After eight-straight rally days for the Dow Jones Industrial Average — the longest such streak in four years — yesterday’s drop was hardly surprising. You can attribute it to the Fed notes suggesting that interest rate increases are still on the table if the economy takes off, which apparently surprised some, or to the jump in crude oil prices as the summer driving season approaches, which apparently surprised others.

I think the jump in crude prices could be a more serious barrier for the market, as oil looks poised to head for $70 a barrel this summer. But that is only a problem if Wall Street thinks it’s a problem. Last fall we watched the market go steadily up as oil prices went steadily up, simply because the falling U.S. dollar was driving both markets. That’s very likely to repeat this year. And for anyone worried about Fed increases, $3+ gasoline has been a very effective way to keep consumer spending subdued without spiraling the economy into a recession. So, it looks to me like the economy is in a steady, modest growth period that should be good for stocks.

But what about the housing debacle? Isn’t it going to negatively affect the economy? I think the recession in housing is about over, in part because the House Price Leading Index calculated by the Economic Cycles Research Institute bottomed a few months ago. That means the Fed will have no need to cut rates further, and probably won’t do anything until a strengthening economy forces them to raise rates later this year or, more likely, early next year. I think the Fed is a non-issue for many months.

So, I think the direction of the market is still pointing up. Yesterday’s dump brought the S&P 500 right back down to the crucial 1438 level. My guesstimate is that the next move is a springboard up to 1455 and higher. If that’s going to happen right away, the S&P should not break below 1438, .and today’s nine-point recovery was a good start. But even if it got as low as 1428, or even if it went further down to 1408, I would not worry and would not say that the uptrend is broken. Below that, though, I would certainly revise my outlook.

While we are in this benign environment and others are worried, we can take advantage of bargains like Isolagen (ISL), the subject of Monday’s Flash Alert. We also can move with confidence on any opportunities from March-quarter earnings reports, which start in earnest next week. Although most companies have been pretty quiet in advance of the conference calls, there have been some developments worth thinking about.

Biotech MegaShift

Amgen (AMGN) delayed their first-quarter conference call by four days to April 23 so that they can include the top-line results of a Phase III clinical trial of Aranesp, as a treatment for anemia in small cell lung cancer patients receiving chemotherapy. Unfortunately, the delay came a day after the CFO was replaced, so the conspiracy theorists immediately concluded that management knows the results, they aren’t good, and the CFO resigned. I don’t believe anyone at the company knows the results yet, and I think the CFO was dumped because he hasn’t been effective in communicating with Wall Street. The obvious evidence of that is the slide in the stock from late January till now. The CFO’s replacement, who joined Amgen last year as VP of operations strategy, previously was managing director of investment banking at Morgan Stanley for 18 years. He certainly should know how to talk to the Street, and he probably wouldn’t be eager to take the job if he knew terrible news was coming.

Having said that, Amgen does have some issues and meetings coming up that they have to wade through to get the stock back on track. Recall that Aranesp, their second-generation stimulator of red blood cell production, is approved to treat anemia associated with either chemotherapy or kidney failure. Aranesp and the first-generation product, Epogen, accounted for $6.6 billion in sales last year, or 48% of revenues.

But Aranesp started to see troubles last fall when a Danish trial in head & neck cancer was halted due to a higher death rate. About the same time, a Phase III trial for anemia in cancer patients not being treated with chemotherapy failed to reduce the need for red blood cell transfusions and showed an increased risk of death. Amgen said that it would not file with the FDA for approval for this indication, which accounts for about 10% of Aranesp sales on an off-label basis. The FDA then required a “black box” warning on Arenesp’s packaging, warning doctors about the risk of death if the product is used in high doses, with the standard caution against off-label use.

All of that brought the stock down from its $77 high last October to $68 in February, where I recommended buying the two-year LEAP calls. The Oncology Advisory Committee will hold a meeting on May 10 to review Aranesp’s effects on survival and tumor progression in cancer patients, and Medicare is reviewing all of its policies related to this class of drugs, including reimbursement levels.

In truth, little has changed since my recommendation. Aranesp is still the best drug for beating chemotherapy-related anemia. It’s too bad that it didn’t work in non-chemotherapy cancer-related anemia, but that was just one of many potential drivers for future growth. Amgen still has the best pipeline in the biotech or pharmaceutical industry, with a whopping 48 molecules in the pipeline. The “black box” warning, which I discussed in the March 15 Radar Report, applies to a small portion of Aranesp’s sales.

In regards to my recommendation to purchase the Amgen LEAPs rather than the common stock, subscriber Kenneth asked: “At what intervals should we continue to buy these LEAPs as they go lower? Like you, I believe they will be a lot higher 21 months from now.”

