Groupon - a Great Example of The CHEAP Investor Philosophy
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March, 2014 | Volume 34 – Issue 3 Groupon – a Great Example of The CHEAP Investor Philosophy One question I hear over and over is, “How is The CHEAP Investor different from other newsletters?” My answer is simple – it’s our investment philosophy of buy low and sell high. Though a lot of people understand the wisdom of this philosophy, they don’t follow it. The vast majority of investors and analysts on Wall Street follow the herd because it’s so much easier. They hear about a hot stock that is skyrocketing, and they jump on the bandwagon. Purchasing a stock when it’s hitting new highs in the hope that it will continue to go up is called Momentum Buying. While this strategy will work for the people who buy early, by the time the average guy hears about the hot stock, most of the profit has been made. Momentum buying only works well when a lot more people jump on the bandwagon after you do, and that doesn’t happen very often. The CHEAP Investor philosophy is based on hard work, researching hundreds of stocks in order to find one that is undervalued, and selling at a good low price. Groupon (GRPN) is a great example. The stock was a hot IPO (Initial Public Offering) on November 4, 2011. While the IPO price was set at $20, demand pushed the opening price to $28. Groupon hit an all time high of $31.14 on its opening day, and then started to move down. Over the next year the price plunged due primarily to institutional selling. If you’ve been reading the newsletter for a while, you know that we love recommending former hot stocks when they plunge to ridiculously low prices. That’s what we did with our Groupon recommendation in the December 2012 issue at $2.90. Despite the doomsday predictions of several financial writers, who thought Groupon would not survive, we took at look at the fundamentals and saw a company that was more solid than when it was selling at $31. Nine month revenues were up 81% to $1.7 billion, with a net income of $13 million. The Company had $1.2 billion in cash and no debt. We decided that those analysts didn’t know what they were talking about. Groupon was in great shape and a fantastic investment candidate at $2.90. We were proven correct when Groupon hit a 52-week high of $12.76 on September 19, 2013. That’s a 340% potential profit in ten months. When Groupon soared, many analysts and institutions added the stock to their buy lists. Groupon released its fourth quarter and year end results this month, and even though it beat the projections, the price plunged 26% from $10.35 to $7.67 in two days. Groupon is a great example of how momentum buyers can lose, but the buy low and sell high philosophy gave our subscribers great profits. Several of our recommendations moved up this month. Horizon Pharma (HZN) hit an all-time high of $12.49 (+481% from our buy at $2.15). Provectus Pharma (PVCT), a buy in May 2012 at $0.85, hit an all-time high of $6.03 or +609%. Vanda Pharma (VNDA), a buy in the October 2012 issue at $4.05, soared to $15.65 or +286%. Oncothyreon (ONTY), recommended in the July issue at $1.66, shot to $3.08 or +86%. Richmond Mines (RIC), a buy in the November issue at $1.27, rose 44% to $1.83. Hecla Mining (HC), recommended in the July issue at $2.67, hit a recent high of $3.76 or +41%. Bill Mathews
Hercules Offshore, Inc.
NASDAQ Stock Symbol – HERO Price: $4.70
Hercules Offshore, Inc., together with its subsidiaries, provides shallow-water drilling and marine services to
the oil and natural gas exploration and production industry worldwide. Its services comprise oil and gas
exploration and development drilling, well
Hercules Offshore, Inc.
services, platform inspection, maintenance, and
decommissioning services in various shallow-
water provinces. The Company operates a fleet
of 38 jackup rigs and 24 liftboats.
Hercules Offshore has a fair balance sheet with
$198 million ($1.25 per share) in cash, a book
value of $5.16 and a large debt of $1.2 billion –
because of the huge costs of its jackup rigs.
Insiders own about 5% of the 159.8 million total
shares outstanding, and 218 institutions own
77% of the float. On the negative side, the
stock price is in a downward trend, as the Company took a $114 million non-cash impairment charge in the
fourth quarter. However, for the year end, the loss for 2013 was improved by 47%, when compared to the
previous year. The Company’s fourth quarter and year-end financial results for the period ended December 31
is shown below. Buy Recommendation
Fourth Quarter Year End
2013 2012 2013 2012
Revenue $235,341,000 $174,735,000 $858,300,000 $618,225,000
Net Income (Loss) (101,152,000) 4,267,000 (68,117,000) (127,004,000)
Net Income (Loss) per Share (0.63) 0.03 (0.43) (0.83)
Avg. Shares Outstanding 159.8 Million
John T. Rynd, Chief Executive Officer and President of Hercules Offshore stated, "2013 was a pivotal year for
our Company, highlighted by efforts to modernize our fleet, substantially expand our revenue backlog and
rationalize our asset mix to better align resources to segments that offer the most attractive long-term
investment opportunities. For 2014, we expect to generate solid cash flow based on our existing contract
coverage and current outlook.
