Three Appealing Micro-Cap Stocks

 | Dec 19, 2016 | 2:00 PM EST
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ohgi

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gemp

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gnus

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pfe

Here are three more company write-ups culled from the plethora of one-on-ones I had at the LD Micro conference earlier this month. I've written about One Horizon Group (OHGI) for Real Money before, but Gemphire Therapeutics (GEMP) and Genius Brands International (GNUS) were introductory meetings for me.

I met with Gemphire's CEO, Mina Sooch, at the LD Micro conference. GEMP's core product is gemcabene, a once-daily pill aimed at the treatment of dyslipademia and Nonalcoholic steatohepatitis (NASH). Members of Gemphire's management team licensed global rights to gemcabene from its developer, Pfizer (PFE) , in 2011. What intrigued me about Gemphire was the drug's pedigree and potential indications. Gemcabene was developed by Pfizer to be used alongside statins such as Pfizer's own Lipitor to reduce triglycerides.

Gemphire's management has focused the initial trial of gemcabene on formulations geared to treating Homozygous Familial Hypercholesterolemia (HoFH), and results from GEMP's COBALT-1 trial are expected in early 2017.

Down the road, GEMP plans to have a trial of gemcabene for NASH and Nonalcoholic Fatty Liver Disease (NAFLD). NASH is an acute form of NAFLD, the most common form of chronic liver disease. The Mayo Clinic estimates that 80 million to 100 million Americans have NAFLD in some form. That is a startlingly high number.

GEMP went public in August and raised a net total of $26.2 million at $10 a share. GEMP shares are down since the IPO, and it's easy to imagine that such a small pharma could get lost in the shuffle of exuberant equity markets. Sooch noted that the $28.2 million in cash on GEMP's Sept. 30 balance sheet would be enough to last through the first half of 2018; cash burn is obviously an issue that must be monitored at Gemphire.

Treating NASH is the Holy Grail, not only for Gemphire but any pharma company interested in treating common liver conditions.

I have met OHGI's CEO, Brian Collins, on many occasions, and his message at LD Micro was consistent with prior encounters. One Horizon's SmartPacket software allows telecommunications companies to save money and bandwidth vs. other VOIP-based solutions. OHGI's most widely adopted VOIP solution allows travelers to have a portable home-based (with local calling code) number when abroad. Philippine Telco Smart was an early adopter and is in wide use among the many Filipinos who travel abroad to work.

The biggest prize for OHGI -- as it is for so many other companies -- is China. OHGI's Aishuo app, constructed with SmartPacket technology, has reached 43 million downloads since its rollout in February 2015. This number far exceeds the number I had envisioned when Aishuo was first launched. As impressive as the gross downloads figure has been, issues of monetization remain. In the first nine months of 2016, OHGI reported revenue of only $212,000 from Aishuo. Users can pay in-app in Aishuo for voice/data minutes and travel/direct-dial access, but thus far they are not doing so in numbers sufficient to generate meaningful returns for OHGI.

So, OHGI shares are trading near 52-week lows. Collins is still optimistic on Aishuo, but also on SmartPacket acceptance by new telecommunications customers, especially in Latin America. OHGI shares tend to move sharply on news, so shorts need to be careful that OHGI doesn't surprise the markets with new customer announcements. Frustrated longs would welcome that gratefully, as well.

The genius behind Genius Brands is Andy Heyward, who built much of Hanna-Barbera's classic cartoon library and other animated hits such as "Captain Planet" and "The Real Ghostbusters." The company' shows contain an educational bent and feature voice performers as diverse as Stan Lee and Warren Buffett.

I don't have kids so I am not that likely to see The Oracle preaching buy-and-hold on Saturday a.m., but what really intrigued me about Genius is the complete control of proprietary characters. Heyward rattled off a list of Genius content -- "SpacePOP," "Llama Llama," "Baby Genius," etc. -- and if any of these shows hit it big with the pre-teen set, he has the company completely prepared to capture licensing revenue from all manner of related consumer products.

That model seemed to work pretty well for George Lucas in the 70s, and while I am not predicting "Star Wars" from Genius Brands, I am very attracted to their educational-but-not-boring programming bent.

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