The Speculator: End of year sell off

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In the weeks leading up to June 30 we can always expect to see a scattering of companies dumped well below their high prices as the punters lock in tax losses on shares that may not quickly rebound.

This year, the crop of companies shed up to the end of June was no doubt more extensive than previous years given the widespread downturn in the overall market in the second half of 2007-08.

Among the many stocks sold off last week was a cancer-cure hopeful I introduced as a Money magazine-only punt in the June edition, Viralytics <VLA.AX>.

The stock was then trading at 6.4c a share, having drifted down from a year’s high of 12c to a low of 5c. Despite an initial rally, the shares last week were sold down from a week’s high of 6.8c to a low of 5.3c, closing the week at 5.5c on a week's turnover of more than 2 million shares.

Shares trashed

On Monday, June 30, the shares were trashed down to 5c on a turnover of more than 3 million due to horde of small shareholders locking in their tax losses.

The sell-off has been overdone I believe. At 5c, the company’s 280 million shares carry a market capitalisation of $14 million, while the company has net cash of $2.8 million. That’s sufficient to finance its development programs for the best part of another 12 months and leaves a very modest value on its patented intellectual property and its promising clinical trials.

A large part of the reason for the share price weakness is the Federal Government’s slashing of research and development grants to a host of innovators from the CSIRO down. Viralytics was among the many to withdraw their R & D funding application under the Rudd Labor government’s restrictive new policy.

Viralytic’s executive chairman, Brian Dulhunty, has said that the company was not dependent on the grant application (believed to have been about $5 million). Nevertheless, it’s now likely more of its future development will go overseas.

Move overseas

On Monday of this week, the company announced it had concluded arrangements to move production of its trade-marked CATAVAK therapeutic virus to a yet-to-be-named USA manufacturer. That will enable it to comply with standards required by American and European regulatory authorities.

Readers of the June edition of Money Magazine may recall that the company was reconstructed last year out of the shell of Medical Innovations, with a new board and management. That included a capital raising of $6.6 million and buying of a portfolio of patents and applications from the University of Newcastle (NSW) for $2 million cash and 15.5 million shares.

The technology uses naturally occurring viruses to identify, invade and destroy malignant cells. Earlier work led by associate professor of virology Darren Shafren (now a non-executive director of Viralytics) demonstrated promising results on cancer-afflicted mice. Those injected with the virus showed cancer cells would break apart six to ten hours after infection, releasing thousands more replicated viruses into the tumor.

Encouraging first-stage trials were conducted on humans last year to test toxin-tolerance levels. Those tests have been extended to patents with late-stage melanomas and prostate and breast cancers.

In March, trials of intravenous injection in multiple escalating doses of the company's Catavak technology were approved. Last week, in what should have been a well-received announcement, the company confirmed that the first group of patients in its Phase 1 intravenous clinical trial had completed their treatment. Executive director Dr Phillip Altman added that trial's medical monitoring committee had granted permission for further patient treatments ahead of conducting planned Phase 11 clinical trials.

A month after the March trials were begun, Viralytics scored another breakthrough when the US granted a patent for the use of the company's family of four coxsackie viruses, following the granted of similar patents in New Zealand and Australia.

In the expectation that most of the desperate sellers were out by Monday, I picked up 80,000 Viralytics at 5c.

Bemax bid delivers cash windfall to Imperial Corp

Everything is on the up and up for our junior oil and gas punt Imperial Corporation <IMP.AX>. Yesterday (July 1) the company announced its 75 perccent-owned American subsidiary Empire Energy had successfully completed its fifth consecutive gas well in Pennsylvania. Flow rates are yet to be announced but the initial well, completed in early June, was yielding 900,000 cubic ft of gas/day.

The other good news is IMP’s announced acceptance of a takeover bid for its 45.1 million shareholding (4.8 percent) in heavy minerals miner Bemax Resources. The bid, from Cristal Australia Pty Ltd, a subsidiary of National Titanium Dioxide Co Ltd, is worth 32c cash/share if the bidder achieves 90 percent acceptance.

That's a gross of $14.43 million, or a net of $8.46 million after repayment of a loan facility taken out in mid-April. That amounts to a tidy injection of funds into IMP which at 1.6c carries a market capitalisation of $26.4 million.

Bought: 80,000 Viralytics (VLA) at 5c — $4030 (including brokerage from CMC Markets Stockbroking)

Exercised options: 20,000 Modena Resource 1c ops. ex. at 20c 30/06/08 — $200

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