Five Healthcare Stocks for a Happy New Year The accompanying table includes a basket of five small-cap stocks chosen from the ETF Innovators [ETFI] new healthcare indexes. The five companies are trading above their 50-day moving averages with expected upside catalyst(s) in the next six months or less. AMAG Pharma (AMAG) announced last evening that the FDA issued another complete response for its iron deficiency anemia drug ferumoxytol (Feraheme). More details are expected today at 8:30 AM [ET] when AMAG will hold a conference call , but the Company stated no additional clinical trials will be required for approval and stated the following issues remain to be clarified with the FDA prior to approval: (1) data to clarify a specific chemistry, manufacturing and controls (CMC) question, (2) resolution of the deficiencies observed during the pre-approval inspection of the Company’s manufacturing facility, and (3) finalization of labeling discussions (suggesting that approval is merely delayed). Earlier this month, AspenBio Pharma (APPY) completed enrollment in its pivotal Phase 3 clinical trial for AppyScore, which represents the first blood-based diagnostic screening test for appendicitis. On December 10, APPY guided for a time frame of 4-6 weeks for announcing the trial results with plans for an early 2009 submission for FDA approval in the form of a 510(k), which means results should be out within the next 2-4 weeks. In mid-December, BioDelivery Sciences (BDSI) submitted its Risk Evaluation and Mitigation Strategy [REMS] for pain drug candidate Onsolis (BEMA fentanyl) based on the feedback it received from the FDA's complete response ruling on the NDA in August. Since the FDA has informed BDSI that all other aspects of the NDA review are complete, the prospects for Onsolis approval are excellent – although investors and traders will likely have to wait six months since the Company has guided expectations for a Class 2 review designation. BDSI expects to generate positive cash flow from operations next year with approval of Onsolis likely by mid-2009 and the $30M milestone payment upon FDA approval + market launch is a significant catalyst by itself given the Company's current market cap of around $48M. Caraco Pharma (CPD) is still trading a value prices despite moving higher by about 2 bucks since I first wrote about the stock earlier this month . The pending tender offer for Taro Pharma (TAROF) by India's Sun Pharma (Bombay: 524715) implies a fair value of over 10 bucks for Caraco. Favorable growth trends for the generic drug industry include (1) nearly $70B in brand name drug sales with patent expirations through 2012, (2) a push to increase generic substitution rates from 65% of all prescriptions dispensed to over 70%, (3) continued industry consolidation of small and mid-caps by industry leaders such as Teva Pharma (TEVA) and Mylan Labs (MYL), and (4) the potential for legislation next year regarding generic versions of high-cost biological agents, with Merck (MRK) recently announcing plans for a bio-generic division which will initially target Amgen's (AMGN) anemia drug Aranesp. Cypress Bioscience (CYPB) and Forest Labs (FRX) announced positive Phase 3 results earlier this month for milnacipran in the treatment of fibromyalgia, which was statistically significant compared to placebo. CYPB has about 4 bucks in cash, zero debt, over 10 years of patient data for milnacipran outside the U.S., and a large database of milnacipran trial data confirming its benefit in the treatment of fibromyalgia. At current levels, the risk/reward ratio strongly favors the upside on milnacipran approval compared to the downside risk of more delays by the FDA – as an outright rejection appears highly unlikely given the statement by the agency at the time of the PDUFA date.