When Shareholders Revolt, You Win

April 28, 2014

  • Blockbuster drug’s back story: Judgment day, 36 times a year
  • Hard to pronounce… easy profits of 118% every 90 days
  • Unsafe at any bandwidth… but now you can get cyberattack insurance
  • Supreme Court relegates an essential freedom to the 13th century
  • When government is helpless: Food poisoning at a food-safety convention
  • Britain’s fouled-up attempt at a gold standard… the real reason Chinese want iPhones… a reader’s TV-viewing suggestion… and more!

  Maybe you’ve seen the new ads on AMC or other cable channels — for the weight-loss drug Belviq. The drug works by blocking the brain’s appetite signals. You eat less and still feel full.

No, we don’t suggest buying the maker of the drug, Arena Pharmaceuticals. But the backstory of how Belviq came to market — very profitably for some of our longtime readers — shows how you could generate regular gains of 118% starting this year.

  “The FDA has been under mounting pressure to approve a new weight-loss treatment,” said a Reuters story the day Belviq won approval in 2012.

No wonder: Two-thirds of Americans are now classified as overweight or obese. But the agency proceeded with great caution after its previous major approval –the disastrous “fen-phen” combination, pulled from the market in 1997 because it turned out to cause heart damage.

Indeed, the FDA rejected Belviq in October 2010 — prompting an unusual shareholder revolt. “What has mobilized so many people, within our group and beyond, are the comments and behavior of some FDA officials and what we believe to be incorrect scientific conclusions,” shareholder Douglas Park told The Wall Street Journal.

The FDA re-evaluated… and gave its blessing on June 27, 2012. Smart investors — ahem, including some who read Agora Financial publications — saw a 567% ramp-up in Arena Pharmaceuticals during the months leading up to that date.

In short, Arena survived its “PDUFA date.”

PDUFA is short for a mouthful called the Prescription Drug User Fee Act. “It’s a promise the government makes to companies to approve or reject new drugs much faster than in the past,” explains Agora Financial investment director Paul Mampilly.

“And it forces the FDA to get new lifesaving drugs to the market faster and in a more predictable fashion. In short, the biotech company pays the FDA a fee to review their drug. And in turn, the FDA gives the company an exact date when they plan to approve or deny the drug.”

  Think of PDUFA as judgment day, says Paul. “It’s the day the FDA plays God and gives the verdict on whether or not it’s going to approve a company’s drug.

“We want to know the PDUFA day, some idea whether the company is going to get its drug approved or not, because companies with PDUFA dates have the chance to go up the most if the FDA says yes to their drug application.”

Know when these dates fall — there are 36 of them in the next 12 months — and you could parlay it into average gains of 118% every 90 days. That’s based on extensive back-testing our research team performed after Paul explained to a group of us how to play PDUFA dates for regular profit.

Sure enough, you can start with $10,000 and wind up with $109,000 after about 15 months… all by playing what those of us around the office have come to call the “magic calendar.”

The next date to watch? It’s less than a month away…

Click here to turn the “magic calendar” into predictable gains…

  The major U.S. stock indexes are inching higher this morning. The Dow has crested 16,500.

Gold remains stuck slightly below $1,300. Crude is bouncing off $100, to $101.86.

  This must be a first — a federal agency declaring a Web browser to be unsafe at any bandwidth.

“The U.S. Department of Homeland security is advising Americans not to use the Internet Explorer Web browser,” reports USA Today, “until a fix is found for a serious security flaw that came to light over the weekend.”

Said the DHS statement: “We are currently unaware of a practical solution to this problem.” System administrators are urged to “consider employing an alternative Web browser until an official update is available.”

The problem is that hackers can get around Explorer’s security protections, and once you visit a compromised website — boom, you’re infected.

No word from Microsoft on how soon it will have a patch ready. In the meantime, you can protect yourself by turning off Flash capability — if you still insist on using IE, heh.

  Also from the cyber-realm — a new realm of insurance.

AIG already has a cyberinsurance offering. But now it’s being expanded to cover property damage and bodily injury. “The physical risk of a cyberattack or cyber event to property and people is very real,” says AIG’s Tracie Grella.

CNN expands: “Researchers have accessed control systems for heart rate monitors, traffic lights, home security apps, swimming pool acid tanks and gondola rides — none of which had security protocols of any kind built in. Imagine the damage that could be done if the wrong people tinkered with those systems.”

To say nothing of the power plants, water treatment plants and other places whose cybervulnerability we’ve spotlighted in our virtual pages.

  Leave it to AIG to come up with this product.

Long before ex-CEO Hank Greenberg leveraged up AIG’s balance sheet to render it a ward of the federal government in 2008, he pioneered kidnapping insurance. This was in the ’70s, when terrorists and other ne’er-do-wells would kidnap high-profile business executives for fun and profit.

The demand was steep. The premiums were staggering. The likelihood of payout was minuscule. AIG had a virtual license to print money.