"In the U.S. Gulf of Mexico, we have secured pricing increases across a number of our contracted rigs, and
leading edge dayrates are expected to be relatively stable. While various customers are embarking on new
drilling programs that suggest strong long-term demand in the U.S. Gulf of Mexico, near-term demand may
experience some seasonality, and we will manage our domestic fleet prudently to maximize margins and cash
flow. In our International Offshore segment, initial drilling operations on the Hercules Triumph are proceeding
exceptionally well. Contracting efforts for the Hercules Resilience and follow on work for the Hercules
Triumph are in advanced stages of negotiation, and we expect to formalize contracting by late first quarter
2014."
Hercules Offshore is the type of stock that has been a profitable investment in the past. It is a huge company
with good increasing revenues. We think institutional investors have overreacted to the writeoff and have
dumped large amounts of shares, causing the price to plunge near its low. It’s very attractive at this level. If
Hercules Offshore returns to profitability, it should move at least 50 to 100% from this level.
The stock can be followed daily through Internet quote services. For more information contact: Hercules
The Cheap Investor Newsletter – March, 2014 2Offshore, Inc., 9 Greenway Plaza, Suite 2200, Houston, Texas 77046 or call 713-350-5100. The fax number is
713-350-5105. The Website: http://www.herculesoffshore.com.
LifeVantage Corporation
NASDAQ Stock Symbol – LFVN Price: $1.35
LifeVantage Corporation identifies, researches, develops, and distributes nutraceutical dietary supplements
and skin care products. It offers Protandim, a scientifically-validated dietary supplement; LifeVantage
TrueScience, an anti-aging skin care product; and Canine Health, a companion pet supplement formulated to
combat oxidative stress in dogs. The Company sells its products primarily through a network of independent
distributors, preferred customers, and retail LifeVantage Corporation
customers in the United States, Japan, Hong
Kong, Australia, Mexico, and Canada.
Insiders own about 7% of the 105.8 million total
shares outstanding, and 85 institutions own 17%
of the float. Institutional investors purchased
500,000 more shares than they sold for the
quarter ended December 31, 2013. The
Company has a fair balance sheet with $34
million ($0.33 per share) in cash, $46 million in
total debt and a deficit shareholder value of
($0.01) per share. The negative factors are the
deficit shareholder value along with lower
revenues when compared to a year ago. However, net income increased dramatically, especially in the second
quarter. Those financial results for the second quarter and six-month period ended December 31 are shown
below. Buy Recommendation
Second Quarter Six Months
2013 2012 2013 2012
Net Sales $51,538,000 $53,438,000 $102,866,000 $106,297,000
Net Income 3,282,000 209,000 6,538,000 4,373,000
Net Income per Share 0.03 --- 0.06 0.04
Avg. Shares Outstanding - Basic 105.8 Million
Douglas C. Robinson, President and Chief Executive Officer of LifeVantage stated, "During the second quarter,
we have taken significant steps to reignite growth by:
Enhancing our management team with the additions of a new Chief Sales Officer and a new Chief
Science Officer
Beginning our sports marketing sponsorship
Expanding our geographic reach
Continuing to strengthen our distributor culture with improved marketing programs.
These initiatives contributed to our year-over-year sales increase in the Americas of 7.2% and increased sales
in Hong Kong."
Mr. Robinson continued, "These steps have us better positioned for future growth. However, the second
quarter strength we experienced in certain regions was offset by foreign currency fluctuations, primarily the
Yen, coupled with slower than expected improvement in Japan. We remain committed to returning this
important market to strong and sustainable growth. In addition, after extensive product testing, we are
The Cheap Investor Newsletter – March, 2014 3preparing to launch new products in April 2014 at our Global Convention to further strengthen our markets."
The Company's cash and cash equivalents at December 31, 2013 were $34.5 million, compared to $26.3
million at the end of fiscal year 2013 and $28.0 million at September 30, 2013. The Company generated $6.9
million of cash flow from operations in the first six months of 2014 compared to $6.4 million in the first six
months of fiscal 2013.
LifeVantage announced that it entered into a Financing Agreement on October 18, 2013, with a fund managed
by TCW Special Situations, LLC. The Financing Agreement provides for a senior secured credit facility in an
aggregate principal amount of up to $67 million, of which $47 million was funded at closing. On October 31,
2013, the Company also announced that it completed a modified Dutch auction which was funded with
proceeds received under the credit facility. The Company repurchased an aggregate of 16,326,530 shares of its
common stock at a purchase price of $2.45 per share, for an aggregate cost of $40 million. The shares
repurchased in the modified Dutch auction represented approximately 13.9% of the Company's total shares
outstanding as of September 13, 2013.
