Wednesday, April 25, 2007


The NY Times reports that the FDA is examining whether Eli Lilly (LLY) provided it with accurate data about the side effects of the antipsychotic drug Zyprexa. The FDA has questions about a Lilly document from Feb’00 in which the co found that patients taking Zyprexa in clinical trials were 3.5x as likely to develop high blood sugar as those who did not take the drug. That document was not submitted to the agency. But a few months later, Lilly provided data to the FDA that showed almost no difference in blood sugar between patients who took Zyprexa and those who did not. The agency said it had not yet decided whether to take any action against Lilly. “The FDA continues to explore the concerns raised recently regarding information provided to the FDA on Zyprexa’s safety,” Dr. Mitchell Mathis,of FDA, said.

Notablecalls: As Zyprexa is a major revenue driver for LLY, we may see some weakness in the stock today.

The WSJ’s ”Heard on the Street” column out saying that investors have been lining up at Radioshack (RSH), but they may leave disapointed. Shares of the co have soared nearly 70% this year on enthusiasm over new mgmt's moves to cut costs and boost profit margins. Investors should realize that the run-up has come despite the fact that the co hasn't been able to sustain any significant improvement in rev over the past decade and that its sales at stores open for at least a year fell almost 6% in ‘06. RadioShack also is facing some longer-term obstacles. While there likely is additional fat to cut that will help the bottom line, RadioShack's shares now are quite expensive, suggesting that anticipated improvements in operations already are factored into the stock price. RadioShack trades at about 24x its expected earnings this year, above the P/E ratio of competitors such as Best Buy, which has a multiple of 16. "I sure as heck wouldn't be buying at this level; the juice is pretty much squeezed out of this orange," says Steve Monticelli, of Mosaic Investments. "They don't have the growth drivers" to justify the current price.

According to the WSJ, Research In Motion (RIMM) and Verizon Wireless today plan to announce the launch of a BlackBerry "World Edition" smart phone that enables Verizon customers to roam on overseas networks thanks to a dual-mode chip that is compatible with both Verizon's technology and wireless technology prevalent overseas.

The WSJ reports that insiders at a half-dozen co’s sold stock last qrtr before the co’s reported they would fall short of financial guidance, a pattern that can attract the attention of regulators and litigious shareholders. "I'm very suspicious about co’s that end up having to revise their guidance," said Constance E. Bagley, a professor at Harvard Business School. "I also think that when you add to that insiders selling at a higher price, it looks terrible." Representatives of Administaff (ASF), Nautilus (NLS) and Packeteer (PKTR) said execs sold shares before the events that caused revisions to financial expectations. Keithley (KEI) CFO Mark J. Plush declined to discuss the matter. Stephen J. Crimmins, former lawyer at the SEC, said sales by execs before revised guidance is "something the SEC will look at, especially in a period of intensified insider-trading enforcement." At Cutera (CUTR) 5 insiders sold shares between the initial financial guidance and the failure to meet that guidance. At Power-One (PWER), Chmn Steven J. Goldman sold 35K shares between the co's initial 1Q guidance and its announcement that it wouldn't meet that guidance.

Barron’s Online highlights Brightpoint (CELL), whose shares shot up 7% on Mon on an analyst’s upgrade. The stock is down 50% in the past 12mo’s, in part b/c Motorola has had a much harder time selling fancy trinkets. Brightpoint bears the brunt of that shortfall. But Brightpoint's profit can improve dramatically this year as things gradually improve at Motorola, not to mention rising sales at Nokia and the presence of the cellphone distributor in more mkts around the world. None of that is guaranteed, but the good news for the stock is that the mkt hasn't been expecting much. Despite the jump on Mon, Brightpoint has a P/E multiple of 15.1x ‘08 earnings. That's the same as the S&P's 500 avg, and way below the 30x forward multiple Brightpoint sported a year ago. "There's a much better risk-reward profile than there was even 6mo’s ago, and that establishes a good floor for the stock right now," says John Krause, of Thrivent Investment Mgmt. "I think their [P/E] multiple can expand as they put the worst of this behind them."

“Inside Scoop” section reports that a slew of top execs at AMR (AMR) are cashing out newly vested performance shares as they hit a rough patch. Over the past week, 5 execs sold 641K shares of the co on the open mkt for $19.2m. No co director or exec has purchased AMR shares since Jul’05. Mark LoPresti, of Thomson Financial, says that with AMR shares falling along with peers this year, "you don't like to see selling into negative momentum…[it] makes the activity a little more bearish than normal."

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