the short run, if you look closely, you’ll see the consolidation over the last couple of weeks has actually been a slow turn-around into a bullish mode. The rising MACD lines spotted this reality several days ago, even before it was obvious to a casual observer. Today’s news is going to help the bullish effort as well.

One of the biggest challenges our featured small cap companies face (or any small cap company, for that matter) is not corporate performance, but in getting the attention of the investing community. So, when we learned Novelos’ (OTCBB: NVLT) corporate profile now appears in Standard and Poor’s listing of corporate records, we were ecstatic. This is something of a milestone for the company, and should go far in putting Novelos’ name - and shares - on the map of the investing world.

Don’t hear us wrong - Novelos is not primed to instantaneously become the next Microsoft or Dell…even those companies didn’t break into the large cap world overnight. We’re just saying the S&P listing is yet another feather in NVLT’s visibility cap. Why? Just think of it as another set of potential investors who will be exposed to all the great work Novelos is doing. Or to be more direct, it makes it a lot more likely that your shares will move higher because demand for them is growing.

For current owners, it hasn’t exactly been easy the last few weeks - as the stock has basically mirrored the weakness of the overall market. The current price of 72 cents represents a 52-week low. However, we’re still very encouraged by the recent volume data appearing on the lower portion of our weekly chart. The bullish volume (the green bars) have remained tall, while the bearish volume (the red bars) have been smaller than the bullish bars…with each bearish volume bar also getting progressively smaller. It’s subtle, and provides no specific idea of when a rebound might come. But all the same, it’s a sign of there being more interested buyers than sellers. Remain patient. And by the way, if you’re not in a position yet, 72 cents is a tremendous price.

It was only a few days ago we mentioned how news can strike like lightning - anytime, anywhere. The case in point was Novelos Therapeutics (OTCBB:NVLT). There hadn’t been any news from the company in a while, yet the stock was starting to creep higher anyway. Today we found out why it pays to not try and chase the news, but rather, to own stocks that have the potential to release news that can get investors excited in the future.

The Department of Health and Human Services announced today that Novelos’ proposal for treatment of Acute Radiation Syndrome (ARS) is within the ‘competitive range’ among all the proposals submitted as a medical response to a ‘dirty-bomb’. In plain English, it just means Novelos’ NOV-002 drug is still in the running for a contract that is expected to be awarded in September.

Don’t jump the gun though. There are still other competitors for this contract, so the news may ultimately be meaningless when September rolls around. On the other hand, it could be a major boon for Novelos, as well as its shareholders. We just don’t know. Then again, that’s the name of the game - the big rewards are born from substantial risks. What we do know right now is Novelos shares broke past resistance a few days ago, on major volume. In fact, after reaching a low of $0.85 on June 15th, the current price of $1.06 represents a gain of 24.7%. That’s not bad for less than two weeks worth of work.

Our view point is a positive one, partially because of the news, but mostly because we like the company. Why not the other way around? We’re fine with trading the news, if you’re a trader. And there’s no doubt this news is trade-worthy. But as we also said, the U.S. government has yet to award the contract. We can’t base our decision on a stock simply on something that might happen. Our appreciation for the company - as an investment - is rooted in their foundational work against lung cancer and hepatitis. The possibility of a government contract is just gravy.

Side note: In Friday’s edition, we specifically said there wasn’t any news for Novelos…at least not yet. However, the stock was behaving as if there was. Are we saying we can predict the future? Not at all (though it would be nice if we could). However, we will say that we’re not surprised to see this news today. Odds are that somebody else knew of this news several days ago, which is why the stock pulled out of its dive. Those investors may have been buying ahead of the news, before it was actually released. It’s possibly a case of the dreaded ‘L’ word…a news leak. But, we’ll never know for sure. Whatever the cause (and even if there wasn’t one), the big rally last week was a red flag that got our attention. As discussed then, it pays to note when a stock is suddenly in accumulation mode.

Seems whenever we have a string of winners–and we have some huge winners in our stable–the only email I get are complaints about the few that are taking more than a few weeks. Currently featured in my mail are questions on biotech Novelos. Here’s the chart: Yes, it looks nasty. Obviously some of the shares from the recent large financing have come home to roost. The stock traded over 700k shares Thursday and dropped to $1.40. The other side to this is that the private placement financing was for a cool $15 million as I recall, which will go a long way to drive the company forward to Phase 3 and beyond. The terms may not have been all that stellar, but hey, this isn’t IBM. It’s a smallcap. Might it go lower? Sure. Could it bounce from here? Sure. Does it remain a stock with amazing long-term potential? Again, sure. In my opinion, oodles. If you like the story, own the stock and don’t fixate so much oin the price. As it approaches Phase 3 and executes other initiatives, I suspect those who own it here, lower and at higher prices will be rewarded. If you don’t like the action, sell it and move on. Here endeth the rant. Trade Safely.

Over and above the fact that Novelos has made amazing progress in less than a year, the chart is looking extremely interesting: We see a confirmation in the weekly of the coveted double repo which is a good indicator of a change in direction. The closes above, below and above the 3×3 line could well herald a move higher. As well, since the shares bottomed at $1.50-ish, daily volumes have grown nicely without moving the shares. Accumulation is good. Usually denotes good support and that looks solid at these levels. Investors have obviously put their dollars into the shares in approval of the recent financing. All cylinders appear to be or on the verge of firing. All one has to do is spend some time getting to know the company, note its progress and see how undervalued it is relative to its peers to quickly arrive at the point where accumulation makes sense. Apparently, given the growing volumes, a large number of patient shareholders are already there, accumulation-wise. Worth having some shares at these levels and buying on dips, should they occur. Looks like we can expect good things from this biotech name soon, taking fundamentals and technicals into account. Trade Safely.