LifeVantage is a profitable company with several positive factors. It has good revenues and increasing
earnings, yet it’s selling near its 52-week low. Cash and cash equivalents have grown 31% when compared to
the previous year. If LifeVantage reports greater revenues and continues to grow its earnings, the stock should
move 50 to 100% over the next year or two.
The stock can be followed daily through Internet quote services. For more information contact: LifeVantage
Corporation, 9815 South Monroe Street, Suite 100, Sandy, Utah 84070 or call 801-432-9000. The fax number
is 801-880-0699. The Website: http://www.lifevantage.com.
TAG Oil Ltd.
OTC Stock Symbol – TAOIF Price: $2.68
TAG Oil is a Canadian-based production and exploration company with operations focused exclusively in New
Zealand. With 100% ownership over all its core assets, including extensive oil and gas production
infrastructure. As New Zealand's leading explorer, TAG actively drills high-impact conventional and
unconventional exploration prospects identified in the Taranaki Basin, East Coast Basin and Canterbury Basin
that covers more than 2.7 million net acres of
Tag Oil Ltd.
land, prospective for major discovery in New
Zealand.
This little-known, Canadian oil company is
speculative because the stock is traded on the
OTC-QX exchange in the U.S. While TAG Oil
issues press releases that include quarterly
financial reports, like all companies on the OTC-
QX exchange, it does not have to report to the
Securities and Exchange Commission (SEC). As
such, there is no information on insider or
institutional holdings for the 64.8 million total
shares outstanding.
However, TAG Oil is a fully reporting company on the Toronto Stock Exchange (TSX) in Canada.
We did learn that some institutions, including Fidelity, own shares of the stock. TAG Oil has an excellent
balance sheet with $62.4 million ($0.96 per share) in cash, a book value of $3.42 per shares and no debt.
The Cheap Investor Newsletter – March, 2014 4The Company reported excellent increases in revenues and earnings as shown by the results below for its third
quarter and nine-month periods ended December 31. Buy Recommendation
Third Quarter Nine Months
2013 2012 2013 2012
Production Revenue $12,939,442 $10,851,223 $43,522,224 $32,293,424
Net Income 2,971,158 638,521 8,903,569 5,056,468
Net Income per Share - diluted 0.05 0.01 0.15 0.08
Avg. Shares Outstanding 64.8 Million
"We continue to make significant progress on our strategy to deliver long-term shareholder value across all
fronts within TAG, as well as achieving consistent profitability which has differentiated us from others in our
international peer group." said Garth Johnson, TAG Oil Ltd. Chief Executive Officer. "With record production
revenues, cash flow and profits and following completion of extensive infrastructure upgrades, which are
critical to facilitate anticipated growth, we have increased operational flexibility, which has resulted in
committing to New Zealand's most active and diverse exploration campaigns in the country's history. We are
confident TAG can continue to deliver value through organic production growth within an extensive drill-ready
prospect portfolio consisting of low risk shallow Miocene development and step out wells, and leverage this
cash flow into high-impact deep Eocene conventional wells and unconventional prospects in the East Coast."
Financial highlights for the Third Quarter Fiscal 2014 Ended December 31, 2013 include:
Sold 97,616 barrels (nine months: 306,729 barrels) of light oil and 194 millions of cubic feet (nine
months: 1.23 billions of cubic feet) of gas.
Revenue for the three and nine-month periods ended December 31, 2013 increased 19% and 35%
respectively compared to the same periods last year.
Net income for the three and nine-month periods ended December 31, 2013 increased 365% and 76%,
respectively when compared with the same periods last year.
Cash provided by operating activities for the nine months to December 31, 2013 increased by 40% to
$21.26 million compared to $15.12 million for the same period last year.
On November 13, the Company announced that it closed its “previously announced bought deal offering of
common shares of the Company ("Common Shares") for aggregate gross proceeds of $25,080,000 (the
"Financing"). Pursuant to an underwriting agreement dated effective as of October 23, 2013 (the
"Underwriting Agreement"), the Company, through a syndicate of underwriters co-led by Dundee Securities
Ltd. and Casimir Capital Ltd., and including Credit Suisse Securities (Canada) Inc., Cormark Securities Inc.,
Mackie Research Capital Corporation and M Partners Inc. (collectively, the "Underwriters"), issued 5,700,000
Common Shares, at a price of $4.40 per Common Share (the "Offering Price"), for aggregate gross proceeds of
$25,080,000. Pursuant to the terms of the Underwriting Agreement, the Company has granted the
Underwriters an option to purchase up to an additional 855,000 Common Shares, at the Offering Price, until
December 13, 2013.”
