This week at TWST, our special focus is on biotechnology.

As part of this, we’ve done an in-depth interview with Richard Hollis,
Chairman, President and CEO of Hollis-Eden Pharmaceuticals, Inc. (HEPH:NASDAQ) which gives special insight into this unique company. 

Hollis-Eden Pharmaceuticals, Inc. is a world leader in the development of a proprietary class of adrenal steroid hormones as novel pharmaceuticals for human health. The company’s clinical drug development candidates include TRIOLEX™ (HE3286), a next-generation compound currently in clinical trials for the treatment of type 2 diabetes, ulcerative colitis and rheumatoid arthritis, and APOPTONE™ (HE3235), a next-generation compound in a clinical trial for late-stage prostate cancer. In addition to these clinical development candidates, Hollis-Eden has an active research program that is generating additional new clinical leads that are being further evaluated in preclinical models of a number of different diseases.

The full interview can be read at http://www.twst.com/pdf/aky614.pdf

Back in February, El Paso Electric EE (NYSE) (see earlier blog) saw its CEO, Ershel Redd, leave his position after only serving a short time.  El Paso put in place an interim CEO, J. Frank Bates, the company’s EVP and COO.  It took the company nearly ten months to find a successor to Redd.  Yesterday the company announced the selection of David W. Stevens as El Paso’s new CEO.  Stevens has key experience in the business.  According to a story by Joann S. Lublin in the Wall Street Journal,

Stevens ran Cascade between April 2005 and its July 2007 takeover by MDU Resources Group Inc. Since the acquisition, he has consulted about energy-industry mergers and acquisitions from Austin, Texas.

Before joining Cascade, Mr. Stevens was a top executive for Southern Union Co., another natural-gas company. El Paso operates “in an area I know well,” he said in an interview. “It fits my historical and regulatory experience very well.

“The entire El Paso board interviewed the incoming CEO and chose him unanimously, according to one person familiar with the situation. The board spent months seeking Mr. Redd’s replacement partly because his tenure was so brief, the informed person said.

El Paso may have taken a bit long to find the right candidate, yet it seems it has done a commendable job.  Stevens appears to be a very good fit for the position.  Both his relative youth and experience in the industry should serve him well in his new position.  While El Paso did not have a good quarter, Stevens with the help of the interim CEO, J. Frank Bates, who will become the company’s president and remain as COO could be a good team for the firm’s long term performance.Keep a close eye on the transition and any moves Stevens may put in place.  For more:  El Paso Times 

It is rare I find myself in agreement with Silicon Alley’s editor and chief, Henry Blodget.  Today, however, he wrote a short piece on what he believes should be required before the U.S. Government bails out GM.  According to Blodget one of many requirements he would insist on is,

(GM) Management and board gone as soon as strong replacements can be found…  

For all the requirements he lays out before a bailout check his blog piece on Clusterstock.   For more:  Bloomberg (11/14) 

According to the Wall Street Journal (sub req.) , who quoted unnamed sources, members of Citi’s C (NYSE) board are considering changing its chairman, Sir Win Bischoff.  According to the story,

The board wants closer oversight of the efforts of chief executive Vikram Pandit and his team… 

 The Journal’s unnamed sources also speculated that Richard Parsons, chairman of Time Warner and a member of Citi’s board, is being considered as Bischoff’s replacement.  It would seem the bank could come up with a more judicious and appropriate candidate.  According to Felix Salmon on SeekingAlpha,

The one option being mulled right now — replacing Win Bischoff with Dick Parsons — is clearly taken straight from the deckchairs-on-the-Titanic playbook. Parsons, remember, is the man about whom Joe Nocera said that “all his professional life, he’s wanted to be seen as someone who never seems to break a sweat”. In any case, Bischoff isn’t the problem. The problem is that Vikram Pandit gave himself altogether too much time to get smaller, and then decided his best chance at salvation was to get bigger — by buying Wachovia. Now, it’s too late: the die has been cast. Will Citi buy Chevy Chase Bank? It really doesn’t make any difference either way. 

While I do not find myself in complete agreement with Salmon’s overall sentiments, I do not find Parsons the right person for the challenge.  His allegiance to Pandit might actually serve as a hindrance to helping Pandit.  If the board replaces Sir Win they need to find someone who intends to go toe-to-toe with Pandit and his team. For more:  The Deal.com (11/14 update)   Bloomberg   Biz Journal   MarketWatch     

Looking more closely at the Alternative Energy space this week, we spoke with Colin Rusch- a Solar Energy analyst at Broadpoint Securities Group. Rush was quite sunny about the business in Solar Energy, despite the dark times in other areas:

Mr. Rusch: From my channel checks, there is still a robust business happening for the solar industry…I think the solar industry is still in a positive stance looking at robust fundamentals in the near term and then really trying to sort out where mid-term fundamentals go. Longer term I think most everyone’s in agreement that there’s going to be a robust industry at far lower prices. It’s important to note that much of the industry is already financed to do that sort of R&D and commercialization on cost saving measures.

For the complete Alternative Energy report, including a complete interview with Mr. Rusch, as well as an overview of different areas within the Alternative Energy space, click here.

A well-written article by Michael Lewis about the disastrous series of events that has brought down the large investment banks.   Greed, complexity and incentives – the usual suspects.  It questions the underlying logic of the complex financial instruments that the big houses invented, sold, and went bankrupt on.   The purpose of these tools is to redistribute risk to those that want it, away from those who do not – and thereby create value.   There really is no other reason for them to exist.   So if the players trading in these instruments do not understand them and mis-value them – then why?

