The Mission Report

The MissionIR Report - August 2015

In-depth analysis, timely updates, latest market news


Market News

Company Updates


Google is Now Alphabet following Corporate Restructuring

Google Inc. (GOOG) co-founders Larry Page and Sergey Brin announced a new corporate structure for the Silicon Valley Internet giant, reports MarketWatch, which will create a new umbrella company called Alphabet Inc. Page will serve as CEO of the new company, while Brin will take on the role of president.

"We did a lot of things that seemed crazy at the time. Many of those things now have over a billion users, like Google Maps, YouTube, Chrome, and Android," Page said in a letter explaining the move. "We are still trying to do things other people think are crazy but we are super excited about."

Alphabet will encompass Google, as well as the multitude of companies that it has created and acquired over the years. Google will maintain its position as the centerpiece of the company, with executive Sundar Pichai taking the reins from Page following the restructuring.

Each of the separate companies will have its own CEO and operate as an individual entity while being monitored by the two leaders of the expansive Alphabet family.

The move follows a collection of against-the-grain corporate-governance decisions by Google in the past, including an auction-style public offering and a stock split that created three classes of Google shares, which eventually led to a shareholder lawsuit.

Google's filing with the Securities and Exchange Commission laid out the potentially confusing mechanics of the Alphabet restructuring in detail.

"Alphabet will initially be a direct, wholly owned subsidiary of Google," the company explained. "Pursuant to the Alphabet Merger, a newly formed entity ("Merger Sub"), a direct, wholly owned subsidiary of Alphabet and an indirect, wholly owned subsidiary of Google, will merge with and into Google, with Google surviving as a direct, wholly owned subsidiary of Alphabet."

Despite the convoluted process, the end result is relatively simple: the two Google co-founders will maintain complete control of the company's growing empire.

September Interest-Rate Hike May Not Be a Done Deal

The threat of an impending tightening of U.S. monetary policy has had main indexes fearful of a slowdown as of late, reports MarketWatch. However, comments by Federal Reserve vice chairman Stanley Fischer eased some of those concerns.

In an interview with Bloomberg TV, Fischer stated that he doesn't expect the first interest-rate hike by the U.S. central bank in nearly a decade to occur until after inflation returns closer to the Fed's target of about 2 percent. In recent months, the inflation rate has dipped close to zero, and it hasn't been near 2 percent in more than three years.

Although Atlanta Fed president Dennis Lockhart stated that the economy is strong enough to handle a gradual rise in interest rates, stocks continued to climb following Fischer's comments. The Dow Jones Industrial Average, in particular, snapped its worst losing streak since 2011's debt ceiling crisis following the optimistic interest-rate news.

U.S. Dollar Gaining Steam as China Devalues Yuan

The Chinese yuan recently dipped to three-year lows, reports Yahoo, as unease surrounding the world's second-largest economy continues to rise. This slip marked the end of months of officially strengthened yuan performance.

China's central bank described the move as a "one-off depreciation" of just under 2 percent, claiming that it was based on an updated way of managing the exchange rate that better reflected market forces.

The news resulted in a massive sell-off of the Australian dollar, which is a common liquid surrogate for the Chinese currency. Other currencies throughout Asia followed suit in order to keep exports competitive with China moving forward.

Singapore's dollar dropped to a five-year low, while the Malaysian ringgit and Indonesian rupiah hit their lowest levels since the Asian financial crisis of 1997.

Even with falling local currencies, the event is expected to be welcomed by the region's central banks.

"Any policies that boost the outlook for Chinese growth are positive for the growth outlook more broadly," explained Annette Beacher, chief Asia-Pacific macro strategist at TD Securities.

Chinese stock markets fell following the news, with the CSI300 index falling 0.3 percent and Shanghai stocks dipping 0.2 percent. Yields on 10-year U.S. Treasuries followed suit, dipping 3 basis points to 2.199 percent.

There was talk following the depreciation that worries over China, combined with the strength of the U.S. dollar, could argue against a September rate hike from the Federal Reserve, improving the case for a delay to the impending rise.

