Macro Tsimmis

intelligently hedged investment

Archive for February, 2008

Golden Star Resources (GSS) update #6

Posted by intelledgement on Thu, 28 Feb 08

Golden Star Resourses (GSS), our Ghanian gold mining company, today released 4Q07 and full year financial data: overall, the company lost $36.4MM in 2007, a turnaround from a 2006 profit of $64.7MM reflecting primarily the costs of bringing the newly commissioned Bogoso sulfide processing plant online and up to speed. Production costs at Bogoso rose from $430/oz in 2006 to $788/oz in 2007…which, when you are selling gold for $713/oz—as GSS did in 2007—is not a recipe for black ink.

However, the BIOX® plant has already solved the medium-term problem of declining production at Bogoso/Prestea due to ore containing gold that cannot be accessed by the standard cyanidation process and according to Tom Mair, Interim President and CEO, “We expect ongoing optimization of the Bogoso sulfide processing plant to contribute to improved bottom line results going forward.”

With gold prices soaring, and the power interruptions that plagued Ghana in 2006 unlikely to disrupt production in 2007 thanks to the end of the drought that limited hydropower production and the commissioning of a dedicated backup plant financed by several mining companies, conditions appear to favor improved results for GSS this year. One good sign is that the company appears to have more gold than previously thought: mineral reserves increased by 780M ounces (+19%) during 2007 to 62.3 million tonnes of ore grading 2.46 grams per tonne (g/t) for contained gold of 4.93 million ounces at year end.

Time will tell.

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Élan (ELN) update #9

Posted by intelledgement on Thu, 28 Feb 08

An Adam Feuerstein article published yesterday by has raised questions about the criteria our premier biotech company, Élan (ELN) and their partner Wyeth (WYE) are employing in their ongoing Phase 3 trial of their Alzheimer’s Disease (AD) candidate drug AAB-001 (bapineuzumab). The companies have apparently asked the FDA to approve an alternative to ADAS-cog, the measure of cognitive function which has been used as the basis for approval for all Alzheimer’s disease drugs to date. This alternative measure, which has been designed by researchers working for Élan, is called Neuropsychological Test Battery, or NTB.

According to an article published in Volume 12 of “Research and Practice in Alzheimer’s Disease” last year, “it is agreed generally that the ADAS is an imperfect instrument and remains so despite efforts to correct its deficiencies…. [T]he ADAS-cog lacks appropriate measures of key cognitive skills and in particular attention, working memory and executive function.” The author of the article, J. E. Harrison—who consulted with Élan on the development of NTB—recounts that ADAS-cog dates from the early days of AD research, when the effects of the disease were not as well understood. So coming up with new criteria for measuring the efficacy of new AD drugs is a good idea.

Feuerstein points out, however, that having the folks developing one of those drugs also designing the new criteria is an apparent conflict of interest. As it happens, in a Phase 2 trial of an earlier Élan AD drug, AN-1792, patients taking the drug scored worse on the ADAS-cog test than those who received a placebo. When those patients were given the NTB test, the results demonstrated a cognitive benefit. (AN-1792 was subsequently shelved when toxicity issues developed.)

Although the issue must have been decided, the companies have not yet publicly announced the primary endpoint of the AAB-001 Phase 3 study, which aims to enroll 4000 patients. It is unimaginable that the FDA would sanction the launch of a Phase 3 study without the primary endpoint having been defined. It will be interesting to see if the FDA has agreed to let Élan and Wyeth use NTB test results as the primary end point (and relegate the old war horse ADAS-cog to being the secondary end point).

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Vertex (VRTX) update #8

Posted by intelledgement on Tue, 19 Feb 08

Vertex (VRTX) announced today the completion of their recent shelf registration offering. They sold 6.9MM shares of common stock (the original 6MM plus an over-allotment of 900M) at a price of $17.14/share (closing price on 12 February) plus $287.5MM in notes convertible to common at a price of $23.14/share. In combination, these offerings raised $406MM minus expenses and commissions.

