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SLXCF.OB - STELLAR'S 3RD FISCAL QTR FOR 2009 AGAIN DEMONSTRATES STRONG GROWTH AS COMPANY'S CORE PRODUCTS CONTINUE TO RACK UP SALES GAINS.

Monday, November 16, 2009

The 5 Stocks to Own in 2010 -- Free Report!

The following chart has a formation that I have been using for years to locate and ride stocks that provide potential long term capital gains.

Please note in the chart below (click url) that for the first 6 months of this year we have been dealing with a stock stuck in a range bound trading pattern in the $.30 area. Then you see the breakout distinctly in June '09 that takes us to where we closed last Friday, Nov 13th, at $.79. Almost without fail, say 9 times out of 10, when I see a stock break out of an extended range bound trading period my return on investment has been in the 5x-10x-20x area. I see every reason to believe that will happen here with SLXCF.OB.

Average daily volume: Last 13 weeks avg daily vol 20,000

Shares Outstanding: 23.49m NOTE: 2 years ago at Sept. 30 '07 share count was 23.82m thus company has reduced shares over last 2 years. This demonstrates strict financial discipline and management's commitment to stockholders to both protect and increase stockholder value.

Fully diluted: 23.6m

Float: approx 13m

FY: Dec 31st

SE: $4.54m as of Sept 30 '09

COH : as of Sept 30 '09 $1.91m

Working capital: as of Sept 30 '09 $3.4m

Market Cap: approx $18m

Debt: 0

Preferred stock of any kind/and or derivatives: 0

Inside Ownership: 42%

Senior management: Arnold Tenney(contact 705 445 9505) COB and Peter Riehl, President, CEO and Director available at 800-639-0643

PRIMARY BUSINESS: Stellar has developed 3 primary products that are sold in Canada and into the EU (CE Mark), and out-licensed in the US and China. They are NeoVisc, NeoVisc Single Dose and Uracryst. All together they have partnership and licensing agreements in 58 countries and are continually pushing their distribution into new geographic areas. They are well represented in the field and as add'l regulatory approvals are received revenues and profit margins will respond accordingly.

Revenues will also respond accordingly to a main driver pushing Stellar's revenues that is applicable worldwide…demographics. As explained below their products were developed mainly for those of us who have reached the September of our years or August if some of you insist you are getting younger each year and not older. Let's just say the benefits of Stellar's therapeutic products are intended primarily for the over 50 age group on up because that's where the diseases their products treat are most prevalent. And the most powerful factor pushing Stellar's revenues to record numbers, over and beyond the fact that their products themselves are very successful with this group, is the rapid acceleration of the size of this aging population. Demographics are a very powerful factor in closing the buy case for Stellar and are a key reason their numbers should continue to set records for the foreseeable future.

Consider the following. Every 7 seconds another baby boomer in America turns 50. 6000 Americans celebrate their 65th birthday every day. By the year 2030 some 75 million people in the US, about twice as many as we have today will be at least 65 years old. And unfortunately about 80% of seniors have at east one chronic health condition and at least 50% have 2. Now, take those numbers and apply them doing your own math with the rest of the population in the world. Remember, Stellar is in 58 countries and growing and that includes China. Because their primary product line is geared especially towards that burgeoning growth sector of men and women 50 and older the potential market for Stellar's products grows each and every day. It is a critical point to keep in mind that when we are talking here about sales penetration and growing market share it is a worldwide market that is the target here, not just sales in the USA or Canada. There is nothing parochial about the about the company or its products. Every country in the world is the market and Stellar Pharmaceutical is pushing aggressively to increase market penetration and market share on multiple levels worldwide.

That product line as described below is tailored to meet the needs of two distinct health conditions where there is no cure presently available. They are Osteoarthritis (OA) and Interstitial Cystitis (IC). Here is a quick look at each product and the benefits each product offers for these incurable conditions:

Osteoarthritis: Osteoarthritis (OA), or as it is sometimes called “Degenerative Joint Disease” is the most common form of arthritis, and a leading cause of disability in North America. It affects one out of every three people over the age of forty-five and this ratio increases with age.

No matter what the cause the general outcome is gradual degeneration or wearing down of joint cartilage, resulting in pain, loss of mobility and in some cases inflammation of the affected joint(s). Typical treatments can involve over the counter medications, in patient or out patient physical therapy, weight reduction and assist devices. There is no cure for this disease process.