Not so equity.   For every stock, a management team with a story to tell.   A financial statement every 3 months.  Earnings calls, presentations and interviews (often with The Wall Street Transcript) that document the story pretty thoroughly.  Meetings with professional investors that are pretty hard to fake – mostly because investors are now really good at conducting them, although they pretend not to be.  Products and services; stuff that customers generally understand, know how to use, and can make pretty good decisions about whether to buy or not.  It is not equity that is causing the problems at the bulge bracket investment banks – it is the synthetic risk products that were so mis-priced that they caused the mis-pricing of the entire fixed income market.

The world of the Transcript of not that world thankfully.  Out world is equity, company management and the equity buy and sell sides.

A few days at the Rodman & Renshaw investor conference restores the faith in this world.   Over 500 presenting companies from the healthcare, mining and energy sectors.  Hundreds of institutional investors listening to stories, assessing management, asking tricky questions.    Many of these stories will succeed, many will not.   All for the same reason – customers will make largely rational decisions whether or not to buy their products.

Equity itself is an old story – but a very good one.

The Deal.com had a very informative piece today examining Philip Goldstein, the controversial head of hedge fund Bulldog Investors.  Goldstein was the keynote interview at the Deal’s M&A Outlook Conference 2009.  According to the piece by George White,

When speaking about the many failures of major financial companies, Goldstein had harsh words for boards of directors.   

“Instead of blaming the board of directors, [the SEC] blames the shorts. It’s an artificial imposition on the free market,” he said. “Why is the board of AIG still there? They’re basically destroying the company. These boards have laws that basically protect them no matter how badly they screw up. ”Boards can destroy billions of dollars in value and walk away. Bear Stearns, Washington Mutual, it goes on and on. The real moral hazard is on the boards. These guys get all the upside and none of the downside,” Goldstein observed.”They want to run things when things are good, but when things are bad they’re gone.”

Goldstein appears to hit the nail on the head in his assessment of boards.  Shorting stocks is not the bogey man it has been made out to be.  Let’s start seeing boards live up to their responsibilities.  If they do, we can expect some real changes for the positive. 

Prologis PLD (NYSE), the global industrial REIT considered one of the largest warehouse developers, announced a number of dramatic changes to deal with the ever growing credit crisis and its impact on the company’s share price.  The company’s CEO and chairman since 2005, Jeffrey Schwartz, resigned his positions effectively immediately.  In his place, the company appointed Walter C. Rakowich, the current President and COO, the new CEO while lead trustee, Stephen L. Feinberg was slated to take over as chairman of the board.   In addition to the major management changes the company also announced it would reduce general and administrative expenditures by 20 to 25%.  The company further announced a reduction in its slated dividend.  These key changes come after the company’s share price, according to a story by John Spence of MarketWatch,

… fell by more than half so far in November…

…The REIT sector has been crushed this year on accelerating financial problems, combined with fears over a slowing economy and retail spending. Funding for commercial real estate has dried up during the credit crunch.

The appointment of Rackowich, an employee of the firm since 1999 when he first began as the company’s CFO, makes for an easier transition.  According to Lou Taylor, Deutsche Bank analyst, cited in the MarketWatch article,

We interpret the change as a difference of opinion about future strategy. The board must believe a halt of all construction is required,” …

We will just have to wait and see how Rackowich and Feinberg manage the situation for the firm going forward.  They have at least put in place a viable strategy to conserve capital and deal with the continuing credit crisis and growing recession. For more:  Bloomberg  Forbes  Reuters  Globest.com EasyBource   

PEhub.com picks up a story in the Baltimore Sun in which the head of AIG’s newest CEO is called for.  According to the story, Maryland Congressman, Elijah E. Cummings,

… called yesterday for the resignation of American International Group’s top executive after news reports of another resort hotel event involving employees from the giant insurance firm. 

Cummings has emerged as a prominent critic of AIG, which received a revised, $152 billion federal bailout package this week. The Maryland congressman was responding to a report by an Arizona television station that AIG executives participated in a recent training session for financial planners at a Phoenix resort.

AIG called the news accounts “misleading” and defended the conference as a legitimate business event for 150 independent financial planners. It said AIG’s expenses were “minimal” and that unnamed sponsors and the financial planners themselves paid 90 percent of the cost.

Edward Liddy, who was selected as AIG’s new CEO at the same time that the government bailout of AIG had been announced, finds himself in a tricky situation.  Appointed by the U.S. government (Hank Paulson) he is not yet at risk for his position but he needs to find a way to stay out the news for problems such as these.  AIG has far bigger fish to fry and cannot afford distractions of any kind.

When Congress passed the $700 billion bailout, after much hullabaloo, the question remains when the effects of the bailout would be seen, and if, indeed, the bailout was a successful strategy. In our special focus on Alternative Energy here at TWST, we asked some of the analysts we talked to whether or not they got the response they expected from the bailout package, which included extended subsidies in the alternative energy space:

Mr. Pang: We haven’t really gotten the lift in the group that we had expected. The sector has pretty much rebounded with the market so it hasn’t really had any additional impact. I think there are a couple of reasons for this. One, it’s still to be determined how the ITC will actually help individual companies. Two, and more important, the overall economic conditions are still a concern. If you look at what’s happened with the group, not much has changed in terms of their guidance, but these stocks were off 50%, roughly, through the summer period.

For the full Alternative Energy report, including interviews with analysts from a variety of perspectives on the market and stock picks, click here.