New position in Genzyme on FDA problems

Contrarian Investor UK started a new position in biotech company, Genzyme Corp. (GENZ) after a 6% decline yesterday. The stock fell back after the U.S. FDA (Food and Drug Administration) took action at its Allston production plant to make sure products are made within the required specification, following a series of manufacturing problems dating back to 2008. The FDA will issue a consent decree, which means additional plant testing at extra cost until further notice and will affect its top two selling drugs, Gaucher's disease treatment Cerezyme and Fabry disease drug Fabrazyme. A consent decree may take several years to resolve. Genzyme said the likely consent decree would have a third party inspect and review the plant's operations for "an extended period" to ensure compliance but sales of products made there would not be interrupted. The move would require Genzyme to "make payments to the government and could incur other costs."

But the reason for the purchase is simple. In February, activist Carl Icahn, announced he had nominated four directors to Genzyme's board, including himself, for election at a May 20 shareholder meeting. Icahn Capital LP more than doubled its Genzyme stake to 4.8 million shares from 1.5 million shares during the fourth quarter of 2009. The FDA action may help Icahn gain control of the board and push for a sale of the business.

At $55 (52 week range $47-63), GENZ has market cap of close to $15 billion and a high historical p/e of 35. Analysts were expecting earnings of $2.88 for 2010 but this is certain to be revised down. Assuming earnings of $2.5 per share, this puts the company on a forward p/e of 22 which is not outrageous given Icahn's action to oust the board. Options traders were buying the June calls at $60 heavily last night, indicating that some investors are confident of a bounce back to over $60 in the next few weeks. Though competition is increasing for Genzyme's key drugs, it may be a good takeover candidate for a larger pharmaceutical company looking to establish a presence in the specialist medicine sector. Though the company may fall further, the downside from the FDA action should not be more or less priced in and therefore from a contrarian point of view this stock ticks the right boxes.

Reconfiguration of Falkland Islands oil holdings

With the rise back above £1 for Desire Petroleum (DES) I took the opportunity to de-risk the Falklands Islands portfolio. Unfortunately IG are not accepting controlled risk Contracts for Difference (CFD) trades on Desire which makes a "duster" on the Liz prospect risky for the portfolio. However, there are still accepting controlled risk trades on the other Falklands Oil drillers and therefore I have closed the Desire position and opened a new long positions in Falkland Oil and gas (FOGL) and Rockhopper (RKH) since the downside is protected to a 12.5% loss whilst allowing me unlimited upside "hanging on the coat tails" of a Desire positive update, should it occur. The gains in the other Falkland Islands drillers may be less marked than Desire but an unprotected trade feels foolhardy given the risks.

The RNS from Desire on the results of the Liz field drilling should be due very soon since we are nearly 30 days into drilling.

Prudential ups stake in GW Pharma

Prudential have increased their stake in GW Pharma (GWP) from around 10% to just over 12% in the last few days which adds reassurance to the buys put in place yesterday. It now looks increasingly likely that the steep drop yesterday was market maker manipulation, triggering stop losses for private investors to fill the large Pru order.  Certainly looking at the pattern of trades there was no evidence of large sells and the price was forced down to 113p at one point yesterday morning. GWP is now trading up 0.5p at 119p to buy.

U.S. market turns down on Euro fears

Although the FTSE 100 finished in marginally positive territory after the budget, the DOW Jones Industrials dropped 53 points to finish at 10, 836 as the Euro continued to fall heavily against the dollar.

The Euro was hurt by Fitch, the credit rating agency, which downgraded Portugal’s credit rating to AA- from AA, citing “significant budgetary underperformance in 2009” and “structural weaknesses” in its economy. German Chancellor, Angela Merkel, continues to resist pressure to offer economic aid to Greece as unsurprisngly a bail out would be politically unpopular. Germany is holding out against any deal until the Greek governnment has exhausted its options to borrow on the bond markets, or from the IMF (International Monetary Fund) and allow it to roll over its debt. The Eurozone continues to look a mess as there is no mechanism to devalue which would have been Greece's preferred option under the Drachma.