Amgen should report an excellent March quarter, with revenues up 15.6% to $3.7 billion and earnings up 18.7% to $1.08. No doubt the May 10 Advisory Committee meeting will pressure the stock until then, and I am sure Medicare will take any excuse to try to chip away at the reimbursement rate. But the important thing about all these issues is that they will soon be behind us, and when the pressure on the stock lifts, I expect it to get back to its old highs by the end of this year and easily hit our $95 target by the end of 2008.

That would mean the January 2009 $70 LEAP call contract (VAMAN) would hit my $25 target ($95 minus $70 equals $25). I am making it a Top Buy at current levels, before the earnings report and the Advisory Committee meeting. So the answer to Kenneth’s question is: “Now!”

I’m not changing the $12.50 buy limit, because I expect AMGN stock to bounce back to $70 just on these two events. If you are starting or adding to a LEAPs position, you could just as well buy the $60 call (VAMAL), which would be worth $35 at expiration if my stock price forecast is correct. You’d make about 400% on your money instead of over 500%, with somewhat less risk. But to keep things simple, I am sticking with VANAM for the Radar Report, but the two contracts will trade in lockstep.

Biogen Idec (BIIB) drew a question from Saty: “What is happening with BIIB? It is nowhere near the possible target price of $23 from $12.”

BIIB will report first-quarter results on May 2, and the whole key to the stock is the rate of acceleration in Tysabri sales. With as many doctors and clinics trained as they have, I am expecting an upside surprise and increased guidance. That is the key to getting the common stock from today’s area of around $45 to over $68 by next January, where the January 2008 $45 LEAP call (YZUAI) will be worth $23 or more. With just three weeks to go before the earnings report, buy YZUAI up to $12 for my $23 target.

Dendreon (DNDN) shot up to $25 on Tuesday on a short squeeze, then plunged to $18 when the JMP Securities analyst said that Provenge only has a 50/50 chance of approval and Leerink Swann staged a teleconference with three FDA experts who tut-tutted that Provenge will not be approved. Some of the “owners” of the 23 million shares sold short must have breathed a sigh of relief as they covered their shorts yesterday and today with somewhat smaller losses than they were facing.

There are two reasons why the shorts are wrong. First, at the end of three years, 34% of the patients who took Provenge were alive, compared to 11% who got the placebo. So the drug improves three-year survival chances from 1-in-10 to 1-in-3. Oh, and you don’t have to go through chemotherapy, either. If you do want chemotherapy, it is the very nasty Taxotere, and guess what? Patients who take Provenge along with Taxotere tolerate the chemotherapy better and have a much better chance of survival than those who take Taxotere alone.

Pretty compelling, yes? But I will admit that the old FDA might have turned Provenge down anyway. That brings us to the second reason the bears are wrong: The new FDA Commissioner, Dr. Andrew von Eschenbach. He has said that he wants to change the FDA to be “a bridge, not a barrier” and “put patients before process.” So he took Provenge away from the usual chemotherapies panel, a stickler for “process,” and had it reviewed by the Cellular, Tissue and Gene Therapy panel. He also has said that he wants to end the suffering caused by cancer by 2015, and that medicine is on the verge of a new paradigm in cancer treatment to bring immunotherapies to the patients who need them. And he is a prostate cancer survivor.

So, I think the FDA will do just what the bears are saying they won’t do: Break historical precedent and approve Provenge on May 15, requiring only completion of the ongoing trial as a “Phase IV” post-approval trial. Really, the precedent was broken when the advisory committee voted to approve Provenge. From 1998 to 2005, of the 38 drugs recommended for approval by the drug advisory committee, all were subsequently approved by the FDA except one drug whose application was withdrawn before FDA made its decision.

What will approval mean for DNDN? The company has numerous patents around the antigen cassette technology used to make Provenge. The market for the initially approved indication, androgen independent prostate cancer (does not respond to hormone treatment) is at least a billion dollar market. Dendreon will do trials to see if Provenge helps earlier stage patients with androgen dependent prostate cancer, a $4 billion to $5 billion market. They’ll also restart their breast cancer and head & neck cancer trials using the same antigen cassette technology — a couple of more billion dollar markets for starters, and both expandable to earlier patients.

I think approval will put the stock in the $30 to $40 range as the remaining shorts cover, and then when they sign their first distribution deal with a major pharma, it will go over $40. So, I am putting DNDN back on the buy list with a $15 limit and a $35 target price.

Geron (GERN) said that the Patent Office issued a preliminary ruling rejecting three of the key human embryo stem cell patents held by the Wisconsin Alumni Research Foundation and licensed exclusively to Geron. This should not affect GERN stock much, because the appeals will take years and the Patent Office often changes its mind. Geron would still have the use of the technology, and already has moved far beyond it. With the California stem cell initiative finally spending some money, Geron is well-positioned for the inevitable positive news stories about this powerful technology.

Roberto asked: “What are the differences between the workings of Dendreon and Geron “cancer vaccine?” Is cellular functioning and response patentable? Otherwise, those who spend for R&D may run out of money to develop the cure.”