Stellar's therapeutic agent to treat OA is Neo Visc. Getting a bit technical here NeoVisc is a 1.0% solution of highly purified Sodium Hyaluronate, which has been clinically available in Canada since 1997. Hyaluronate is a naturally occurring polysaccharide found in connective tissue, synovial fluid, vitreous humour of the eye, birth canal etc. It has been shown to play an important role in many biological processes such as embryonic development, cell differentiation, tissue hydration and proteoglycan organization. Bottom line NeoVisc is akin to applying, by injection, oil onto a rusty hinge. Typical treatment is one injection a week for a total of 3 injections. NeoVisc has been approved by Health Canada and Stellar is currently seeking partnerships in the USA, received its CE mark for Europe in 2006, is presently out licensed in many countries, and is the most cost effective treatment of this kind available. The market for viscosupplements is $400m per year in the US alone and there are similar opportunities in other geographic areas. This market is growing at a 10-20% annual rate.

And now available since June 2009 is a one shot dose treatment of NeoVisc.

NeoVisc Single Dose is currently the only approved linear HA single dose product on the market thus giving the patient a choice of a 3 shot treatment that will last up to a year or a single dose treatment that will last up to 3 months. Either way they are coming back to Stellar because NeoVisc is a proven success with patients and it is less expensive than all its competitors. These characteristics could open up licensing potential even in saturated markets. Projections of NeoVisc and NeoVisc Single Dose future value relative to its potential market share are available from Stellar as I don't have the time or space here but let's just say even modest penetration of various geographic blocks of either dose regimen will result in revenues that would be 10x-20x Stellar's present run rate.

Interstitial Cystitis: (IC) is an inflammatory disease of the bladder wall and its cause is not yet fully understood. Current theory suggests IC is the result of changes or leaks in the protective lining of the bladder, the Glycosaminoglycan (GAG) layer. These leaks allow chemicals, toxins and other harmful elements in urine to irritate the bladder wall.

Once established IC is a chronic disease, which can persist throughout life.

IC is characterized by patients (mostly women) suffering pelvic/bladder pain, urgency and frequency of urination. Long-term inflammation can lead to scarring and stiffening of the bladder, decreased bladder capacity, glomerulations (pinpoint bleeding) and in rare cases, ulcers in the bladder lining. Although the symptoms of IC may be difficult to cope with, the condition is not life threatening. Effective treatments such as Uracyst®, allow many patients to manage their symptoms successfully. It should be noted here that presently there are poor treatment options available for IC thus opening the door wide for Uracyst.

What Uracyst does- Uracyst® is an effective treatment for interstitial cystitis. The active ingredient in Uracyst is sterile sodium chondroitin sulphate. Chondroitin sulphate is a substance found naturally in the body including the Glycosaminoglycan layer of the bladder (GAG layer). This GAG layer when healthy, helps protect the highly sensitive bladder wall. Stellar Pharmaceuticals Inc. developed Uracyst to replenish the GAG layer in IC patients.

That is as deep as I am going to go reference these products and the science behind them and the causal factors that bring about the conditions in the human body that result in the need for Stellar's products except to note that Uracyst has demonstrated efficacy in a number of other indications. These include radiation induced cystitis, chemical induced cystitis, overactive bladder not responding to current therapy, chronic urinary tract infections and BP, all of which are associated with a GAG defect which Uracyst can effectively repair. All the additional information an investor would want regarding the company's products is available in an information packet from Stellar upon request.

Uracyst is Health Canada approved, has rec'd it CE Mark in Europe, is out-licensed in the USA, Europe and China and has obtained an IDE from the FDA and clinical trials are underway in the USA via Watson Pharma. Uracyst has multiple international patents pending in addition to its USA and Canadian patents. And it must be noted that when sizing up the competitive landscape for Uracyst whether looking at first month cost or yearly cost Uracyst , in addition to providing superior efficacy and fewer and milder side effects also compares very favorably on price for the patient. And as with NeoVisc the potential future value of Uracyst is dependent on market penetration and market share but given just a modest success rate the resulting numbers again would be significant multiples of Stellar's present annual revenues.

Uracyst-Watson Agreement: In December 2006 Watson and Stellar signed a supply and license agreement for the USA giving Watson exclusive US development rights for Uracyst. This past June Watson rec'd conditional approval of their Investigational Device Exemption (IDE) to conduct clinical work with Uracyst from the FDA. This will allow Watson to continue to move their Uracyst development program forward towards eventual approval for the sale of Uracyst in the USA. The conditional approval allows Watson to begin clinical trials at 20 clinical study centers on 100 subjects. This agreement with Watson provides for additional milestone payments to Stellar and provides a continuing advantage for Stellar and Uracyst in that the radar image of both will continue to benefit as successful clinicals are announced going forward. The agreement also provides for royalties on Watson's net sales of Uracyst in the USA once final FDA approval is obtained. Those numbers could get very big. This is also a significant closer for the buy case for SLXCF.OB.