While TAG Oil is speculative, it has posted increasing revenues and earnings, and the stock is selling near its
52-week low. With such solid fundamentals, we think TAG Oil should list on the NASDAQ or the NYSE MKT
Exchange. If it did list on one of those two exchanges, the stock should receive better exposure and
institutional following in the U.S. We believe TAG Oil has the potential to move at least 50 to 100% over the
next year.
The stock can be followed daily through Internet quote services. For more information contact: TAG Oil Ltd.,
885 West Georgia Street, Suite 2040, Vancouver, BC V6C 3E8, Canada or call 604-682-6496. The Website:
http://www.tagoil.com.
The Cheap Investor Newsletter – March, 2014 5Ventrus Biosciences, Inc.
NASDAQ Stock Symbol – VTUS Price: $1.41
Ventrus is a specialty pharmaceutical company primarily focused on the development and commercialization
of prescription drugs addressing gastrointestinal problems. The Company's lead product is topical diltiazem
(VEN 307) for the treatment of anal fissures. Ventrus' product candidate portfolio also includes topical
phenylephrine (VEN 308) intended to treat fecal incontinence. The Company has also recently licensed
intellectual property and know-how relating to
Ventrus Biosciences, Inc.
the oral delivery of bacteria, viruses and drugs to
specific sites in the intestine, using a pH sensitive
controlled release platform technology. The
potential indication areas include gastro-
intestinal, auto-immune and metabolic
disorders, viral and bacterial vaccines, and
optimized colonic delivery of drugs.
Last recommended in the May 2013 issue at
$2.25, Ventrus Biosciences moved up to $4.69 or
+108%. The stock got hammered from $4.38 on
February 11 to close at $1.63 (down 63%) the
next day when it received negative Food and
Drug Administration (FDA) news on its Phase 3 trial of Diltiazem Cream (VEN 307). Now that the price has
fallen to a new 52-week low, we think it could be an interesting speculation.
The Company has a good balance sheet with $32 million ($1.55 per share) in cash, a book value of $1.45 per
share and no debt. Insiders own 5% of the 19.8 million total shares outstanding, and 44 institutions own 47%
of the float. Institutions purchased 700,000 more shares than they sold for the quarter ended December 31,
2013. Like most biotech companies, Ventrus has no revenues. For nine-months, the Company posted a loss of
$13.3 million. At that burn rate, Ventrus Biosciences has enough cash for about two years.
In February 2013, Ventrus Biosciences raised $20 million with an offering at $2.50 per share through William
Blair and Company. The stock was moving up nicely until the February 12 announcement about the negative
feedback from the FDA. Buy Recommendation
"While this second study confirms a consistent effect in decreasing AF-related pain with diltiazem 2%, results
among placebo patients are inconsistent across these two pivotal studies," explained Dr. Russell Ellison,
Chairman and Chief Executive Officer of Ventrus Biosciences. "Compounded diltiazem remains an important
non-nitroglycerin treatment standard in this condition, yet this is an area, which we believe may be more
safely and reliably served by an FDA approved prescription pharmaceutical treatment. We look forward to
discussing these results with the FDA."
Inasmuch as a primary purpose of this second Phase 3 trial was to complete the safety data package for a New
Drug Application (NDA) with the FDA, Ventrus will request a pre-NDA FDA meeting to determine next steps in
the program. Because diltiazem is approved in oral formulations for the treatment of angina and high blood
pressure, VEN 307 is eligible for the FDA's 505(b)2 registration pathway.”
While the negative FDA feedback makes Ventrus more speculative, the price has fallen 70%, so now it’s selling
below its cash and shareholder value. If positive results come from the FDA meeting or its other drug
candidate, the price could move up 50 to 100% or more.
The stock can be followed daily through Internet quote services. For more information contact: Ventrus
Biosciences Inc., 99 Hudson Street, 5th Floor, New York, New York 10013 or call 646-706-5208. The fax
The Cheap Investor Newsletter – March, 2014 6number is 646-706-5101. The Website: http://www.ventrusbio.com.
USA Technologies, Inc.