It was interesting to watch Jim Cramer's Mad Money TV show (CNBC) the night before last where he said the market was going much higher and the bears had been turned into cuddly koala bears.  Yet with all thus exuberance many risks exist for the global economy.  The first quarter earnings season in the U.S. is due to kick off in 3 weeks time and earnings will probably do well as firms continue to drive bottom line profits through cost cutting. However,  top line sales growth will be needed to continue the momentum in the second half of 2010. 

8% fall in GW Pharma is buy back opportunity

I have just bought back the GW Pharma position sold on Monday given the current 10p drop in the share price, presumably on a market maker "tree shake" prior to the AGM.

GW Pharma falls ahead of AGM

GW Pharmaceuticals (GWP) Annual General Meeting is being held today at 11am. The shares are currently down 4p to 119p to sell after slipping significanly in the final hours of trading yesterday. I have been selling down some of my holding over the last 2 days following the news on Sativex UK/Spain registration and the Phase IIb cancer study,  meaning my position has been reduced by around two-thirds. I am continuing to hold a core position and may look to top up on any weakness but given the interim results are not due until May when further may be forthcoming on the Sativex approval process in Europe, these shares may drift a little unless a major new institution comes on board. A buy back point below 120 p looks enticing.

U.K. budget today at 12.30pm and political rant

So Alistair Darling gets on his feet for the U.K. budget at 12.30 GMT, the last budget before the General Election in May or June this year. It is not expected to offer much in addition to the pre-budget statement from November but politically Darling will attempt to give the message that Labour is managing the British economy out of recession in a sustainable way, whilst the Conservatives are being too aggressive in focusing on deficit reduction too early (the U.K. deficit is around 12% of spend) . In the last few weeks, this difference between the political parties has been exploited to paint David Cameron's Conservatives as a party of cutting. Prime Minister, Gordon Brown's, message seems to be working as the latest opinion poll puts the Conservatives on only a 5 point lead over Labour which would lead to a Hung parliament at the election. Many votes don't want to hear the message of austerity - "let them cut something as long as it doesn't affect me!". This worries economists because it may mean that lack of full control in Parliament may mean that deficit reduction plans are not agreed putting the U.K.'s Triple A credit rating at threat.  On the other hand, it could be argued that if a pact is made between one of the major parties and the Liberal Democrats, fiscal deficit reduction could be even more aggressive as the Lib Dems are stated that they too are aligned to cutting the deficit.


Any moves by Darling on a new tax on the banking system will be keenly watched but he has already stated that he will not move with international cooperation. In contrast, the Conservatives seem to be focused on introducing the tax with or without this international agreement. Sweden have already introduced such a tax. It would be a popular move to adopt such as tax and a vote winner.


Both major political parties in the U.K. have not strayed from the message that they will not cut front line services. But the difficulty is there to see, a large budget deficit and growing debt that needs to be dealt with. Taxing the banks and high earners is a popular move but likely to lead to a "brain drain" to more welcoming taxation environments such as Switzerland. Increasing taxation is only likely to stifle wealth creation in the longer term. Cuts in big spending departments such as social security and health seem to be the logical solution, but for both the Labour and Conservative governments this is politically unpalatable even though both leaders know it is necessary. Whether Brown and Cameron say once thing during the election and act differently once they are in No.10 Downing Street is a possibility since any risk to the AAA credit rating would be political suicide. It would be refreshing if politicians acknowledged that there is no magic bullet.  The U.K. must get the budget under control without putting the economy back into the recession. Rather than increasing taxes, cuts in big ticket departments such as Health must be on the agenda. U.K. voters have to understand they can't have it both ways i.e. strong public services and low taxes. I am not aligned to either of the major parties, but I am increasingly frustrated that the  reality of the situation is unwilling to be accepted by the electorate. 

