Knobias ClipReport (8-3-2007)

Submitted from Knobias ClipReport

The market saw a more sane investment reasoning behind the day’s gains as some M&A activity gave way to the thought that a credit crunch may not be in the cards in the near future. Earnings reports from Nokia, Starbucks, and Disney took the spotlight off the weakened credit industry while Fiserv’s $4.4 billion dollar acquisition of CheckFree eased fears even more. With the job report expected on Friday, many eyes will be watching the numbers to decide if inflationary concerns will once again enter the picture.

In the small cap space, one name saw a large spike in volume on its earnings report and some restructuring news.

Nuvelo, Inc. (NUVO) develops and commercializes novel drugs for acute cardiovascular and cancer therapy. The Company’s development pipeline includes alfimeprase, a direct-acting fibrinolytic for the treatment of thrombotic- related disorders including acute ischemic stroke and catheter occlusion and preclinical candidates NU206 for the potential treatment of chemotherapy/radiation therapy-induced mucositis and inflammatory bowel disease and NU172, a direct thrombin inhibitor for use as a short-acting anticoagulant during medical or surgical procedures.

The Company recently reported earnings of $29 million or 54c per share compared to a net loss of $18.9 million or (36c) per share for the same period in 2006. Revenues for the second quarter of 2007 were $45.8 million, compared to revenues of $1.0 million for the same period in 2006.

The increase in 2007 was due to the recognition of $45.8 million of the $50.0 million up-front license fee received from Bayer in January 2006 as a result of the termination of the collaboration agreement in June 2007. The up-front license fee was originally recorded as deferred revenue upon receipt and was being recognized on a straight-line basis over the performance period under the agreement.

The recognition of the revenue was expected to be around $800 thousand a quarter, which is what the analysts thought when they estimated earnings to be for a loss of (28c). Taking the recognition out, the Company would have reported a loss of (31c), which would have been a miss by almost 9%.

The Company also announced that it was reducing its workforce by almost 30% and realigning its organization to focus on core development programs that it believes will produce nearest-term proof-of- concept data. The company plans to continue to pursue development of alfimeprase, NU206 and NU172 and has decided to suspend development of rNAPc2 in all indications including cancer and acute coronary syndromes (ACS).

Resulting from the reduction in workforce, the Company expects to have less than 80 employees, a reduction of 45% from year end 2006. The Company also expects the realignment of personnel and programs to result in reduced annual expenses of approximately $15 million from current levels but anticipates incurring restructuring charges of approximately $2.5 million in the third quarter.

With the news and earnings that actually weren’t as good as they looked, one might think the name wasn’t worth mentioning, but the Company may be involved in the same area as another Company recently highlighted in this article. The NU206 is a highly specific stimulator of the gastrointestinal (GI) epithelial cells as demonstrated in early animal studies. Preclinical studies suggest it can promote growth and repair of these tissues in animal models of radiation treatment or chemotherapy for cancer. In any event, shares traded some 1.89M shares while the average was around 700K. With many thinking the Company had blown out earnings, some may have jumped the gun a little quick. With that in mind, investors would be wise to watch.


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