NASDAQ Stock Symbol – USAT Price: $2.12
USA Technologies is a leader of wireless, cashless payment and M2M (Machine to Machine) telemetry
solutions for small-ticket, self-serve retailing industries. ePort Connect® is the Company’s flagship service
platform, a PCI-compliant, end-to-end suite of cashless payment and telemetry services specially tailored to fit
the needs of small ticket, self-service retailing industries. USA Technologies also provides a broad line of
cashless acceptance technologies including its NFC-ready ePort® G8, ePort Mobile™ for customers on the go,
and QuickConnect, an API Web service for developers. USA Technologies has been granted 87 patents and has
agreements with Verizon, Visa, Elavon and customers such as Compass, Crane, AMI Entertainment and others.
We recommended USA Technologies in the November issue at $1.58, and the stock shot up 52% to a high of
$2.40 in January. The Company reported its second quarter and six month financial results for the period
ended December 31 as shown below. Update – Buy at Lower Price
Second Quarter Six Months
2013 2012 2013 2012
Total Revenues $10,570,514 $8,884,321 $20,693,572 $17,274,599
Net Income 409,191 153,758 702,845 192,897
Net Income per Share 0.01 --- 0.01 ---
Avg. Shares Outstanding 34.1 Million
“During the second quarter, we continued to drive new connections and new customers to our ePort Connect®
service across all vertical markets,” said Stephen P. Herbert, USAT’s Chairman and Chief Executive Officer. “By
leveraging our existing customer base and industry diversification strategies, we gained 17,000 new
connections to our ePort Connect service in the quarter, strong results that helped us offset 10,000
deactivations from a customer that we previously announced was transitioning away from our service. In
addition, our customer base grew by 48% from the prior year, to 6,075 customers at the end of the quarter,
reflecting what we believe to be a growing awareness for cashless in the self-serve retail market.
“We also generated our second highest level of GAAP (Generally Accepted Accounting Principles) and non-
GAAP net income in the second quarter—solid progress as we work toward our fiscal 2014 objectives that
include the doubling of non-GAAP net income for the fiscal year.”
“Last fiscal year, we worked to expand our sales and marketing presence in self-serve retail markets beyond
vending, such as commercial laundry, amusement, kiosk and taxi and transportation,” commented Herbert.
“Similar to vending, many of these markets are in the early stages of cashless adoption and thus, in our view,
hold enormous opportunity for growth going forward. During the second quarter, we continued to strengthen
our presence in each of these markets through value-added services and innovative programs and products.”
“For the remainder of fiscal 2014, we will be balancing these market dynamics, our long-term strategies and
the customer environment as we work toward achieving our fiscal 2014 financial targets that include over 25%
license and transaction fee revenue growth, over 20% total revenue growth and a 100% improvement in non-
GAAP net income for fiscal 2014,” concluded Herbert.
If USA Technologies continues to grow its revenues and earnings, the stock should move higher. We would be
a buyer only if the price fell below $1.25. The stock can be followed daily through Internet quote services. For
more information contact: USA Technologies Inc., 100 Deerfield Lane, Suite 140, Malvern, Pennsylvania 19355
or call 610-989-0340. The fax number is 610-989-0344. The Website: http://www.usatech.com.
The Cheap Investor Newsletter – March, 2014 7Gold Fields, Ltd.
NYSE Stock Symbol – GFI Price: $3.75
Gold Fields Limited is an unhedged, globally diversified producer of gold with eight operating mines in
Australia, Ghana, Peru and South Africa. In February 2013 Gold Fields unbundled its KDC and Beatrix mines in
South Africa into an independent and separately listed company, Sibanye Gold. In October 2013 Gold Fields
acquired Barrick's Granny Smith, Lawlers and Darlot Gold Mines in Western Australia. Gold Fields subsequently
has attributable gold-equivalent annual production of approximately 2.2 million ounces, Mineral Reserves of
approximately 60 million ounces and Mineral Resources of approximately 158 million ounces.
Recommended in last month’s issue at $3.46, Gold Fields moved up 22% to a high of $4.22. We liked the
Company because it is a world class gold producer, and the stock was selling at a good low price. The stock
has fallen back to $3.75, as gold prices dropped.
Gold Fields recently reported normalized earnings from continuing operations for the December 2013 quarter
of $14 million compared with $12 million in the September 2013 quarter and $127 million in the December
2012 quarter. Update – Buy at Lower Price
According to the Company, the Group achieved further success in its efforts to engineer a sustainable and
structural shift in its cost base. The all-in sustaining costs of $1,054 per ounce for the quarter reflects an
improvement of 3% on the $1,089 per ounce achieved in the September 2013 quarter and a 24% improvement
on the $1,383 per ounce reported in the December 2012 quarter.
