Wild Card Waves

01/13/2006 12:00 am EST

Focus:

Michael Shulman

Editor, Short-Side Trader

ChangeWave Biotech Investor is a recent addition to the newsletter world, carrying on the ChangeWave tradition of uncovering emerging opportunities. Editor Michael Shulman selects two stocks with "wild cards" that bolster their 2006 prospects.

"My favorite more conservative pick for 2006 is Alkermes (ALKS NASDAQ), which is involved in drug delivery technology focused on schizophrenia, alcoholism, and diabetes. The company should see major upside catalysts in 2006: the FDA approval of Vivitrol sometime soon with marketing to begin in the second quarter; more clinical data for the long lasting version of Amylin's Byetta, no later than mid-year; more data from the inhalable insulin project with Eli Lilly; trial data for the use of Symlin to combat obesity sometime by mid-year; and new labeling for Risperdal Consta, the anti-schizophrenia drug developed by Johnson & Johnson and turned into a long lasting version by ALKS. (Editor's note: Readers should be aware that the shares have risen sharply in recent trading.)

"The risks are very few, except disappointing sales of Vivitrex being launched by partner Cephalon in the second quarter. A wild card in the situation is that Alkermes is developing its own, 100%-owned drugs and may take this a bit further with a small acquisition. I don't think the Street will like this. The stock is moving right now due to the FDA Approvable Letter for Vivitrol but still has a long way to go. I believe it will more and more be a play for conservative, Big Pharma guys. The company is beautifully positioned and faces no scientific (and only very limited regulatory risk). The stock should continue to climb in the first half of the year.

"My top speculative pick for 2006 is Isolagen (ILE NYSE), a cosmetic medicine firm. This is a busted microcap that is a potential ten bagger in two years. What are the upside catalysts? Almost anything would help ILE, but a successful trial in the US (approved in Europe) for the Isolagen tissue regeneration process (using the patient's own cells) would light a fire under the stock. Hiring a permanent CEO wouldn't hurt either. And, although the stock is under $2, if it gets above $5 Isolagen will pop again due to institutional buying.

"The risk is that the new trial for the Isolagen process is still small-perhaps too small. The upside is that small also means the company can manage the doctors in the trial- untrained doctors, not the process, were the "problem children" in the trial that did not produce the data ILE needed for an FDA approval. If this trial blows up, you will be able to buy the stock under a buck.A wild card could be a takeover. The board may not be hiring a CEO because they plan to sell the company once trial data comes in. The stock is way down in price but I think investor interest will increase slowly, adding pennies a week to the stock price, with natural ceilings at levels such as $2. If positive trial data comes out, boom."

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