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Biotech, Bubble or Risk ON Trade

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March 23, 2014 – Comments (37) | RELATED TICKERS: IBB , APPY , DNDN

BIOTECH INDEX IBB broke below the 50 day moving average on Friday during a sharp broad based biopharm selloff. 

The Index has touched the 50 DAY moving average five times in the last year, always breaking off of the bottom, and moving back upward creating good entry points for longer holders or traders,  the break was sharper on Friday, and some would suggest the trend is broken.

Some have suggested Biopharms have been over heated the last year, potentially forming that four letter word….bubb le.   When a sector is on edge, it doesn’t take much to trip it and apparently  Democratic lawmakers questioning the pricing of Gilead Sciences Inc.’s new hepatitis C drug, (Sovaldi), provided the catalyst for the selloff.

Lawmakers diddling and markets reacting are nothing new.  A bubble can lift all ships and some such as our resident biopharm experts, zzlangerhans and Porteuille have questioned the rafts rising with the yachts.  When a sector sells off, all ships can also sink, but eventually the bouyant will usually rise.

This is hard to calculate in the biopharm world as many are at different levels in their pipelines. 

Many that sank in share price Friday do not have drugs on the market and few have a drug costing $84,000 for six weeks.  It’s very hard to justify pricing on drugs, but if they extend life, clearly they are wanted by those with the disease.  Having a drug in approval does not mean a company will be profitable.  For example DNDN, SVNT (Q), XOMA).  A shift from approval, to marketing, to acceptance by insurance, to prescription by doctors can be difficult for some companies to achieve.  They usually hope for a buyout.

Biopharms are high risk/high reward (when successful), but you have to know when  to buy and when to sell. There are cycles in development, phases of testing, approval risks, interaction, effectively, etc.  Anyone who believes any biopharm is a sure thing is probably betting with conviction bias.  It’s great to think the best, that all companies will succeed and improve the human condition, but that just doesn’t happen.  Shorting a BIOPHARM, or down thumbing it on CAPS is not anti humanity, it’s looking at all sides of the valuation and possibility.

Some biopharms “know” they will never succeed, but pursue the path, fund raising, presentations, press releases as if they believe they will.

Drug development takes time and money, and not all will be successful. Drug prices are usually high based on the cost/risk to bring it to market, but also because the patent time is short and generics will eventually take over.

It is very unlikely the government will do anything about pricing.  Is this recent selloff weakness to buy into?  I think not in the short run.  While technical analysis generally can only show what has happened and trends that might develop, the perceived bubble will cause hesitation to ride that wave back up.

Still, when a market is high, and many believe we are getting there on the indexes, money tends to go more heavily into risk to try to generate better returns.  Where the smart money will go is hard to say, but I think some will be more careful about biopharm. 

This does not mean to avoid them, but always weight the higher risk, especially those in development.  The cream will rise, but don’t buy the coffee grinds.

ZZ gives great pitches,  he doesn’t so much time his calls, so riding along can put a dent in your CAPS spread for awhile, but the 80% accuracy in this arena is extremely commendable.  Still, as with any CAPS player, you can’t always figure in timing.

While not biopharm, I tagged ADZ as an ETF trading about 15% above Net Asset Value (NAV).  I see some Fools followed along, but either didn’t read my small print, or didn’t use a limit order.  Their calls kicked in 15% lower than mine, near NAV.  With a Biopharm, there are multiple catalysts and sometimes you have to be nimble.  ZZ’s call on APPY is such a call.  HE can have a downthumb one week and an upthumb the next week.  Biopharms trade on catalysts.  The upthumb does not denote long term expectations as an approval of APPY1 will not necessarily translate into sells, and with ZZ, I think APPY will be like SVNT and DNDN even if they receive approval.  Still the filing and then the approval could gererate short term share rising catalysts.  Tradeable, but requiring timing, and always at risk.

It’s good to understand a sector and learning the players. Learning which ones are rafts and which ones are yachts, when the market has bid one up with the other or down with the other.