In commodity markets, Beijing's currency policy shift is likely to be seen as a negative in the very near term, with the low yuan making resources more expensive for Chinese buyers.

Stock Investors Set to Benefit from Commodity Rout

It's been a long summer for commodities, reports MarketWatch, making stock-market investors nervous.

In recent months, the U.S. oil benchmark has traded near a six-year low, gold slipped to a five-year low and major drops have left a host of other commodities in bear markets. The Bloomberg Commodity Index is down nearly 13 percent year-to-date, and the slide has been a cause for concern among stock investors.

It makes sense. Falling oil prices, for instance, have been rough on the energy sector, hurting stocks and causing fear over high-yield bonds. Some investors are concerned about deflation, but one of Wall Street's most prominent bulls is taking a different stance.

Brian Belski, chief investment strategist at BMO Capital Markets, says investors are too focused on the negative aspects of the recent commodity-price drop.

Belski states that the obsession is to be expected, since commodities were a driving force behind the previous investment cycle, but the problem is that investors have a tendency to "spend too much time focusing on what worked last time despite the fact that new cycles have a tendency of ushering [in] new leadership," he wrote.

Instead, Belski suggests that investors should spend less time looking for a bottom in commodities and more time focusing on the positive implications of the slide. Crunching the numbers, he found that past commodity-price declines have usually been positive for the U.S.

The S&P 500, in particular, has tended to perform better when commodity prices are falling.

"In fact, some of the best results for the stock market occur during periods where commodity prices are declining in a moderate fashion," Belski notes.

He argues that continued trepidation over the recent slide in commodity prices, as well as doubts over the "fundamentally positive impact" of a strong dollar and rising interest rates, is an indicator that investors have yet to fully understand the changes the U.S. economy and financial environments have went through over the past 15 years.

Namely, he forecasts a "cycle driven by U.S. stocks, North American growth, and the fundamental stability that both provide" moving forward, but most investors are having a hard time giving up the dream of "momentum-laden tactics driven by emerging markets, low quality, credit and quantitative-easing based strategies."

Energy Sector Stands Alone as Only Major U.S. Industry Cutting Jobs

With oil prices remaining near six-year lows, the fossil-fuel industry has become the black sheep of the U.S. economy as the only major industry currently shedding jobs, MarketWatch reports.

Through the first seven months of 2015, oil producers slashed 78,000 jobs, effectively wiping out all of the job gains from 2012 to 2014.

Likewise, many companies have cut back on investment, shut down rigs or reduced production in order to cope with low prices, and the pressure has shown no sign of releasing anytime soon. The current price of oil is less than $45, down from more than $60 just two months ago.

While most of the job cuts took place early in the price downturn, the industry still eliminated 4,000 jobs in June and nearly 5,000 in July.

With the end of the summer driving season now upon us, further reduction to employment figures is expected in line with lowered gasoline demand.

On the plus side, the loss of energy jobs hasn't been large enough to disrupt the U.S. labor market. Since most businesses and consumers save money from the decrease in oil prices, it's expected that higher spending elsewhere in the economy has likely led to more hiring in other industries.

Related statistics seem to support this theory, as the U.S. has added nearly 1.5 million new jobs in 2015, and it's currently on track to add another million before the end of the year.

U.S. Economy Posts Solid Growth in Q2

The U.S. economy posted a solid rebound in the April-June quarter following a tough winter, the AP reports, led by a rise in consumer spending and a recovery in foreign trade that bode well for the rest of the year.

According to the Commerce Department, the gross domestic product (GDP), which measures the economy's total output of goods and services, grew at a 2.3 percent annual rate in the second quarter.

The government also highlighted a slim increase of 0.6 percent in the first quarter, reversing an earlier estimate that the economy shrank at the start of the year.

These results are consistent with the last few years, as the economy has regularly underperformed in the first quarter before revving up in the spring and summer. This uneven momentum has contributed to tepid growth since the official end of the recession in June 2009, with the economic recovery maintaining its distinction as the slowest since World War II.