While the dilution is bad for existing shareholders (and the stock price has retreated), the company has financed about a year’s worth of operations at the current burn rate. With the cash already in hand, this should last then through 2009 at least. Given that the telaprevir phase 3 test scheduled to start next month will not be completed until 2010, the company will probably need another round of funding to see it through approval by the FDA for treatment naive hepatitis C patients sometime in 2011, unless telaprevir is approved for the treatment of patients who have not responded to the standard of care (SOC) treatment (48 weeks of interferon plus ribaviron), based on the Prove 3 phase 2 trials. It is unlikely that the FDA would approve sale of a drug based on phase 2 results, but the unmet need of hepatitis C patients who have failed the current SOC is very compelling, so it could happen.

Of course, whether such limited label sales would generate enough revenue to avert the need for another round of funding remains to be seen.

In any event, if and when we need additional funding, there will be lots more data available concerning telaprevir’s effectiveness and if those data are strong, the share price should be considerably higher and fewer shares would need to be sold to fund 2010 and 2011 operations.

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Transmeridian (TMY) update #15

Posted by intelledgement on Mon, 18 Feb 08

Transmeridian announced today that the attempt by CEO Lorrie Olivier to obtain the financing for his $3/share bid to take the company private had not succeeded by the 15 February deadline (extended from the original 31 January deadline).

Olivier’s investment vehicle, Trans Meridian International, “informed the company that it continues to make progress and believes it will be able to complete its financing arrangements shortly. The company has not, however, granted TMI an additional time extension and, as a result, may terminate the agreement with TMI at any time prior to satisfaction of the financing condition, without liability to TMI,” according to the press release.

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Clinton and Obama for VP—it still works

Posted by intelledgement on Thu, 14 Feb 08

OK, it’s two weeks later and now Obama has taken the lead in delegates and is doing better in the polls against McCain…hence the dynamics are different from when we first floated this idea last month. But this concept still works.

Clinton herself should now approach Obama with the offer to serve as his VP if he wins the nomination under the following conditions:

  1. the campaigns continue; let the people decide who gets the top spot
  2. Obama agrees to serve as Clinton’s VP should she win
  3. the candidates agree on an arrangement to empower the VP; this agreement process can be brokered by Al Gore
  4. the candidates arrange for a series of high-level dual endorsements starting with Gore—that is, Gore endorses them both for president—and culminating with an announcement of their agreement prior to the convention ala Reagan-Schweicker so everyone knows the score
  5. both campaigns immediately deemphasize attacks on each other, coordinate their fire on McCain, and begin moving to the center in anticipation of November

Both candidates are flawed, but each brings to the table strength that the other lacks: Obama’s positives balance Clinton’s negatives; her experience balances his lack thereof. Sure there are other ways to balance the ticket, but no other alternative offers the power of this solution to energize the base, mend the internecine bruises, and allow the Democrats to focus on November ASAP.

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Élan (ELN) update #8

Posted by intelledgement on Wed, 13 Feb 08

Our top-tier biotech Élan (ELN) released their 4Q07 results today and revenues were up sharply thanks to the impact of tysabri sales ($232MM in 2007 compared to $18MM in 2006). Overall, the company is still in the red, but the EBITDA loss fell 67% in 2007 to $30MM as compared to $91MM in 2006. There are now 21,000 tysabri patients worldwide, which is well ahead of our projection from last April (17,500)…although in compensation, we overestimated tysabri revenues (we expected $250MM in 2007). According to management, they are still on track for 100,000 tysabri patients by the end of 2010, expect to book close to $1B in revenues overall in 2008, and achieve breakeven results in the second half of 2008.

We have updated our model to reflect the higher patient numbers—we now expect 120,000 by the end of 2010—and lower revenue numbers (we failed to consider that only partial revenues would be collected from patients who start using tysabri in a given year, depending on when they start).

The biggest cost factor this year will be the spending on the huge Phase 3 trial for the Alzheimer’s drug AAB-001 (bapineuzumab). A 4000-patient Phase 3 trial for AAB-001 began in December 2007, which is unusual in that final results from the Phase 2 trial are not yet available. Presumably, the preliminary results must be very positive if Élan and their partner Wyeth (WYE) are willing to finance this Phase 3 study.

