Market Edge Market Summary
A hotter than expected CPI report coupled with a push in oil prices above $61 a barrel dampened enthusiasm for stocks last week as several of the major averages posted losses for the week. The DJIA, which set a record high (DJIA – 12786.64) on Tuesday traded lower for the next three days to end the week in the red. For the period, the DJIA lost 120 points (-0.94%) closing at 12647. The NASDAQ bucked the trend as it managed to rally to a six year high on Thursday sparked by favorable comments coming from the semiconductor group. For the period the NASDAQ gained 18 points (+0.75%) and closed at 2515. Year-to-date, the Dow is up 1.5% while the NASDAQ has gained 4.1%.

Navarro’s Big Economic Picture
When Anna and Britney and the Oscars dominate the news cycle, you know we are in a dead zone. Will Goldilocks shave her head and your portfolio? Stay tuned for the Ides of March.

This Week’s Big Market Movers
The economic reports come fast and furious at the end of the week (auto sales, personal income, construction spending, ISM) but none stands out as a likely big market mover. If I had to pick, I’d worry about a downside surprise from the ISM. Meanwhile, existing home sales on Tuesday and new home sales on Wednesday will take the pulse of a sector looking for a bottom. Risk is likewise to the downside here.

Vaino’s Biotech Corner: Getting a Charge Out of Inovio
Inovio Biomedical (INO) is a small San Diego company seeking to improve chemotherapy in a shocking way. The chemical basis for Inovio is electroporation. In essence electroporation provides an electric pulse that disturbs the cell membrane, basically creating openings, through which a drug that would not otherwise be able to diffuse through is able to get inside the cell.

Inovio calls their treatment SECTA, short for Selective ElectroChemical Tumor Ablation. The idea has been best demonstrated using the chemotherapeutic bleomycin. Application of the electrical charge directly to the tumor—the technique is particularly amenable to skin cancers—greatly enhances the amount of bleomycin taken into the tumor, providing greater efficacy. This has the added advantage of reducing side-effects of the drug on healthy tissue.

The results of Phase 2 studies on head and neck cancer are impressive. Comparing efficacy of bleomycin along with bleomycin and electroporation, the number of complete and partial responses was signficant. To be clear, the number of subjects in these Phase 2 studies was small (total of 54 patients in 3 studies) and in only one of the three studies (of 25 patients) was control data with only bleomycin presented. According to the National Cancer Institute, annual treatment costs for head and neck cancer in the US is $3.2B. Inovio is currently pursuing two Phase 3 studies on head and neck cancer that are expected to be complete (according to the FDA) by August 2009 and November 2009, respectively.

Inovio (then Genetronic) published in 2005 results of a small (19 patient) clinical trial, in the journal Melanoma Research, in which the combination of electroporation with bleomycin was found to be beneficial in treating skin cancer. Pre-marketing approval for the treatment of skin cancer is being pursued in Europe. Though the thinning ozone hasn’t lately been receiving the same press as greenhouse gases, it remains a concern. According to a study published in 2005 in the British Journal of Dermatology, researchers expect the incidence of skin cancer even in The Netherlands—hardly a tropical paradise—to increase dramatically over the next decade. Inovio is also enrolling patients in a Phase 1/2 clinical study to treat breast cancer.

Inovio is using their technology to delivery DNA vaccines. Through Swedish partner Tripep they expect to begin a Phase 1 study on delivery of a DNA vaccine to treat hepatitis C early in 2007. They have also licensed this technology for DNA vaccine delivery to Wyeth Pharmaceuticals (WYE), and have licensing agreements with Merck (MRK) and Vical (VICL).

So, I really like the science behind this company, and they are pursuing good sized markets. I think the clinical results in oncology are encouraging, and the DNA vaccine delivery is an added bonus. The company’s financial situation isn’t too bad. Their most recent SEC filing (Q3 2006) had them with $6.3M net current assets and a burn rate averaging $3M per quarter. Since filing they completed a $15.25M round of financing, received $1.1M from the Department of Defense, and $4.5M from Wyeth. A more complete picture will be available when they file their 2006 10-K in a couple of weeks, but they are not in current danger of running out of money.

To be clear, this is a highly illiquid stock: market cap is barely over $100M and average (3 month) volume is 96K, so volatility is to be expected. My take is this is a good speculative stock. With big pharmaceutical companies on the hunt for biotechs, to me this seems a possible acquisition. Recall that back in October Pfizer purchased PowderMed, a private UK company that had developed a way to deliver DNA by precipitating it onto gold particles, for an undisclosed sum.

Peter Navarro is a business professor at the University of California-Irvine, and can be contacted at pn@peternavarro.com. Andrew Vaino is a Ph.D. chemist currently teaching at The University of Maine.

DISCLAIMER: This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling, or holding of any financial instrument whatsoever. Trading and investing involves high levels of risk. The authors express personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The authors may or may not have positions in the financial instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future performance.