Revised GDP figures for the past three years recently released by the government reveal that the economy's modest growth since 2011 was even weaker than originally expected.

However, economists are hopeful about the remainder of 2015, with overall GDP growth expected to continue strengthening to around 3 percent as consumer spending benefits from sizable employment gains.

The Fed also noted that the job market, housing and consumer spending have all improved, leading to increased speculation regarding the impending interest rate hike. Currently, the Fed is awaiting more gains in the job market that will push inflation back toward its 2 percent target rate.

The new GDP report showed that overall prices, which have steadily declined for two quarters following the plunge in oil prices, rose at a 2.2 percent rate in the second quarter. Excluding food and energy, prices accelerated 1.8 percent from 1 percent gains in the previous two quarters.

Modest expansion has raised concerns that the U.S. economy has entered a period of historically slow growth. The nation's workforce is growing at a weaker pace and employees are, statistically, less efficient than before the recession. Those trends could restrain economic growth moving forward.

Consumer spending, which accounts for 70 percent of economic activity, expanded at an annual rate of 2.9 percent in the second quarter, recording a sizable increase from the 1.8 percent growth in the first quarter. Likewise, trade served as a small boost to overall growth, adding 0.1 percentage points to growth after subtracting nearly 2 percentage points in the first quarter.

Falling oil prices resulted in a sharp cutback in business investment, decreasing at an annual rate of 0.6 percent in the first quarter. In large part, this fall was a result of a drop in oil and gas exploration activities.

On the other hand, housing construction was a bright spot for the economy, rising at a 6.6 percent rate in the second quarter. The government sector grew at a 0.8 percent rate as gains in spending by state and local governments offset a drop at the federal level.

International Stem Cell Corp. (ISCOD)

ISCO recently announced the completion of clinical testing for a newly discovered compound that it intends to utilize in skin care products marketed by wholly-owned subsidiary Lifeline Skin Care, Inc. Topical treatment with the compound showed significant improvement in skin elasticity and decrease in skin roughness in all subjects at both four and eight week intervals, outperforming the results of both the baseline and the Retinol treated group. No adverse effects were reported from the use of ISCO's innovative compound throughout the study.

The company expects to launch its new compound-based products in the fourth quarter of 2015, utilizing Lifeline's established distribution channels in the U.S. and Asian markets. ISCO believes that these new products will allow it to increase sales and profit margins in its existing markets while effectively promoting entry into the European 'high-tech' skin care market.

About International Stem Cell Corp.

ISCO specializes in the therapeutic applications of human stem cells and the development and commercialization of cell-based biomedical products. The company was the first to develop and perfect a new class of human stem cells called parthenogenetic stem cells, created from unfertilized human eggs. ISCO has a strong patent portfolio offering clean intellectual property and freedom to operate. The company's stem cells present superior immune matching capabilities and can be used in millions of people regardless of sex or racial background, with minimal expectation of immune rejection after transplantation.

The company's human stem cells have been shown to be as pluripotent as embryonic stem cells, however their creation does not involve the destruction of a viable human embryo, which effectively sidesteps the controversy and ethical dilemmas associated with the use of human embryonic stem cells. In contrast to induced pluripotent stem cells, ISCO's stem cells do not involve manipulation of cells' genome thereby avoiding potential safety and regulatory obstacles in clinical applications.

The company's scientists are currently focused on using its stem cells to treat severe unmet medical needs of the central nervous system (Parkinson's disease), the liver and the eye, where cell therapy has been clinically proven but is limited due to the unavailability of safe human cells. Once the technology has been clinically validated there are an essentially unlimited number of potential applications. Because of their immune-matching ability, a relatively small number of these stem cell lines could offer the potential of producing the first true stem cell bank as a means of serving populations of different immune types across the globe.

In addition to its therapeutic focus, ISCO also provides a growing revenue stream through two wholly owned subsidiaries. Lifeline Cell Technology specializes in producing primary human cells and growth media for biological research, and Lifeline Skin Care manufactures and markets advanced anti-aging skincare products utilizing the company's expertise in stem cell biology.