Great questions, Roberto. Dendreon extracts cells from the patient’s tumor, amplifies them, attaches an antigen and reinfuses them to “teach” an immune system to attack those cells. Geron is working with a “silver bullet” technology targeting telomerase, which occurs in everyone’s cancer cells and hardly anywhere else. They both can be thought of as therapeutic vaccines, but they are otherwise totally different. Geron licenses its basic patents from Baylor University, but in both cases there are complete patent estates around the drug, the method of making it and the method of using it. If telomerase is going to work, Geron has the funding to complete the necessary R&D. I think it may work, and the payoff is gigantic if and when it does. Buy GERN under $9 for a trading move to $18 on good news from either their stem cell or telomerase programs. Longer term, I think this stock will go much, much higher.

Isolagen (ILE) makes me proud of you — you are legging into the stock without running it to the moon. My guess is that we collectively have taken something close to half a million shares away from the market makers, still under the $4.50 buy limit. If you missed the Flash Alert on Monday, please read it on the website and get on board “the next Dendreon.” Buy ILE under $4.50 for my initial $9 target.

ViroPharma (VPHM) drew an insightful question from David: “If Genzyme’s Tolevamer outperforms Vancocin in its Phase III clinical trial results to be released in the second half of this year, would ViroPharma stock take a significant hit? Should we consider getting out before then?”

I think the Street has completely discounted Vancocin as a long-term profit center for VPHM, and remember that the company itself has always expected generic competition in 2009. I suppose the stock could get hit on any good news for Tolevamer, but it may come from higher levels if VPHM announces some acquisition and in-licensing deals first. I am sure these are on the way; the only question is timing. Also, Tolevamer is not an antibiotic, and there may be some benefit to administering both Tolevamer and Vancocin for c. difficile diarrhea. Buy VPHM on dips under $13 for my $28 target.

Content on Demand MegaShift

If you want to get a peek at some of the stunning technologies coming in this area, watch this nine-minute video from a February 2006 conference in Monterey. Jeff Han is a research scientist for New York University’s Courant Institute of Mathematical Sciences. This was the first public demonstration of his intuitive, “interface-free,” touch-driven computer screen, which can be manipulated intuitively with fingertips, and responds to varying levels of pressure. It is great stuff, and just one example of why I am so excited about the profits we can make in this sector.

Zhone (ZHNE) had four insiders buy over four million shares in total at the end of February and beginning of March. Ed asked: “I’ve been holding a large number of ZHNE shares for some time. Recently insiders have been buying globs more! What’s your take on that? Good time to buy more?”

It almost always is a good time to buy when insiders buy, and my only hesitation is that they’ve done this before and been wrong. But this time I suspect their timing is right, as the growth in Zhone’s new products is finally set to overcome the decline in legacy products. Also, the insiders would not do this if they knew that they were going to fire Mory Ejabat — a step that would leave the company rudderless. So the answer is “yes”, this is a good time to buy ZHNE under $2 for a $5 target.

New Energy Technology MegaShift

Lessened geopolitical tensions with Iran were supposed to drop oil prices back into slumberland — surprise! As world economic growth drives forward (pun intended) and the summer driving season hits the U.S., oil price levels look great for our alternative technology stocks. I am expecting good guidance from all of them on the March earnings calls. For now, continue to buy any of the New Energy Technology stocks that are currently trading under my buy limits.

WiMAX MegaShift

MobilePro (MOBL) was the subject of a question from George: “I understand that you recommended MobilePro as a highly speculative company that might well not make it. Question: Is it not in Cornell Capital’s best interest to stop the dilution of the stock and ensure the success of this company? If MobilePro goes under, how does Cornell Capital gain? Also, if new capital could be obtained and Cornell Capital removed from the equation, how big of a pop might there be given the current business fundamentals? Finally, do you feel comfortable with the trend of their business/orders? I would think key corporate members are looking for a place to land if/when they go under and might not be focused on the work at hand.”

Cornell Capital is being investigated by the SEC for short selling stocks of companies to which they have lent money — possibly “naked” short selling, which would explain the large number of “fails to deliver” that plague MOBL — and making their money as the stock collapses. If MOBL had to file bankruptcy, Cornell Capital would squeeze out the shareholders and own all the businesses, technology, etc. They could then restructure the company, sell some parts, buy other things and take it public again some day. I am not saying that they are selling short or that this is their plan, but an awful lot of companies they get involved with wind up selling for pennies. I was counting on Jay Wright, an experienced Wall Streeter, to steer around this trap, but he has fallen into it. If he can find another source of funding, the stock will be in double digits (cents) in a hurry, and I think we should hang in there for that possibility. As for management distraction, you are right — but at least we haven’t seen many bailing out yet. MOBL remains a hold to see if the CEO can resolve the situation.