Seven of Gold Fields’ eight mines – including the newly acquired Darlot, Lawlers and Granny Smith mines (the
“Yilgarn South assets”) – achieved an all-in cost of below $1,265 per ounce, which is the average gold price for
the quarter. These are Cerro Corona ($207 per ounce); Granny Smith ($888 per ounce); Agnew/Lawlers ($929
per ounce); St Ives ($1,091 per ounce); Tarkwa ($1,096 per ounce); Darlot ($1,132 per ounce); and Damang
($1,261 per ounce). During the quarter, Damang and Darlot implemented a range of operational
improvements, which have significantly reduced their costs and enabled them to return to profitability.
South Deep’s all-in cost of $1,436 per ounce was 10% lower than the $1,599 per ounce achieved in the
September 2013 quarter and 41% lower than the all-in cost for the quarter ended 31 December 2012 of
$2,436 per ounce.
Production has increased by 21% with the successful integration of the Yilgarn South assets. Attributable
production for the December 2013 quarter increased by 21% from 496,000 gold equivalent ounces in the
September 2013 quarter to 598,000 ounces. This total includes a maiden contribution of 114,000 ounces
during the quarter, at an aggregate all-in cost of less than $1,000 per ounce, from the Yilgarn South assets in
Western Australia.
A key feature of Gold Fields’ operations during 2013 was that the Group’s overall operational performance has
generally been more consistent and predictable than in previous years, and better than the guidance for 2013.
The Group’s attributable production for the full year of 2.02 million ounces is 1% above the upper end of the
revised guidance of between 1.92 and 2.00 million ounces provided on November 20, 2013, after the
acquisition of the Yilgarn South assets.
The Group’s total cash cost for the full year 2013 was $803 per ounce, 7% lower than the guidance of $860 per
ounce, provided on February 27, 2013 and re-affirmed on November 20, 2013.
At the end of the December 2013 quarter, Gold Fields had total outstanding debt of $2.06 billion, cash on hand
of $325 million, net debt of $1.735 billion and a net debt to EBITDA ratio of 1.53 times. As of the first quarter
of 2014, Gold Fields will report its results in US dollars only, as it is now the dominant currency in the Gold
Fields portfolio.
The Cheap Investor Newsletter – March, 2014 8We continue to like Golf Fields for the longer term, and it should move upward as gold rebounds. We would
be a buyer if the price fell to the $3.50 level. The stock can be followed daily through some major newspapers
and Internet quote services. For more information contact: Gold Fields Ltd., 150 Helen Road, Sandown,
Sandton, 2196, South Africa. The Website: http://www.goldfields.co.za.
Rigel Pharmaceuticals, Inc.
NASDAQ Stock Symbol – RIGL Price: $3.60
Rigel Pharmaceuticals, Inc. is a clinical-stage drug development company that discovers and develops novel,
small-molecule drugs for the treatment of inflammatory and autoimmune diseases, as well as muscle
disorders. Rigel's pioneering research focuses on intracellular signaling pathways and related targets that are
critical to disease mechanisms. The Company currently has five product candidates in development:
fostamatinib, an oral SYK inhibitor expected to enter Phase 3 clinical trials for ITP (Immune Thrombocytopenic
Purpura) and a Phase 2 clinical trial for IgA (Immunoglobin A) nephropathy in the first half of 2014; R348, a
topical JAK/SYK inhibitor currently in Phase 2 clinical trials for dry eye; R118, an AMPK activator entering Phase
1 in early 2014; and two oncology product candidates in Phase 1 development with partners BerGenBio and
Daiichi Sankyo.
Rigel Pharmaceuticals was recommended in the January issue at $2.42, and it shot up 52% to a high of $3.69
this month. Update – Do Not Buy
"Rigel has four proprietary projects starting clinical studies in the next few months, including our Phase 3
program with fostamatinib in ITP, and we expect results from our Phase 2 study with R348 in dry eye later this
year," said Mr. Gower. "Our scientific strength gives breadth to our pipeline and 2014 will be another busy
year as we aim to develop treatments for patients, who in some indications, have few therapeutic options."
In September 2013, the Company announced that it would evaluate this drug candidate in patients with ITP,
an autoimmune disease of the blood, which affects an estimated 100,000 Americans. Phase 2 results,
published in Blood (volume 113, number 14), showed fostamatinib significantly increased the platelet counts
of patients and may offer a treatment approach that targets the underlying cause of this disease. A Phase 3
study in this patient population should start in the first half of the year. Rigel also expects to enter a Phase 2
study of fostamatinib in patients with IgA nephropathy (which affects the kidneys) in the spring of 2014.
Approximately 4 million people in the U.S. suffer with dry eye disease, including an estimated 25% of the
patients with rheumatoid arthritis and systemic lupus eryathematosus. Rigel initiated a Phase 2 clinical study
to evaluate the safety and potential efficacy of R348, a topical ophthalmic JAK/SYK inhibitor, aimed at reducing
the inflammation responsible for the painful symptoms of this disease. Results of that study are expected in
the second half of 2014.