Vapor Corp. (VPCO)

Vapor Corp. recently announced the upcoming launch of its new 'The Vape Store' location in Kissimmee, Florida. Following the opening, the company will operate 11 unique retail locations – including six that were acquired as part of its recent merger with Vaporin, Inc. Vapor Corp.'s continued expansion is in response to the growing consumer demand for vaping products across the country and in recognition of the shift in consumer preference toward purchasing these items in exclusively vape-dedicated stores. In 2014, an estimated one-third of the $3.5 billion in related purchases in the U.S. were made through these dedicated retail channels.

"With our Kissimmee store, we wanted to re-design the vaping experience to reflect the industry's fast-paced, community-driven presence in Orlando, so we gave the store a more welcoming and 'spend some time with us' kind of feel," Jeff Holman, chief executive officer of Vapor Corp., stated in a news release. "As one of the only chain stores in the area – and as one of the larger operators in the market in general – we are continuing to expand our geographic reach throughout the area, thereby increasing brand recognition and acceptance."

About Vapor Corp.

Vapor Corp. is a U.S. based distributor and retailer of vaporizers, e-liquids and electronic cigarettes. It recently acquired the retail store chain 'The Vape Store' as part of a merger with Vaporin, Inc. The company's innovative technology enables users to inhale nicotine vapor without smoke, tar, ash or carbon monoxide. Vapor Corp.'s brands – which are distributed to retail stores through the U.S. and Canada – include VaporX®, Krave®, Hookah Stix® and Vaporin™. Additionally, the company sells directly to consumers via e-commerce and its company-owned brick-and-mortar retail locations.

In recent months, Vapor Corp. has turned its focus toward expansion of its retail network, with plans to establish a national retail footprint in the rapidly developing vape shop market. The company has announced intentions to open as many as 30 branded retail stores by the end of fiscal 2015. Last month, Vapor Corp. announced the close of a public offering resulting in approximately $41.4 million in gross proceeds. This added capital is expected to be instrumental in the company's aggressive expansion strategy.

The company's expansion efforts come amid considerations by the U.S. Food and Drug Administration regarding the implementation of new regulations on the e-cigarette and vaporizer market. When enacted, Vapor Corp. predicts that these regulation will make it difficult for smaller, local vape shops to remain in business, providing a strategic benefit to larger, more established operations and an opportunity for the company to enhance growth through the use of reasonably priced acquisitions.

Currently, the electronic cigarette industry is estimated to account for $1.5 billion in annual revenue, and annual growth of 24.2 percent is forecast through 2018. For Vapor Corp., this continued market performance could provide a platform for considerable growth in the months to come. For prospective shareholders, the company's rapid development toward its goal of becoming the first national retailer in the thriving electronic cigarette market makes it an intriguing investment opportunity moving forward.

Cumberland Pharmaceuticals, Inc. (CPIX)

Cumberland recently reported its financial results for the quarter ended June 30, 2015. The company generated $8.9 million in revenues during the quarter with a net income of just over $394,000, or $0.02 per share. Cumberland's operating expenses for the three month period were $8.2 million, which represented a 3.7 percent year-over-year decrease. Additionally, the company announced its progress in the late stage development of Boxaban® and Hepatoren®. Patient enrollment for studies of both product candidates is underway, with the phase II studies expected to be complete by the end of 2015.

"We continued to make progress in the second quarter towards our goal of building a company that offers long-term, sustainable growth," A.J. Kazimi, chief executive officer of Cumberland Pharmaceuticals, stated in a news release. "We remain in a strong financial position with a solid balance sheet and profitable operations. We are working to maximize the potential of our five commercial products and actively pursuing the addition of new brands to our portfolio."

About Cumberland Pharmaceuticals, Inc.

Cumberland is a specialty pharmaceutical company focused on the acquisition, development and commercialization of branded prescription products. The company's product portfolio currently features five marketed treatments– including Acetadote®, Caldolor®, Kristalose®, Vaprisol® and Omeclamox-Pak® – addressing its primary target markets of hospital acute care and gastroenterology. Cumberland owns the worldwide rights to all of its brands, allowing the company to focus on the U.S. market while actively pursuing strategic partnerships and other opportunities to make its products available to patients in underserved international markets.