Maybe it does again… although when it comes to cybersecurity plays, we think there’s more profit potential with the companies on Byron King’s radar.

  The Supreme Court has now affirmed “one of the greatest rollbacks of civil liberties in the history of our country,” in the words of George Washington University professor Jonathan Turley.

The case is Hedges v. Obama. Journalist Chris Hedges was one of eight plaintiffs, along with Daniel Ellsberg of Pentagon Papers fame, challenging Section 1021 of the National Defense Authorization Act — the part that authorizes the president to hold U.S. citizens in indefinite detention without charge or trial if he believes they’ve done something to “aid” the Taliban or al-Qaida, whatever that means.

Last summer, a federal appeals court upheld those presidential powers, and yesterday the Supreme Court refused to hear an appeal. Supposedly, Hedges et al. don’t have “standing” because they can’t prove the president might decide to detain them at some point in the future.

Of course, once you’re taken into indefinite detention under the act, you’re denied any recourse through the court system. Nice little Catch-22 there.

No, there’s no investment theme here — well, other than the rule of law. We merely pass along the word in case your favorite news source is too busy covering even more dire threats to the future of the republic — like the missing airplane and Donald Sterling.

 What happens when you bring 1,500 “food safety professionals” to one place? Food poisoning, natch.

It happened earlier this month in our own backyard at the Baltimore Convention Center — an outbreak of gastroenteritis that gave more than 100 people a nasty episode of nausea and diarrhea.

Attendees at the conference included “staff from federal agencies such as the Food and Drug Administration and the Centers for Disease Control and Prevention as well as businesses such as McDonald’s, Tyson and ConAgra Foods,” according to an NBC News account.

With so many “experts” on hand, you’d think it would be easy to trace the source of the problem, but no. “We are working on evaluating possible exposures and doing testing at the Maryland state public health laboratory to attempt to identify an agent,” says a letter from the state to attendees.

  “Britain went off the gold standard so they could pay for World War I,” writes a reader expanding on our gold-standard discussion of late.

“Afterward, they wanted not the classical gold standard, but a gold-exchange scheme based on the prewar value of their pound.

“This scheme could only work with the collusion of two central bankers: Benjamin Strong, the influential governor of the Federal Reserve Bank of New York, and Montagu Norman, governor of the Bank of England. They’d been BFFs for a dozen years. First, Strong provided a $300 million line of credit and would ensure the U.S. money supply inflated to prevent gold settlement leaving Britain. Incidentally, the gold exchange method disempowered ordinary people. No wonder Montagu Norman said the old gold standard ‘weakens the command of the central bank.’

“Functionally, Britain was on gold and European countries on a pound sterling basis — Britain could always issue more pounds for trade settlement, and Strong kept the monetary inflation in balance with the pound.

“Unintended consequences: The unrealistic strong pound sterling fettered exports and also generated hyperinflation elsewhere.”

  “To the naysayers, I say rubbish!” writes a reader chiming in on another topic from last week.

“The ‘analysts’ who say Apple is finished and Chinese consumers will opt for cheaper smartphones because of price really don’t understand the transformation of the Chinese consumer.

“I work in Asia exclusively now and am in the midst of building my third company. The thing people need to be mindful of here in the U.S. is that we are constantly brainwashed that the good ol’ USA has the greatest opportunities in the world. Nonsense!

“The most successful Rolls-Royce and Bentley dealers are in China. High-end autos and consumer goods are sold at an increasing rate and margin.

“Chinese consumers want and can afford the very best products because they have an expanding middle class. Which is in turn creating newly minted millionaires that supply the needs of the emerging middle class by the bushel basket every day.

“Bottom line: Chinese consumers want Apple products because they are better and they are also a status symbol to own one or more of the Apple products. Learn it, love it, live it.”

  “There’s a show on CNBC called The Profit,” writes one of our regulars. “It’s about a billionaire that helps out small companies that are losing money. The guy invests his own money into an ailing company and makes changes so they make a profit. I think it’s cool.

“The way it works is a frightened owner of a business calls this guy seeking help. The guy meets with the owners and reviews the business and then makes an offer if he thinks he can help. The owners can accept or reject the offer. The billionaire always seeks 51% or 50% of ownership. If accepted, they notify all the employees and he starts making changes, sometimes rebuilding the interior of a restaurant or reducing bad inventory.

“The old owners go through quite a bit of stress as changes are made. If you want to show your kids capitalism in action, then watch this show! It shows why saving your money and serving the needs of the customer are so important.

“There is no investment angle here, unless of course some of your readers own their business and are losing money.”

The 5: Haven’t seen it. As long as the billionaire isn’t taking on debt to buy his stake and using the cash flow to service the debt, it sounds good to us!

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. Your government in action: Obamacare was supposed to make health care more “affordable”… but a new survey of still-uninsured Americans reveals more than a third found it was “too expensive.”

If you’re worried about avoiding the “side effects” of Obamacare, you need expert guidance. Fortunately, you can find it at this link.

rspertzel

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