Recent Financial Performance: for FY Dec 31 2008 Stellar posted revenues of $2.55m, up 14% from prior year. The company's gross profit was up 16% to $2m and although the company posted a small loss for 2008 of $31,000 when adjusted for non cash expenses the company was cash flow positive for 2008 in the amount of $84,000. That pace of growth, while significant, pales next to the numbers Stellar has been posting throughout the first 3 qtrs of FY 2009. The first qtr March 31 '09 reflected strong gains in international sales and Canadian sales. International sales of Uracryst and NeoVisc were up 224% and sales in Canada were up 28%. Total rev for qtr was up 52% to $772,000 with net income of $25,000 vs loss in comparable qtr prior year of ($98,000). Driven by ever increasing international growth the second quarter reflected record revenues for the company, record revenues for any 2nd qtr in the 12 years the company has been public, and the third profitable quarter in a row. Revenues were up 65% to $1.07m vs $647,000 and net income was $164,700 vs loss of ($68,000) prior comp quarter. The third quarter numbers were announced Friday of last week and reflect a continuing torrid pace of growth for overseas sales for the company. This pattern is very reassuring as a main thrust of the company's overall strategy is to continue expansion of their global out-licensing program while simultaneously increasing in-license opportunities in the Canadian market. First Canada then worldwide—and it's working. 3rd qtr revenues ending Sept 30 were $826,000, up a whopping 72% over same 3 month the year prior driven by an increase in international sales of over 300%, thus keeping with the company's overall strategy. 3rd qtr profit was $25,000 compared to loss of ($227,000) prior year. That brings 9mo revenues to $2,673,700 up 61% over the same period in 2008 and 9mo net income to $215,800 compared to a loss of ($227,100) in 2008.

Financials: With zero debt, no pref of any kind, adequate cash on hand ($1.91m as of Sept 30 '0) and a significant amt of working capital ($3.4m as of Sept 30 '09) Stellar presents a very clean capital structure sheet to investors. This will allow them to get maximum leverage from the excess cash that is going be generated on an ever increasing basis going forward.

Conclusion: There are several key factors at work here which in my modest opinion at minimum make Stellar a compelling buy at $.75 per share and they are listed below. I think it is important to add here that these same factors could also make Stellar a mid term and long term 5 star play (I don't go any higher) and investors should at least monitor their progress closely if they don't buy very soon. Personally I have taken a position and I have no reservations about stating that investors should do the same.

***The share count is low for a drug/biotech company at 23.49m and inside ownership strong at 42% so there is considerable motivation to move this company forward to a major listing, something I think will be possible within their next FY beginning Jan 1 2010. This will allow them to get maximum leverage from the excess cash that is going be generated on an ever increasing basis going forward.

***Their cash position is already in good shape but as their products throw off more and more cash they will have the resources to further develop the present line up of products in addition to selectively acquiring other niche health care products for health conditions that have unmet needs with the initial focus on polysaccharide technology classified as medical devices by Health Canada, the US FDA and other international counterparts.

***NeoVisc and Uracyst, and additional products/applications that Uracyst may yield upon further R&D, provide a huge opportunity for Stellar as there are significant barriers to entry in the medical spaces NeoVisc and Uracyst treat and both have global IP protection either in hand or applied for.

***the potential growth rate from year to year as more markets are penetrated and their products increase market share could lead to Stellar posting revenues that will result in record year after record year for both the top line and bottom line numbers. And it is my opinion that this will indeed be the case and in fact those numbers could get very large because of--à

***The Watson –Stellar agreement regarding the marketing and sale of Uracyst in the USA.

In addition to milestone payment the royalties here could generate very significant revenues and net income for Stellar that could begin in just a year or two depending upon the pace of the clinical trials now doable with the granting of an IDE from the FDA this past June. Keep a very close eye on this situation as there is no evident reason Uracyst will do anything except perform as it has, successfully, in other markets.

***DEMOGRAPHICS: This helps a great deal in closing the buy case for Stellar. Age and the aches and pains and the medical conditions that arise as we get older are as unavoidable as the sun setting in the West. If you take the proven fact that NeoVisc, NeoVisc Single Dose and Uracyst are effective in treating medical conditions that have no cure, couple that with senior management that has already proven itself very capable of building this company, add the fact that Stellar is already generating revenues and profits that are growing at a rapid pace, and then add the inevitable to the equation---that the market for Stellar's products is growing at a rate never seen before in our history---you have a win, win, win and a final compelling win.

It's all here. Everything that is needed for a stock to keep climbing the price ladder, secure a listing at a major exchange, and make investors a considerable amount of money. Short term target $1.75 (3-6mo), mid term target $7.00 and listing (6mo-2 years). Long term-higher.

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