Overall, the combination of strongly growing tysabri sales and the potential for faster-than-expected approval of AAB-001 if the results bear out management’s evident optimism have us feeling good about our Élan position at this point…and thinking the stock could be worth $55-to-$73/share by the end of 2010 if all goes according to the master plan.

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BPZ Energy (BZP) update #4

Posted by intelledgement on Wed, 13 Feb 08

BPZ Energy (BZP) issued an update on their investigation into the explosion, fire, and sinking of the Peruvian navy tanker they had leased to transport crude from their offshore platform last month. Unfortunately, one of the sailors has died, and four remain hospitalized. On the plus side, there appears to have been no material environmental impact beyond the initial fire, which apparently consumed all 1300 BBLS of oil that were on board when the explosion occured, before the ship sank.

The company now expects to resume oil production from their three completed wells, and testing on CX11-18XD, within three weeks.

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Jan 08 Intelledgement Speculative Opportunity Portfolio Report

Posted by intelledgement on Tue, 12 Feb 08

Position Purchased Shares Paid Cost Now Value Change YTD ROI CAGR
TMY 03-Jan-07 300 3.30 998.00 1.42 425.97 -27.92% -27.92% -57.32% -54.67%
ELN 04-Apr-07 129 13.90 1,801.10 25.36 3,271.44 15.38% 15.38% 81.64% 105.82%
VRTX 18-Apr-07 57 31.65 1,812.05 20.36 1,160.52 -12.35% -12.35% -35.96% -43.17%
NBIX 22-May-07 158 11.33 1,798.14 5.39 851.62 18.72% 18.72% -52.64% -65.86%
BQI 13-Jul-07 565 3.35 1,900.75 3.22 1,819.30 -21.08% -21.08% -4.29% -7.61%
GSS 19-Jul-07 451 4.19 1,897.69 4.01 1,808.51 26.90% 26.90% -4.70% -8.58%
GSS 24-Aug-07 613 3.08 1,896.04 4.01 2,458.13 26.90% 26.90% 29.65% 80.89%
SLT 5-Oct-07 111 19.75 2,200.25 20.39 2,263.29 -21.79% -21.79% 2.87% 9.14%
BZP 19-Nov-07 245 9.77 2,401.65 12.90 3,160.50 15.38% 15.38% 31.60% 295.04%
BZP 30-Jan-08 186 11.27 2,104.22 12.90 2,399.40 n/a 15.38% 14.03% 66.6 sextillion percent
cash -8,809.89 3,302.59
ISOP 03-Jan-07 10,000.00 22,921.27 4.93% 4.93% 129.21% 116.17%
Global HF 03-Jan-07 10,000.00 10,802.63 -2.79% -2.79% 8.03% 7.44%
NASDAQ 03-Jan-07 2,415.29 2,389.86 -9.89% -9.89% -1.05% -0.98%

Position = symbol of the security for each position
Purchased = date position acquired (for long positions) or sold (for short positions)
Shares = number of shares long or short in the portfolio
Paid = price per share
Cost = what portfolio paid (including commission); note for short sales, the portfolio gains cash
Now = price per share as of the date of the report
Value = what it is worth as of the date of the report (# shrs multiplied by price per share plus value of dividends)
Change = Change since last report (not applicable for positions new since last report)
Year-to-Date = Change since 31 Dec 07
Return on Investment = on a percentage basis, the performance of this security since purchase
Compounded Annual Growth Rate = annualized ROI for this position since purchase (to help compare apples to apples)

Notes: The benchmark for the ISOP is the Greenwich Alternative Investments Global Hedge Fund Index, which historically (1988 to 2007 inclusively) provides a CAGR of around 15.1%. For comparison’s sake, we also show the NASDAQ index, which over the same time frame has yielded a CAGR of around 10.1%. Note that for the portfolio, dividends are added back into the value of the pertinent security and not included in the “cash” total (this gives a more complete picture of the ROI for dividend-paying securities). Also, the “Cost” figures include a standard $8 commission and there is a 2% rate of interest on the listed cash balance.