In June 2012, Rigel and AstraZeneca announced an exclusive worldwide license agreement for the global
development and commercialization of R256, Rigel's inhaled JAK inhibitor as a potential treatment for asthma.
AstraZeneca is responsible for the development of R256. Its continued efforts to bring R256 into first-in-
human studies triggered the $5.75 million milestone payment to Rigel.
Partners BerGenBio and Daiichi Sankyo are developing Rigel's Axl Kinase inhibitor and an Ubiquitin Ligase
inhibitor, respectively, for their potential safety and efficacy in treating various cancers. Both of these
molecules are currently in Phase 1 clinical development.
Rigel ended 2013 with approximately $212 million in cash, cash equivalents, and available-for-sale securities.
Rigel expects to end 2014 with cash, cash equivalents, and available-for-sale securities in excess of $132
million, which is sufficient to fund its operations through the second quarter of 2016.
The Cheap Investor Newsletter – March, 2014 9Rigel is a volatile stock. We like Rigel for the longer term; however, we would not buy shares at this high level.
The stock can be followed daily through Internet quote services. For more information contact: Rigel
Pharmaceuticals, Inc., 1180 Veterans Boulevard, South San Francisco, California 94080 or call 650-624-1100.
The fax number is 650-624-1101. The Website: http://www.rigel.com.
Achillion Pharmaceuticals, Inc.
NASDAQ Stock Symbol – ACHN Price: $3.71
Achillion is an innovative pharmaceutical company dedicated to bringing important new treatments to
patients with infectious disease. Achillion's discovery, clinical development, and commercial teams have
advanced multiple novel product candidates with proven mechanisms of action into studies and toward the
market. Achillion is focused on solutions for the most challenging problems in infectious disease including HCV
(Chronic Hepatitis C) and resistant bacterial infections. Update – Buy at Lower Price
A buy recommendation in the December 2013 issue at $2.92, Achillion jumped 49% to a high of $4.36.
Achillion recently gave an update on its products:
Achillion is preparing a complete response package on the previously disclosed sovaprevir clinical hold
and anticipates a response from the FDA by the end of the first half of 2014.
It will initiate a Phase 1 first-in-human trial ex-US of ACH-3422 - HCV Nucleotide NS5B Polymerase
Inhibitor during the second quarter of 2014 and will report initial results from HCV-infected patients in
the third quarter of 2014.
In the second quarter of 2014, Achillion plans to evaluate the combination of ACH-3102 + sofosbuvir, a
second-generation NS5A inhibitor in Phase 2, with sofosbuvir in treatment-naive HCV patients over
treatment durations of 8 weeks or less. The study aims to optimize the use of ACH-3102 in nucleotide-
based regimens and to expedite the development of the combination of ACH-3102 and ACH-3422.
The Company anticipates the initiation of an all-oral Phase 2 combination study evaluating ACH-3422
by year-end 2014, and anticipates the initiation of a Phase 2 combination study evaluating ACH-3422
and ACH-3102, with and without an Achillion NS3/4A protease inhibitor, in treatment-naive HCV
patients over treatment durations of 8 weeks or less in early 2015.
Achillion intends to evaluate the combination of its NS5A inhibitor ACH-3102, and next-generation
NS3/4A protease inhibitor, ACH-2684, in a Phase 1 drug-drug interaction study that is expected to
begin in the first quarter of 2014.
The Company also plans to initiate a proof-of-concept study evaluating this combination in genotype
1b HCV-infected patients over a treatment duration of 8 weeks in mid-2014 to enable future
combination studies.
"We believe that we have the broad portfolio of HCV compounds necessary to succeed in achieving our
primary goal of developing commercially competitive short duration therapies for the treatment of HCV that
are once-daily and ribavirin-free. With the emerging safety and in vitro data on ACH-3422, a uridine nucleotide
inhibitor of NS5B polymerase, and the 12-week clinical activity reported with ACH-3102, our Phase 2, pan-
genotypic, second-generation NS5A inhibitor, we believe that our HCV compounds are well-positioned to
achieve positive results in the clinical studies we plan to initiate throughout 2014," commented Dr. Milind
Deshpande, President and Chief Executive Officer of Achillion. "With our 2013 year-end cash balance projected
to exceed $150 million, we believe we have sufficient capital to fund our operations into 2016 and achieve a
number of value-creating milestones throughout this year with our HCV assets."