I would be careful of the risk laden biopharm Index, the potential bubble, and understand the ultra high risk, especially of those in development stage.  Study the index and then find the cream.  If you try to time an analyst, a CAPS player, or a pump/dump newsletter, your timing may be donating to someone else’s early retirement as you drift further from your own.

Disclosure:  I make a few biopharm trades. I like ZZ's thesis on APPY.  I'm holding BLUE.  I didn't hold JAZZ long enough, so I've got the BLUES to back me up.

Disclosure:  If I knew anything would I be posting here??

The Biopharm Index dropped hard, suggesting close monitoring, but not all ships are rafts and not all are yachts and I'm often stuck in a dingy or bailing.  Average in, don't bet the pharm....ummm  farm.....

The Sky is not falling today, but I wish someone would keep the politicians locked up better.

TSIF

37 Comments – Post Your Own

#1) On March 23, 2014 at 5:36 PM, portefeuille (99.61) wrote:

https://twitter.com/portefeuillefun/status/447460981803716608 :)

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#2) On March 23, 2014 at 6:04 PM, portefeuille (99.61) wrote:

... and nice post. The zzporte cash ratio is a little higher than usual currently and we are fairly well diversified with just one really large position (TKMR). Still barely enough for 0.05% of the shares, so we are still far from being a major player. For now :)

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#3) On March 23, 2014 at 7:04 PM, TSIF (99.96) wrote:


If you're not careful, some day you will have to start filing SEC paperwork indicating that you are a "major player"!!!!!

I watched your TKMR position and I will say you've got stones!  I couldn't hold that much of a gain.  You have definitely  been good for ZZ, helping him balance his data/thoughts.

Really appreciate all you and ZZ do.  I'm almost there on learning to twitter, if just to follow you....all in all though, like ZZ, I don't think I could be bound to a 140 character world....  :)

Hoping that you have more Yachts than rafts if the index declines.... I strongly suspect you do!

Some people think they have Bismark's and Titanics (from their builders point of view)...... 

TSIF 

 

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#4) On March 23, 2014 at 9:23 PM, anchak (99.84) wrote:

IBB and BIB - are momo plays - their behavior needs to be analyzed from that perspective.

I rarely have time to research more than a cursory glance - so I stick with the index ETFs....

Good post - I am currently wary of this sector

Best

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#5) On March 24, 2014 at 1:31 PM, Mega (99.95) wrote:

What's this about yachts being better than rafts? You'd be happy to have a raft if your yacht capsizes.

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#6) On March 24, 2014 at 1:34 PM, Mega (99.95) wrote:

Just ask Larry Ellison.

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#7) On March 24, 2014 at 2:30 PM, TSIF (99.96) wrote:

Unless the raft was beside of the Yacht when it happened.....

Plus there's not much room on the raft for the bar and the crew... 

I think I'll just stick to my dingy....

 

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#8) On March 24, 2014 at 2:45 PM, Mega (99.95) wrote:

I see you boldly red thumbed TKMR.

Zzporte may have lost more than my annual salary today. (Although hopefully not.)

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#9) On March 24, 2014 at 4:03 PM, TSIF (99.96) wrote:

I just pitched it that it was a WWT

I haven't had one in a long time. I thought I'd timed that VERY nicely as an upthumb on the selloff...although these type of selloffs usually dwell, base and start dropping again.  ZZ might be the CEO of TKMR someday....I wouldn't want to get on his bad side...he might supenea my email like another biopharm did one time!

I do short ZZ and Porte on occasion.  I really couldn't believe he upthumbed HEB at $0.50, but generally he isn't too concerned with a starting point, but I banked the down at $0.40 for a quick 20 points.  Long run it could rise again.

I wouldn't do it on TKMR though.....although maybe I should have pretended I did.... :) 

 

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#10) On March 24, 2014 at 4:27 PM, Mega (99.95) wrote:

They say you're supposed to buy when there's blood in the streets. There is a little bit. But I'm going to wait to buy biotech until the storm drains fill up with blood and the national weather service issues blood flood warnings. There will be so much blood that people will have to climb on top of their houses to be rescued by boat.