Transactions: Kind of weird that we end up covering our shorts in a month where the NASDAQ essentially crashes (down 10%)…but then the whole concept of speculating is a bit weird and often leads one to counter-intuitive actions. The proceeds of the sale of FDG were balanced out by the purchase of a second tranche of BZP; the net is that we still have some cash to deploy.



Excellent start to the new year for us—up 5% in a month where the NASDAQ essentially crashes (down 10%) and the hedge funds had their worst monthly performance since July 2002 (-3%). Still, we are not without concerns.

Strategically, given that the Fed is going in the wrong direction and despite all the presidential debates, only one fringe candidate (Ron Paul) seems to grasp the significance of the fact that we are destroying our own currency here, we see doom and gloom ahead…and thus we feel a bit exposed here with no short positions. The Fed flushed us out of our real estate and banking shorts with their “shock-and-awe” 75-basis point rate cut, but we will be looking to rebalance the port ASAP. Things may well hold together until the election, but it is not wise to be 100% long here.

Tactically, we have issues, too. TMY is likely to decline sharply if the $3/shr management buyout deal falls through. VRTX is looking less attractive with a potential year-or-more delay in the potential approval of telaprevir. NBIX remains weak in the wake of the indiplon catastrophe last December. GSS continues to limp along with their disappointing BIOX plant. And we still have cash to put to work somewhere…2% annual interest is certainly not compensating for the fall in the value of our dollars!

So our to-do list consists of trying to fix the things we can (go short on something and deploy our cash) and watching the things we can’t control (all the problem children listed above) closely in case we need to hit an eject button or two.

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Oilsands Quest (BQI) update #6

Posted by intelledgement on Mon, 11 Feb 08

Surprise! Turns out there are oil sands in Alberta! Well, of course we knew that, but what we learned today is that some of the oil sands are on land permitted to Oilsands Quest (BQI) for exploration. The company has drilled five holes of an expected up-to-30 that they hope to complete by the end of the Winter drilling season…and they “encountered McMurray formation at depths ranging from 157 to 164 metres (515 to 538 feet). The estimated thickness of the McMurray formation, which includes meaningful bitumen intercepts, ranges from 20 to 46 metres (65 to 150 feet),” according to today’s press release. Yay, us!

Of course the quality of the bitumen deposits remains to be seen; we won’t know that until third-party lab analysis is completed several months down the line. But it’s good news that there will be core samples from the new Alberta acreage adjoining the samples from this winter’s drilling in Saskatchewan.

Our GTC order to buy more BQI at $3.02 has not yet executed. Despite this good news (which was announced prior to the open) the stock traded down as low as $3.18 today, so it could still happen.

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Vertex (VRTX) update #7

Posted by intelledgement on Mon, 11 Feb 08

Our biotech company, Vertex (VRTX), reported today that [a] they spent a lot of money in 2007—even more than in 2006—on the development of our their anti-hepatitis C candidate drug, telaprevir, [b] they expect to spend even more in 2008 as a huge Phase 3 trial for telaprevir ramps up, and [c] they need to raise more cash to finance all this activity.

In FY07, VRTX lost $391MM ($3.03 per share) compared to losses of $207MM ($1.83 per share) for 2006. “The increase in the Company’s 2007…loss was principally driven by an increase in development investment to support the progression of telaprevir towards a Phase 3 pivotal registration program and commercialization,” according to the press release. And the red ink keeps flowing. Management expect to spend $500MM in R&D in 2008, mostly on telaprevir, and anticipate losses in the vicinity of $400MM again.

As they ended 2007 with $460MM in cash, they need a fresh supply to avoid getting onto too thin ice, financially speaking. Accordingly, management also announced today that they plan to sell 6MM shares of common stock utilizing a shelf registration filed with the SEC. No price was announced, but at today’s close of $18.21, the sale should raise more than $100MM.  Management are also exploring a deal to monetize VRTX’s HIV royalty stream and thus provide additional cash in 2008.

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