We like Achillion Pharmaceuticals for the longer term. We would accumulate more shares if the price fell
under $3. The stock can be followed daily through Internet quote services. For more information contact:
The Cheap Investor Newsletter – March, 2014 10Achillion Pharmaceuticals, Inc., 300 George Street, New Haven, Connecticut 06511 or call 203-624-7000. The
fax number is 203-624-7003. The Website: http://www.achillion.com.
AVEO Pharmaceuticals, Inc.
NASDAQ Stock Symbol – AVEO Price: $1.94
AVEO Pharmaceuticals, Inc., doing business as AVEO Oncology, operates as a cancer therapeutics company. It
discovers, develops and commercializes targeted cancer therapies using its Human Response Platform. Its
principal product candidate is tivozanib, for which the Company has filed a new drug application with the U.S.
FDA as a proposed indication for the treatment of patients with advanced renal cell carcinoma (RCC). The
Company’s product pipeline also comprises TAURUS, which is in a Phase II clinical study for the treatment of
RCC. In addition, its product pipeline includes Biomarker Assessment of Tivozanib in ONcology program, such
as BATON-RCC, a Phase II exploratory biomarker study in patients with advanced RCC; BATON-CRC, a Phase II
clinical trial for the first-line therapy in patients with advanced metastatic colorectal cancer; and BATON-BC, a
Phase II clinical trial for the treatment of patients with locally recurrent or metastatic triple negative breast
cancer. Further, AVEO Pharmaceuticals has a pipeline of monoclonal antibodies, including Ficlatuzumab, a
hepatocyte growth factor inhibitory antibody, which is in Phase II clinical stage for the treatment of non-small
cell lung cancer; and AV-203, a monoclonal antibody that targets the ErbB3 receptor and is in Phase I clinical
trial for the treatment of solid tumors. AVEO Pharmaceuticals has strategic partnerships with Merck & Co., Inc;
OSI Pharmaceuticals, Inc.; Kyowa Hakko Kirin; Astellas Pharma Inc.; and Biogen Idec, Inc.
The stock has been disappointing. Recommended in the June issue at $2.38, AVEO Pharmaceuticals moved up
20% to $2.89. Recommended again in December at $1.97, the stock moved up slightly to $2.07.
On February 14, the Company announced the end of its worldwide collaboration and license agreement with
Astellas Pharma Inc. (ALPMF) for the development and commercialization of investigational agent tivozanib.
Tivozanib is an investigational tyrosine kinase inhibitor of all three vascular endothelial growth factor (VEGF)
receptors. Astellas exercised its right to terminate the agreement signed in 2011 for strategic reasons, based
on the clinical status of the three indications studied. Additionally, the Companies agreed to discontinue the
ongoing Phase 2 BATON (Biomarker Assessment of Tivozanib in ONcology) study in patients with colorectal
cancer (CRC). The termination of the collaboration will be effective August 11, 2014 at which time tivozanib
rights will be returned to AVEO. In accordance with the collaboration and license agreement, committed
development expenses will be shared equally. Update – Do Not Buy
“We would like to thank Astellas for its commitment to tivozanib and our partnership over the past three
years,” said Tuan Ha-Ngoc, President and Chief Executive Officer of AVEO. “Given today’s announcements, we
are re-aligning our resources behind key development opportunities to bring clinically meaningful treatments
to patients and create shareholder value. We look forward to outlining our corporate strategy when we report
our fourth quarter and full year 2013 results.”
AVEO has had big problems with tivozanib, which is its principal product. AVEO has several other products,
but with the end of its worldwide collaboration with Astellas Pharma, it will need to reevaluate the direction it
should take with those products. AVEO does have $130 million ($2.53 per share) in cash, so this is just a
setback for the Company. The new corporate strategy should be announced in the financial report that AVEO
plans to release around March 13, 2014.
We still think AVEO has good potential, but it will take longer to achieve its goals. We would not be a buyer of
the stock at this time. It can be followed daily through Internet quote services. For more information contact:
AVEO Pharmaceuticals, Inc., 650 East Kendall Street, Cambridge, Massachusetts 02142 or call 617-299-5000.
The fax number is 617-995-4995. The Website: http://www.aveopharma.com.
The Cheap Investor Newsletter – March, 2014 11DISCLAIMER AND DISCLOSURE NOTICE: The Cheap Investor is a monthly subscription-based newsletter, along with its related publications (including,
but not limited to special reports, but not including paid for alerts) and other services (the “Newsletter”), is edited by Bill Mathews (the “Editor”) in
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Other than subscription revenues, we receive no compensation with respect to any of the companies detailed in the Newsletter.
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However, please note that Core Capital, and its respective principals, employees, partners, directors, and officers may from time to time own, buy or sell
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