Celebration Express Inc. (BDAY) is the target of a so-called Shareholder Value Committee consisting of several independent funds, namely Spencer Capital and Thesis Capital. The Committee collectively controls approximately 19% of the company. The group unsuccessfully petitioning the board for two seats (while controlling nearly 20% of the company) in June. They were stopped dead in their tracks when the board reacted by instituting a "shareholder rights plan" that severely limited voting power, in an apparent attempt to thwart the group. In an open letter to shareholders dated August 7th, the group commented on the situation:

"We are now convinced, however, that we must have even greater Board representation than we previously requested in order to influence the Company's strategic direction in a meaningful way. Recent Board actions alarm us as shareholders: only last month, in an apparent response to our efforts, the Board unilaterally implemented a poison pill and adopted several bylaw amendments aimed at limiting shareholder rights. Significantly, the Board changed the Company's bylaws so that a majority of the Company's shareholders can no longer amend them. Rather, a supermajority of 66. % of the outstanding stock is now required."

Undeterred, the group is now threatening a proxy battle, saying in their 13D filing:

"In connection with the upcoming Annual Meeting, the Filers and the Shareholder Value Committee intend to file a proxy statement with the Securities and Exchange Commission (the "SEC") to solicit stockholders of the Company with respect to the election of directors ... [the group] determined to nominate Dr. Shubin Stein, Mr. Roseman and Matthew C. Diamond for election at the Company's 2006 annual meeting of stockholders (the "Annual Meeting"), which the Filers expect will be held in October 2006."

The group stated in an earlier filing that "they believe that the market price of the Common Stock does not adequately reflect its intrinsic value." This vague 13D filing was later clarified in the letter to shareholders:

"If elected, our nominees will push to establish a Board committee to consider and pursue strategic alternatives for the Company, including a possible sale of the Company. We believe this is a necessary step toward maximizing value for all shareholders, and a process that should be undertaken immediately."

A possible sale of the company would mean quick price appreciation. Most of the groups shares were acquired at or above the current market price - so they would likely be seeking a great premium in the event of a sale. The group plans to file its proxy statements and individually contact shareholders in the coming month before the vote. This company is definitely worth keeping an eye on - if the Shareholder Value Committee succeeds, it could mean quick profits!

Xtent Inc. announced their plans to IPO yesterday with their S-1 filing with the SEC. The company is seeking a $103m IPO to enter the $5b drug eluting stent (heart device) market. The filing noted that coronary artery disease, or CAD, is the most common form of cardiovascular disease and the number one cause of death in the United States and Europe. The disease kills over 650,000 people each year and afflicts over 13 million Americans, according to the American Heart Association. This makes the market for their product one of the largest in the medical devices world.

Xtent says that “current commercially available stent systems include stents with fixed-lengths of up to 33mm, and require a separate device for each stent used. Fixed-length stent systems require physicians to estimate the size and shape of the artery's lumen, and then use their judgment to select the proper length and diameter stent for the lesion.” The company aims to combat these shortcomings by creating customizable drug eluting stent systems that are “designed to enable the treatment of single lesions, long lesions and multiple lesions of varying lengths and diameters, in one or more arteries with a single device.” This, in turn, would simplify the process and enable physicians to act more quickly and accurately.

The company plans to have its products on the market in Europe in late 2007 and the United States at the end of 2009 (at the earliest). The company also faces approval requirements by the FDA, PMA, and European agencies before it can market any of its products to the public. Although risky, if the company’s technology is successful, it may become a cornerstone in the $5b (and growing) market for stent heart devices. Also, short-term traders might want to keep an eye on the IPO - sometimes it is a good impulse buy at open and then a fade in the afternoon.

Lilly Eli & Co filed their quarterly 10-Q statement with the SEC on August 4th, which outlined their current financials and also brought to light the magnitude of lawsuits coming as a result of their two blockbuster drugs Zyprexa and Prosac. The company is also involved in several other lawsuits, including a class action lawsuit and corporate lawsuits involving insurance coverage.

The company was slammed back in 2005 when the U.S. Attorney General announced that it was investigating the company for Medicaid fraud. The government argues that Lilly illegally promoted Zyprexa for unapproved uses, and seeks to recover millions of dollars on behalf of customers. This case is still pending and, the company warned, could expand from Zyprexa to include other company drugs. The company also stated that it settled 10,500 Zyprexa-related lawsuits last year; however, 7,600 remain with 850 tolled claims. Both of these cases are still pending. The problem now is that insurance companies are attempting to reduce their liability in the matter. In their 10-Q filing, the company stated:

"We have insurance coverage for a portion of our Zyprexa product liability claims exposure. The third-party insurance carriers have raised defenses to their liability under the policies and are seeking to rescind the policies. The dispute is now the subject of litigation in the federal court in Indianapolis against certain of the carriers and in arbitration in Bermuda against other carriers. While we believe our position is meritorious, there can be no assurance that we will prevail."

Later in the filing, the company also notes:

"We have experienced difficulties in obtaining product liability insurance due to a very restrictive insurance market, and therefore will be largely self-insured for future product liability losses. In addition, as noted above, there is no assurance that we will be able to fully collect from our insurance carriers on past claims."

The company recorded a net pre-tax charge of $1.07b during the second quarter of 2005 to cover the Zyprexa lawsuits and reserves "to the extend that they can formulate a reasonable estimate of". While all pharmaceutical companies often experience a number of lawsuits centered around their drugs, Lilly's $1.07b charge was above average. And, the company could face even higher charges in the future if it fails to defend its right to insurance payouts, loses insurance coverage, or fails to defend itself in the large government and class action lawsuits that are currently pending. The result will either be a cheap buy, if the company prevails when the dust settles; or, it could mean a potential diseaster for the company. Either way, it is definitely something to keep an eye on.