FTSE 100 closes at 21 month high

The FTSE 100 ended at a 21 month high of 5,673, up 29 points. The market was boosted by a strong update from Legal and General and that the inflation rate fell sharply to 3% last month giving reassurance that the Bank of England will keep interest rates at low levels for the foreseeable future. The DOW Jones Industrials are currently up 103, to 10,889 as the markets continued to react positively to Obama's Victory in the House of Representatives on healthcare reform.

Desire Petroleum finally moves up

After several days of small, but steady falls, Desire Petroleum (DES) finally looks to be moving in the right direction with the shares currently up around 5.5%. Bulletin boards like iii.co.uk have been buzzing with around 1000 posts a day and the rumour mill surrounding the potential testing of core samples have been doing the rounds.  The results from Desire's Liz field are due any day which is increasing the volatility of this stock. Desire is not a stock "for widows or orphans" but the fact that it is so speculative makes the potential rewards so exciting. I have continued to hold as the share price has slipped over the last week and given the seismic data from the Desire field I am more than hopeful that the company's management will have chosen the Liz prospect for good reason i.e. that oil/gas shows are present.  The Falkland Islands drillers are at the high stress end of the spectrum and this week the adrenaline will be at maximum power as it could be the make or break for the stocks even though there are other drilling prospects for Ocean Guardian to drill.

GW Pharma announces positive clinical trial data in cancer pain

GW Pharma (GWP) announced today preliminary results of a Phase IIb dose-ranging trial evaluating the efficacy and safety of Sativex in the treatment of pain in patients with advanced cancer, who experience inadequate pain control during optimized chronic opioid therapy. 

This trial was performed in conjunction with GW's licensing partner for Sativex in the United States, Otsuka Pharmaceutical Co. Ltd..  In the US, cancer pain represents the initial target indication for Sativex. Key Points: - Study meets key objectives of providing data to support entry into Phase III - Sativex shows statistically significant differences from placebo in pain scores, according to both the continuous response analysis and change from baseline analysis in NRS average pain - GW and Otsuka now planning End of Phase II meeting with the FDA to gain endorsement of the proposed Phase III program 

GW Pharma continues upward momentum

GW Pharma (GWP) is currently up nearly 6% without any evidence that big buys are coming through for the company.  Momentum is certainly positive with the regulatory announcement last week on the progress of the European Sativex application. A  move over 130p seems feasible during the week and closer to 150p on final approval in May. Of course, an institutional buy of any size would accelerate matters as trading seems to be focused on private investors for now. Perhaps those boys in the City just fall asleep when it comes to decentralised applications, mutual recognitions and the like?!

U.S. Healthcare bill passes House of Representatives

On Sunday evening President Obama scored a major personal victory, with the House of Representatives approving the Senate bill overhauling the U.S. health-care system with the aim of extending insurance coverage to about 32 million Americans. The margin of victory was narrow, with the vote in favour 219 to 212 to approve the bill. All Republicans and 34 Democrats opposing. It bans insurance company practices like denying care for pre-existing conditions, imposing lifetime caps on coverage, while providing subsidies to buy private insurance in newly-created marketplaces called “exchanges”.

This means its potentially bad news for the big pharmaceutical companies given pricing concerns for the new "exchange" insurance schemes which may create downward pressure on reimbursement prices for branded drug. On the flip side, the extra population covered by the scheme will drive additional volumes of prescriptions. Astra Zeneca (AZN)  generates half its earnings in the U.S., whilst GSK, Novartis and Roche generate over a 1/3 of their earnings in the American market. 

Position in Coal of Africa initiated

Position reinitiated yesterday afternoon in Coal of Africa (CZA) on anticipation of UK full market listing in Q2 and a fall back in the share price from the previous sell level of 142p.  Revenue is expected to rise dramatically as production ramps up to 15 million tonnes of coal. Prices remain firm for coking and thermal coal on rising Asian demand.

Portfolio review of the week March 20th 2010

After 8 days of gains in the U.S. and a strong move upwards in the U.K., it was not surprising that the S&P 500 finally moved down. I remain cautious on the market at this level and am using the strength as an opportunity to sell down some positions. My ISA is now 60% in cash, after unit trust purchases bought in November has shown near 20% gains.