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#11) On March 24, 2014 at 4:36 PM, TSIF (99.96) wrote:

Wow, did you really have an 800 point day?!!!

If you extrapolate that to real life you could put a down payment on Larry's yacht!!!

Won't be too many people left to buy if there is that much blood in the street!!!  I think this sell down could go on awhile, and if it does we may get into the lazy days of summer when the portfolio managers take our money and disappear for a few months.

I'm not sure that ZZPorte wants to lok at a computer today...I have a tough time opening my trading account after a bad day, I have to squint with one eye, take a deep breath, open the eyes a little more, deep breath.....

And then remind myself it's my trading account and I just bought a little more education!!!

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#12) On March 24, 2014 at 5:31 PM, Mega (99.95) wrote:

If you extrapolate that to real life you could put a down payment on Larry's yacht!!!

I lost about $30 today which is a little underwhelming compared to +900 CAPS points.

And worse, our pay was cut slightly at work. :(

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#13) On March 24, 2014 at 8:11 PM, portefeuille (99.61) wrote:

No problem, I have looked at stock quotes and portfolios since the late 70s and at my own portfolio since the late 90s and worked in equity research / arbitrage for a brokerage and as CFO / financial controller for a startup and now for well over a year as co-manager of the zzporte biopharma equity portfolio. Little can shock me :)

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#14) On March 24, 2014 at 8:21 PM, portefeuille (99.61) wrote:

With well over $1M invested in biopharma equities AUM has been up or down by > $30k within a few hours quite often in the past few weeks, down around $70k today, see twitter. And I don't think we will ever work for or own Tekmira :)

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#15) On March 24, 2014 at 10:16 PM, TSIF (99.96) wrote:

Sounds like you didn't get hit too bad...some of the biopharms were down MUCH more than 6-7%.

It was a broad based selloff, so no doubt some were over sold and can be bought back.  Good think you had some cash. :)

Overall, however, I don't think the selloff is over. I suspect it will be a rough month or more for bios in general.  Intermittant bounces back up and deeper selloffs...

Risk on/Risk off....

Specializing in a sector has a lot of benefits, but some extra risk....find those yachts....  :) 

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#16) On March 25, 2014 at 6:16 AM, portefeuille (99.61) wrote:

We ended 2013 in the green by around $149k.

https://twitter.com/portefeuillefun/status/418087749426507777.

Now in the green by around $464k (i.e. up around $315k YTD), with the benchmarks flat.

https://twitter.com/vikramkhanna_/status/448390072220409857.

We were in the green by around 630k at the peak

https://twitter.com/portefeuillefun/status/443343870198157312

and if the mini-crash continues for another day or two my post tax #zzporte income since the start in early 2013 will be less than $2/h, so if I did not believe in our ability to make a few million dollars over the next few years I would do something else :)

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#17) On March 25, 2014 at 6:29 AM, portefeuille (99.61) wrote:

A large part of my own (VSS) portfolio is invested in far out of the money Medigene stocks and call warrants

http://www.comdirect.de/inf/optionsscheine/detail/chart.html?timeSpan=6M&ID_NOTATION=74384532#chartType=candle&e&

BTW and I will most likely put a large part of my Q1 remuneration into more Medigene stocks and warrants, so my own portfolio will be far less diversified and far more volatile than the #zzporte portfolio.

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#18) On March 25, 2014 at 9:01 AM, TSIF (99.96) wrote:

If you like what you do then it's not work right!  $2 an hour would be a bonus!  :)

Plus you're forcing yourself to keep analysising and learning, even though biopharms are probably the toughest.

That is a tease, however, to give you stock pick that has your most conviction and none of us can trade it!!!  :)

You use to be really fond of EMC.  I still trade it, the waves are fairly predictable, but I might be left with no shares and this thing finally popping the top on one of the cycles.  It's stepchild VMW and it are finally in sync on 52 week highs.

