In today’s Daily Alert we have two important sell alerts. The second is on Roadrunner Transportation Systems (RRTS), from Upside.
The first concerns the stock that was our best-performing Top Pick for 2013 at mid-year, Invivio (NVIV). When we published our mid-year update issue last month, NVIV, chosen by BI Research Editor Tom Bishop, was up 178% for the year. But last week the company announced a big management change and the stock did not react well, and yesterday afternoon Tom Bishop advised selling. Here’s his reasoning:
Sell
Invivo Therapeutics Holding (NVIV)
from BI Research, recommended at 2.45 in Investment Digest issue 711 and again at 2.05 as a Top Pick for 2013.
The new CEO has already taken a look at the timeline for the biopolymer scaffold device and in a press release this morning unfortunately pushed it way out beyond what the prior CEO was indicating — way beyond. ... Now I don’t know what to believe, if the prior CEO could be so far off on this one.
I have talked to the company this morning and gotten a few things clarified, but as to [former CEO] Frank Reynolds, they seem to be pretty much under a gag order of sorts, seems like it anyway. They would not discuss why he thought what he thought, or said. They just will not go there, or can’t. All they can say is they have a very good CEO at the helm now, who knows the FDA process and timelines and how to manage, and this is his assessment of this leading edge product timeline, and they are looking forward not backwards. [Admittedly,] FDA process is very complicated; maybe some of this has more recently come to light.
I am being as fair as a can, but it looks like commercialization is now out to 2018 or maybe even 2019. Not only will the first trial not now start until Q1 2014, pushed out yet another quarter (with no reason given), but each patient must be studied for three months and then the company has to formally ask the FDA to move on to testing a second patient for another three months and then go back to the FDA for approval to begin each subsequent patient, such that enrollment is now expected to take 21 months! Plus three months to treat that last one.
So two years from Q1 2014, but then, per today’s announcement, we now learn that there is a second trial after that was never mentioned before, a pivotal trial that will test the device against a control group, with no timeline given for that, before they can commercialize the device. ... Anyway, this all pushes out the timeline even further.
A big problem for me now is that I do not know what to believe from the former CEO, for example, how well the device works and the merits of other products in the pipeline, and especially timelines for them. I can confirm that all the interviews with Frank Reynolds have been removed from the web site. Also I fear class action suits, given there are some shorts out there, and of course they are the ones who usually file them. ...
Accordingly, while I do think the company is in very capable hands now to take it to the next level, it’s the timeline that appears to have been pushed out by several years including, especially, for this pivotal study and then FDA reviews, so I am going to issue a Sell the rest. ... I myself may not sell all my shares (after you get a chance) because I believe in the technology, but if class actions emerge the stock may be hit some more. Those who got in initially at $2 and later at $1.75 and sold some at $3.80 or better (and hopefully/possibly some at $6) will still do pretty well. As you can imagine this has been a very hard decision.
Tom Bishop, BI Research, www.biresearch.com, August 27, 2013