GW pharma (GWP) - An exceptional week for GWP as the company announced that all aspects of safety, quality and efficacy had been resolved for the UK/Spanish licence applications for multiple sclerosis drug, Sativex. The stock moved up from around 100p to finish the week at 121p. Though tempting to take profits, there is significant news flow yet to come from the company. A milestone payment from Bayer Schering of £10 million will be triggered on the UK licence approval in May. A further milestone payment of £2.5 million will be due from Almirall (GW's European partner) on Spanish approval, due Q3 (£8 million was paid in 2009). Results from the clinical study in cancer pain have been confirmed for Spring 2010. It is likely that global distribution deals for Asia and Latam will be announced at the interims in May.

The regulatory announcement this week is a ground breaking event for GW pharma. Sativex approval in Europe is  now assured. Given the company was founded in 1998 to develop Sativex, the end of a 12 year road is now in sight. Although reimbursement issues are yet to be resolved, the strength of the commercialisation partners (Bayer Schering and Almirall), will no doubt ensure that any issues are resolved.

Falkland Island Oil drillers (Desire Petroleum DES, Falkland Oil and Gas FOGL, Borders and Southern BOR) - After double digit increases in the Falkland Island oil explorers on Monday, the shares fell away during the rest of the week. News from Desire Petroleum's Liz field where the Ocean Guardian rig is drilling is expected any day. Most of my positions are held in controlled risk CFDs (contracts for difference) which limits downside on any bad news. Positive news from Liz, will drive these shares, particularly Desire petroleum, up at least 30% and possibly a lot more. Though risky, the risk/reward is enticing with the downside protected.

ITV (ITV) - ITV continued to tread water and finished the week at 54p. The only news was the size of Adam Crozier's pay and performance package which is geared to a recovery in the share price.

ARM Holdings (ARM) - A short was initiated this week and this finished on a small profit for the week. It was encouraging that despite large gains in the semiconductor stocks during the week, ARM did not participate in this rally. The rationale for the short in ARM and SSL were explained on a post during the week.

SSL International (SSL) -  A short initiated at 780p was down a couple of percent, with the stock closing at 792p yesterday.

Ithaca Energy (IAE) -  The North sea focused oil explorer moved up from 108p on Monday to finish the week at 134.5p, a gain of 24%. A position initiated on Tuesday was unfortunately closed too early at 124p and illustrates the caution needed when selling stocks into a positive momentum move especially when the stock is dual listed. Moves on the Canadian TSX, where commodity stocks powered up this week, drove the share price appreciation on this side of the Atlantic.

Micron Technology (MU) - Position closed at $10.14. The stock finished at $9.90 last night. Micron has rebounded strongly from around $8 in the last month and therefore an opportunity was taken to sell off on the rise.

Intel (INTC) -  An overnight position was taken on Intel which generated a 3% gain. No longer holding.

Markets finally slip after 8 days of gains

After 8 days of gains in U.S. stocks, they closed lower on Friday, with worries about the state of the Greek bail out returning and a retreat in the energy and commodity sectors. The Dow Jones Industrial Average, closed down 37 at 10,742, but was up 1.1% on the week and registered its 3rd weekly gain. The FTSE 100 initially move up to 5,685, levels not seen since 2008 in afternoon dealings, but the index closed at 5,650, up only 8 as the U.S. market moved into reverse.

After an an upbeat trading update from Lloyds Banking Group (LLOY) that the company will be profitable on a combined businesses basis in 2010, its shares moved up 8% to just over 60p. The company is 41% owned by the U.K. tax payer and the price is fast approaching the 74p the government paid to bail out the bank. Royal Bank of Scotland gained nearly 6% to 44.45p (close to the 50p government investment price), and Barclays rose almost 2% to 359.6p.There are rumours that Alistair Darling, the Chancellor, will announce that the Treasury will start selling these bank assets perhaps as soon as the Budget next week.