Friday, September 15, 2006

Southwestern Medical--Anatomy of a Penny Stock Hype.



Southwestern Medical Solutions, Inc. (SWNM.PK-$0.08) is a distributor of in-vitro diagnostic tests for the detection of infectious diseases in humans.

Readers will note on the stock chart four peaks in the price of the Common Stock of Southwestern (one in January, two in April, and one in August) all trended by spikes in volume, too. [The exaggerated one-day spike—to the upside in February and to the downside in April did not happen—charting errors.]

To understand this tale of the tape, our readers should follow the unfolding narrative:

On May 9, 2005, Southwestern (with the price of its Common Stock stalled at 15 cents per share—down from 40 cents per share in January 2005) announced that it had acquired the worldwide rights to the LABGUARD Accucheck Collection System, a
"technologically advanced device that is expected to significantly ease the task of on-site collection and testing, thus providing the highest level of safety and quickest possible results for the large and growing on-site diagnostic testing/screening market.”

On November 28, 2005, with the price of its stock trading at 5 cents per share, the Company announced that it had completed its “extensive clinical trials of the Company’s proprietary
LABGUARD on-site collection & diagnostic testing technology and was poised to bring this product to market through its many distributor alliances including international markets and OEM license of the product to two of the largest laboratory distributors in the U.S.”

“Having met FDA guidelines and requirements for a Medical Device license
,” the Company said (on December 7, 2005), “the final engineering & design for packaging/ assembly and quality control of its initial LABGUARD system commenced with a large California-based medical supplier.”

[Ed note. In the month of December, the stock price of Southwestern traded between 5 cents and 7 cents per share, on average daily volume of approximately 250,000 shares per day.]

On Tuesday, January 17, 2006, SouthWestern announced that it was “applying for, and expected to receive, CLIA (Clinical Laboratory Improvement Amendments) “Waived Status" concerning its proprietary LABGUARD testing & diagnostics device." The objective of the
CLIA program is to ensure quality laboratory testing. Management reiterated, too, that it was poised to bring this product to market through its many distributor alliances including international markets and OEM license of the product to two of the largest laboratory distributors in the U.S.”

[Ed. note. One week earlier, on volume of 110,000 shares, the common stock closed at 6 cents per share. On Thursday, January 12 the common stock closed at 7 cents per share on volume of 1.5 million. On Monday, the day prior to the ‘big’ announcement, the stock price surged to 13 cents per share, on volume of 1.5 million; and on the day of the announcement, on volume of approximately 4.6 million shares, the stock closed at 16 cents per share, after hitting a 52-week high of 20 cents per share.]

March 24, 2006, one of many “third-party” spamming e-mails (allegedly in progress for more than twelve-months) promoting
SWNM: Southwestern Medical Solutions (Stock Spam) is revealed:

  • “Investigative studies for its patent protected Labguard systems, Southwestern Medica Solutions continues to develop exciting advancements in products for the healthcare community. SWNM is poised to gain a strong market presence and build a healthy portfolio of high demand products…. Please Watch this One Trade Friday! Go SWNM!”

[Ed note. At the close of the market on Friday, March 24, Southwestern closed up one cent, at 11 cents, on trading volume of 495,000 shares. On Tuesday, March 28, 2006, the stock of Southwestern closes at 15 cents per share, on trading of approximately 1.6 million shares.]

On April 24, 2006, Southwestern ($0.15), announced that had received “confirmation that a major U.S. distributor of medical related products wished to become the exclusive distributor of LABGUARD.”

[Ed note. Did not the Company say—many times prior—that it already lined up “many distributor alliances.” Trading volume in the three trading days prior to the announcement saw trading jump to approximately 3.1 million shares per day, with an intra-day price variance of 7 cents -to- 17 cents per share, as compared to average daily trading volume of approximately 255,000 shares in the prior two weeks, with an intra-day price variance of 12 cents- to – 14 cents per share.]

On July 11, 2006, with the stock price down some 47% (to 8 cents per share) Southwestern stated that the Company was “working closely with governmental agencies [U.S. Food & Drug Administration—FDA] to commence its OTC clinical trials in order to offer the product as an over-the-counter device” (which would eliminate the need for professionals to conduct the diagnostic analysis of the LABGUARD systems).

On August 16, 2006, management said that the Company was “evaluating inclusion of a medical software program to license to hospitals and medical professionals that could literally change the physician-to-patient communication and education process as well as offer in depth analysis in real-time to the specific diagnosis.”

[Ed. note. See graph for corresponding price-volume changes.]

The Company says that its product portfolio includes Western Blot confirmatory tests for the Human Immunodeficiency virus (HIV), Human T-cell Leukemia virus (HTLV), and Helicobacter pylori; ELISA tests for Hepatitis E virus (HEV) and HTLV; Rapid screening tests for Hepatitis B virus, Helicobacter pylori, Malaria and sexually transmitted diseases.

A stock does not have to sell for less than one dollar per share to be a “penny stock.” It may sound oxymoronic, but Rule 3a51-1, promulgated under the Securities Exchange Act of 1934, defines an issuer’s stock, common or preferred, to be a “penny stock” if the stock does not maintain a minimum bid price of $4 per share.

Definition controversies aside--Southwestern is a penny stock. The Company is a non-reporting issuer, too, meaning that it does not have to file public reports or financial statements with the SEC [it trades on the
pink sheets].

"Without faith, hope and trust, there is no promise for the future." -- Adlin Sinclair

Southwestern may just have run out of faith and trust.

Last Monday, September 11, 2006, the SEC "temporarily suspended trading (terminating at 11:59 EST on Sept. 22,2006) in the securities of Southwestern (last trade was 8 cents per share) because of questions that have been raised about the accuracy and adequacy of publicly disseminated information concerning, among other things, the existence of applications for U.S. Food and Drug Administration approvals for its Labguard product, the existence of a patent and trademark, and the receipt of an order for the sale of several thousand units of Labguard."

Editor David J Phillips does not own any of the stock mentioned in this article. You can see his portfolio holdings in the sidebar. The 10Q Detective has a full disclosure policy.

7 comments:

doey said...

Hi David,

I appreciate you posting your portfolio holdings. I'd be curious to see a brief writeup of the dates of purchase and your approximate cost basis in each position. Thanks for all your hard work.

Penny Stocks said...

Thanks for the information on topics.I was excited for this article.
Thank you again.

Valerie said...

Hi David,

What is the status of this company presently. Did it get FDA approval. Where is it in the long run now. This technology is incredible and so many people would love early detection, thus I purchased several shares and then it seems the plug was pulled for some reason, now from your article I can see issues. What is the next step for this stock? I am curious???
Thank you

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Penny Stocks said...

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