Thanks, and GO TKMR, even if it ends up being an accuracy hit for me....I'm pretty content with 80% accuracy and freedom to experiment and not be burdened by it.... :)

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#19) On March 25, 2014 at 9:44 AM, portefeuille (99.61) wrote:

You can trade MDGEF in the U.S.. At least you can buy it and sell it if you bring some time. You should use reasonable limits, though, i.e. close to the price it is trading at in German trading translated from EUR to USD.

http://www.comdirect.de/inf/aktien/detail/uebersicht.html?ID_NOTATION=87670981.

 

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#20) On March 25, 2014 at 10:15 AM, portefeuille (99.61) wrote:

Today we are in the green by around $30k, so down around 3% from Friday's close, when things, as I said, looked like this :)

https://twitter.com/portefeuillefun/status/447460981803716608.

 

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#21) On March 25, 2014 at 10:43 AM, portefeuille (99.61) wrote:

You use to be really fond of EMC.

Funny you mention that. I sold my last EMC and my last QGEN (a Düsseldorf company) shares on March 14 and put most of that money into Medigene shares :)

http://caps.fool.com/tag/duesseldorf.aspx.

düsseldorf

düsseldorf2

düsseldorf3

 

VSS in Düsseldorf in the early 80s :)

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#22) On March 25, 2014 at 10:54 AM, TSIF (99.96) wrote:

And you didn't tell me!! :)
What's your highest conviction US tradeable stock...?  Are you all biopharm now!  :)

I trade it between $23 and $27...it popped $28 finally....not looking to hold to next earnings.

Regarding the markets....gains today won't hold.  Sentiment is shifting.

My 8-ball suggests taking some profits on the bounce...cycles of lower lows and lower highs...but keep the Yachts!!

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#23) On March 25, 2014 at 11:24 AM, portefeuille (99.61) wrote:

#22 My portfolio is mostly biopharma now. IPHYF has decent U.S. trading volume and GS really likes it, as do I (200 IPH:FP in the zzporte portfolio).



enlarge

 

One of the somewhat safer stocks I like is MorphoSys (200 MPSYF in zzporte).

http://www.bloomberg.com/quote/MOR:GR



enlarge

 

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#24) On March 25, 2014 at 1:23 PM, portefeuille (99.61) wrote:

200 IPH:FP in the zzporte portfolio

2000 IPH:FP in the zzporte portfolio

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#25) On March 25, 2014 at 1:55 PM, TSIF (99.96) wrote:

I was wondering about that!  :)

200 didn't sound like a lot of conviction.

Thank you very much Porte for sharing ideas.  These foreign ones will take a little more time for me to DD compared to US stocks, but BIOPHARMs are at a completely different level anyway and sometime you have to add a beer and a dart board to the process.

All the best,

TSIF

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#26) On March 25, 2014 at 4:30 PM, Mega (99.95) wrote:

TSIF, what's your highest conviction pick?

I'm rapidly warming up to Syncora (SYCRF). They are a bond insurer, once left for dead but now very much alive due to a $400M cash settlement from JPMorgan last month.

Book value is currently $190M and earnings power over the next few years is something like $60M a year. With a market cap of $130M it looks extremely cheap.

They also have a similar lawsuit they are pursuing against AIG. If that is successful they should have another big pop.

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#27) On March 25, 2014 at 5:21 PM, TSIF (99.96) wrote:

Hi Mega, a good old fashion blog of ideas would be nice as I've been rather stale on long ideas of late, but I was afraid I would get asked after I boldly made an extraction from Porte while I had his attention.  I don't know when/if he sleeps.

I'm have committment problems in my stock relationships lately and decided to mostly trade.  I really did buy some of the Russian stocks on my earlier blog and i think SBRCY, the Russian bank is moderate risk with some upside left, but I can't recommend the risk for others.  I checked the ones in my profile that have some upside promise if the bullets don't fly further into Ukraine...

I'm finishing my natural gas down plays...there will be another month of fluctuation, but eventually it will get into it's summer mode.  DGAZ has been a good friend that I've rotated up into and out of multiple lots, and it will probabably cycle enough for another 5-8% short 3-5 day trade or two.