In the second quarter of 2015, Cumberland's strongest performing product was Kristalose, which accounted for $4.1 million in net revenue. As the only branded prescription laxative product that features the established safety and efficacy of lactulose in a pre-measured powder dose, Kristalose offers patients a virtually tasteless, grit-free and essentially calorie-free alternative to lactulose syrups. In a 2009 study by Clinical and Experimental Gastroenterology, the company's product was preferred by 83 percent of patients, highlighting the immense market potential of Cumberland's product portfolio moving forward.

In addition to its commercialized products, Cumberland is currently engaged in late stage clinical development of two promising drug candidates. Hepatoren® is being developed to treat patients suffering from hepatorenal syndrome, while Boxaban® is being developed for the treatment of aspirin-exacerbated respiratory disease. To ensure reliable expansion of its product portfolio in the future, Cumberland also operates Cumberland Emerging Technologies (CET), which, in collaboration with some of the country's top universities, is providing the company with a long-term pipeline of new product candidates.

As of June 30, 2015, Cumberland reported approximately $93 million in total assets, including $53 million in cash and investments, with only $14.2 million in total liabilities. In the coming months, the company will look to leverage the flexibility afforded by this balance sheet to promote long-term, sustainable growth.

Palatin Technologies, Inc. (PTN)

Palatin recently announced that it had secured $30 million in financing – including $20 million in equity and $10 million in debt – with which to fund its pivotal phase III clinical trials on bremelanotide for female sexual dysfunction, as well as preclinical and clinical development of its melanocortin receptor-1 and -4 peptide programs, PL-3994 natriuretic peptide advancement and other portfolio products.

"With these financing transactions, we expect to have sufficient funding to complete our pivotal phase III clinical trials on bremelanotide for female sexual dysfunction and, assuming results are positive, complete required ancillary studies preparatory to filing a regulatory application for approval of bremelanotide by the Food and Drug Administration," Stephen T. Wills, chief financial officer and chief operating officer of Palatin, stated in a news release. "These transactions should give us sufficient funding to reach important inflection points for bremelanotide and other key product areas."

About Palatin Technologies, Inc.

Palatin is a biopharmaceutical company developing targeted, receptor-specific peptide therapeutics for the treatment of diseases with significant unmet medical need. The company's leading product candidate, bremelanotide, is currently set to begin two phase III clinical trials for the treatment of female sexual dysfunction (FSD). Additionally, Palatin's development pipeline features a collection of programs and drug candidates addressing erectile dysfunction, pulmonary diseases, heart failure, obesity, inflammatory diseases and dermatologic diseases.

In the fiscal quarter ending March 31, Palatin made significant progress toward the eventual commercialization of bremelanotide. In February, the company launched a clinical trial website in support of the impending phase III reconnect study that will serve as a source of information for women interested in participating in the bremelanotide trials. As of its latest update, enrollment for Palatin's trials was meeting target objectives, clearing the way for initiation of the pivotal study in the months to come.

Upon completion of clinical development, bremelanotide is expected to become the first product approved by the Food and Drug Administration for the treatment of FSD, giving Palatin a significant strategic advantage following commercialization. According to Florida Hospital, an estimated 63 million women in the U.S., or 40 percent of the female population, suffer from FSD. As a point of comparison, consider that the market for erectile dysfunction (ED) therapy, which affects an estimated 30 million men in the U.S., is expected to account for sales of approximately $2.5 billion this year, according to Medtech Insight. Although no FSD treatment is currently approved, the strong performance of the ED treatment market could provide some insight into the massive commercial potential of bremelanotide in the years to come.

For prospective shareholders, the company's favorable cash position, as well as the considerable market potential of its leading product candidate, makes Palatin an intriguing investment opportunity moving forward. Look for the company to build on its momentum in the coming months as it continues to progress toward the commercialization of bremelanotide.


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