We have already sold half our position Par Pharmaceutical (PRX) when it doubled from our initial recommendation price of 12.56 in keeping with our standard trading guidelines. PRX benefitted greatly from a shortage of Toprol. Par’s generic version of the drug, Metoprolol, was responsible for more than half of the company’s revenue in the most recent quarter ended December 31, 2009.

After peaking intraday at 27.91 PRX has trended lower, making a lower low and piercing support last month. Implement a Stop on PRX at 23.35.

Par Pharmaceutical (PRX) Chart 

Seasonal Sector Trading Tactics

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In May of 2009, I wrote to you about a new wave of technology that could revolutionize the way disease was both diagnosed and treated, and offered my top two picks at that time to take advantage of what seemed to be outstanding market opportunity. Accelrys (ACCL) has moved from $4.50 to $6.60 on strengthening fundamentals and technical patterns. The company finally seems to have come through with a breakout quarter on the core business, but it is still early for the potential home-run imaging technology that we are most excited about. We still like it a lot.

Caliper Life Sciences (CALP) has moved up sharply from $1.28 to $3.78 on a slightly better than expected quarter and recognition as a pedigreed player in the genomics space. I can never argue with the advice to sell half on any double, but the target price in my mind is $8 per share. This would put Caliper at a valuation of about 2.5x the current annual revenue run rate, or about an average of industry peer valuations (AFFX, BEC, LIFE, MDZ). This seems not unreasonable given Caliper’s strengthening competitive position in both the imaging and genomics testing spaces. It will be interesting to see how well the company executes its strategy regarding the new plastic chip technology that we mentioned in May.

Our choice in November, Global Med Technologies (GLOB) at $0.82, announced its acquisition by Haemonetics at $1.22. The price was a bit disappointing, but the deal is encouraging that the healthcare space continues to be a fertile environment for profit.

Transgenomics (TBIO) is another one that we have taken a shine to in recent months, with a reward/risk profile that looks off the charts if they can stay independent past 2011. TBIO manufactures and distributes instruments and consumables for genetic analysis, and despite a mere $37 million market cap, is a pedigreed company that seems to be positioned front and center in the race for success in the burgeoning personal genomics space.

Transgenomics (TBIO) Chart

The company has gotten along for years selling HANABI Metaphase Spreaders manufactured by ADSTEC of Japan, which are basically chromosome harvesters, and the company’s own flagship WAVE System for genetic variation detection. The company seems to have done a commendable job of stabilizing this business, turning a modest profit for the recent quarter while maintaining a clean balance sheet and sowing the seeds for future growth. Sales grew from $6.1 million to $6.5 million for the quarter, which is nice to see but really no more than “background noise,” as the 4th quarter benefited from some 3rd quarter order delays; plus there is a much bigger picture here.

Transgenomics has a Mitochondrial/Molecular Testing Laboratory which grew nicely the last few years from nothing into about a $4 million annual business. Revenues for this lab were actually down in the recent quarter, but the belief here is that this is likely to prove quite temporary; if so, then we may be looking at huge numbers.

The cost of sequencing genomes remains prohibitively high for applications that seem of questionable value. TBIO seems to have positioned their affordable and efficient technology for larger profits. Important and quickly developing genomic tests, which can help patients today, but whose value is too uncertain for more expensive facilities are likely to be driven to TBIO’s laboratory.

The company has licensed on an exclusive basis from Dana-Farber Institute (foremost Cancer research institute in world) a technology called Cold-PCR which is beginning to garner a lot of attention in medical research circles. In essence, Cold-PCR lowers the temperature at which a gene is analyzed, which amplifies the sensitivity up to 100 times. Combined with the WAVE technology, TBIO hopes to have available in 2010 a $500 test at its molecular lab.

This test can help determine which drug is best (or least) suited to a particular colon-cancer patient, monitor how well a colon-cancer drug is working, and, ultimately and potentially, a test to screen patients blood for the early detection of numerous types of cancer. They would also sell a kit to other labs for, say, $250.

In the meantime, Transgenomics has signed on three large pharmaceutical companies who are interested in resurrecting the life of drugs that “died” in the pipeline by possibly instituting new clinical trials with patients with genetic profiles identified with the TBIO test that are closer to those that responded positively in the earlier failed trials.

The exclusive license for TBIO from Dana-Farber is for the use of Cold-PCR with Sanger Sequencers, which is the older and established platform that already resides on so many research desktops. The potential license to someone other than TBIO for use with the newer “Pyro-sequencers” is a potential risk factor.

The upside potential here is clearly ludicrous, especially as compared to the downside risk. The initial target market for colon-cancer testing alone would justify a significantly higher stock valuation, and such a broad patent license from an institution as Dana-Farber speaks volumes about Transgenomics. TBIO is trading at a paltry 1.7 price-to-sales ratio with a large potential windfall. This does not look to me like a stock that one would sell any of on just a double! (Sorry, Jeff).

[Editor’s Note: Standard Almanac Investor trading guidelines of selling half on a double will still apply to the Almanac Investor Stock Portfolio.]

Having said that, I feel the company is likely to draw takeover interest around the $175 million market cap range, or $3.50 per share. In a very competitive market (another risk factor), TBIO would have to consider any genuine offer seriously. So, while I’d love to believe that the stock has double-digit potential (to be $10), the upside might be limited to 400% (vs. downside risk which we perceive at 40%), which still wouldn’t be too shabby. [Editor’s Buy Limit: 0.70]

At the time of publication, officers of the Hirsch Organization were long TBIO and Hutt was long TBIO, ACCL, CALP and GLOB.