I've been trying to edge into my annual point OIL back down, especially with the supply side well up, but it waivers with global issues. I trade SCO from $28.50 to about $34 this time of year....

For long, though, I'm scaling into a small cap called IMRS that teacherman1 and I have been tossing back and forth on our pitches.  The selloff today puts it near my second lot buy.  This could be a two year plus equity, nothing to speak of until late this year if then and I have to hope they don't dilute or investors don't get bored.

I like BIOS in my trading account and have been dabbling, hence this blog.  I'm looking for one in early phase, and I have some BLUE, but not a lot of conviction.

I think SKYW could come out of it's doldrums over the next year, but it's a bit risky.

So I'm mostly putting down one or two a month that spike ecen though they printed bad news, (SKUL a few weeks ago)....

Rocking in and out of NG, Russian and deciding if I want to bother on my oil play and LOOKING for just the right gal to be mine....I was thinking about a Cannibis stock, but there are so many, I keep getting confused which ones are buying land, making pot holders, growing seeds, selling extracts..so many to chose from, all destined to be...

And KRED is a favorite..boy if they can sell a bottle in every venue they claim to be in, they will be millionaires.....

I'll look at SYCRF, sounds familiar....

 

 

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#28) On March 25, 2014 at 8:13 PM, portefeuille (99.61) wrote:

#zzporte top40 positions.



enlarge

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#29) On March 25, 2014 at 9:14 PM, TSIF (99.96) wrote:

Thanks Porte, I'' skim for some ideas.  I think we will get a more pullback,  might be some entry points.

 I have a space in my RL for another bio, but it's chicken feed compared to your collaborative!

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#30) On March 26, 2014 at 11:17 AM, portefeuille (99.61) wrote:

The third largest position is not EXEL (20000 shares). Probably a good stock to buy today.

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#31) On March 26, 2014 at 11:18 AM, portefeuille (99.61) wrote:

not -> now.

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#32) On March 26, 2014 at 12:21 PM, TSIF (99.96) wrote:

Thanks Porte, I was watching them this morning and reading up on them....

I try market timing more than you two do...I think that this is a two day sell off....the shorts were in pretty deep and need to buy back....

Unless of course some analysts start pounding the table....

You really can't time a bottom, but from my experience if this breaks $4.00 on the downside then it will settle about $3.70-$3.85 for awhile.

Thanks!!!!

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#33) On March 26, 2014 at 1:23 PM, TSIF (99.96) wrote:

I guess the question here is what is the end game.

1. This will rise because of optimism, cash on hand, and the general trend of a sub $5 biopharm with a drug in test and then crash when disapproved for safety and or effectivity. So play the lemmings, but be nimble.

2. This will rise, and will pass ......

Longer road for it, does like a good play for EITHER 1 or 2.....

 

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#34) On March 26, 2014 at 3:29 PM, portefeuille (99.61) wrote:

$3.70-$3.85

Today's low was at around $3.90. That might be close enough.

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#35) On March 26, 2014 at 3:34 PM, TSIF (99.96) wrote:

Might be....hit the CAPS open at $3.90.

Huge volume...48M shares, might just about do it...you can never hit a bottom, but I'd rather lose a few cents and try to see some buyers that will be long term holders....good institutional holdings, so despite the MASSIVE float for a biopharm in this stage, it seems to have some loyalty.....

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#36) On March 26, 2014 at 7:21 PM, TSIF (99.96) wrote:

I bought into some of the $3.87's near the close.  Thought it wasn't going to fill, but might hit in the more volitile after hours.  Of couse I wouldn't believe me either, a random stranger on a MB if they said they painted the bottom of the tape exactly. 

Of course tomorrow is another day, I think this could drift down into my initial range.  Risk on in a sector tends to attenuate movements. 

It will be interesting to see how the company spins this.   

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#37) On March 27, 2014 at 10:47 AM, portefeuille (99.61) wrote:

Please don't buy any of the stocks I recommended above (EXEL is a zzporte position that zzlangerhans initiated, so that one might be ok). I decided to quit making recommendations.

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