Use access key #2 to skip to page content.

GBMB update

Recs

15

March 24, 2010 – Comments (9) | RELATED TICKERS: DSCO , MDVN

More than two months ago, I announced my new approach to small-cap biotech investing to a breathless and adoring crowd (in other words, sirwanksalot). As much to monitor my own progress as for any other reason, it seems logical to deliver periodic updates on the strategy. I identified twelve biotechs with potential bottoms, and invested in three (as well as one other that I will mention at the end of the post). Here's the progress report:

MIPI - buy threshold of 2. Bought 5000 shares at 1.95 on 1/25/10. Current price 1.47. Down $2400. Molecular Insight has to be the most bizarrely-behaving little stock I’ve encountered. 2 seemed to be a good entry for a stock that traded over 6 a few months earlier without much apparent change in their pipeline or financials. My buy-in appeared to be the signal for a further collapse in share price, as low as 1.19 before I even knew what hit me. In February, the share price rose to the mid 2’s intra-day on two occasions before sinking back down like a bullet that had been fired into the sky. Buy-out rumors? Manipulation? Who the hell knows. I learned a lesson from my paralysis and put in a sell at 2.2, but I may not get a third chance. Last week the company issued a going-concern warning and the share price dipped yet again. But my loyal follower sirwanksalot got out with a profit, so at least I helped keep him supplied with baby oil and inflatable dates for the time being.     

MYGN - buy threshold of 23. Bought 1000 shares at 22.3 on 1/25/10. Current price 24.95. Up $1650. Revenues and profits continue to rise steadily without much of a reaction in the share price. I'm not sure why the market is hating on Myriad these days but I continue to feel this is the most undervalued medium-risk biotech. I won't sell under 26 without negative catalysts, and might continue to hold it indefinitely. 

GHDX - buy threshold at 17. Genomic Health broke through my threshold, dropping as low as 16.5 before recently rising as high as 20. But I never bought. I’d already taken a position in Myriad in this field and I thought that was the better play. I doubt I’ll own large positions in Myriad and Genomic Health simultaneously, but I still consider GHDX a solid investment below 17.

FOLD - buy threshold at 3.7. Amicus dropped through the threshold and then some, reaching a low of 3.1 before recovering somewhat. The market cap still mirrors cash, at a slightly lower level since the quarterly burn was reported in the last statement. No pipeline updates reported or expected until the end of 2010. I’d revise the buy threshold to 3 here and keep a close eye on cash – don’t want to get caught up in a dilutive financing.

BDSI - buy threshold at 4. Bought 5000 shares at 3.95 on 1/21/10. Current price 3.95. Even. BioDelivery has been very quiet. Too quiet. I’d probably write BEMA fentanyl revenues out of the equation and count on a partnership or a buyout for a significant upward movement. I still think upside strongly outweighs downside at this price but if you’re not in yet, I’d let it go below 3.5 again.

LGND - buy threshold at 1.8. Price dropped through the threshold and bottomed at 1.57 before recovering to threshold level. Quarterly numbers seemed OK but financials are no less opaque. Revise buy threshold to 1.6.

RGEN - buy threshold at 3.5. Another GBMB that met the threshold yet I didn’t buy, smarting from immediate smackdowns on MIPI and BDSI. It recently hit a low of 3.35 and bounced back to 3.75. I still like them below 3.5 and will likely buy if they get there again.

TTHI - buy threshold at 3.4. Probably the worst performance on the GBMB list. No sooner had I posted on Transition than the stock began a steep decline as low as 2.34, before recovering to the current steady-state at 2.6. I’m somewhat mystified to see Transition’s enterprise value below 30M, and it’s hard to imagine we won’t see that increase as the data release for AZD-103 phase II in Alzheimer’s approaches this summer. I’m thanking my stars I didn’t buy at 3.4, but I’ll set a new threshold at 2.5 and hope for the best.

RTIX - buy threshold at 3. RTI dropped below 3 intra-day on Feb 3 at which point a real bottom-feeding shark snapped it up. Ultralong somehow managed to swoop this at 2.93 and the share price hasn’t looked back, recently rising as high as 4.4. I think by the time I realized Ultralong was in, the price was already back over 3. I decided to stick to my guns and wait for it to drop a little more again. Never happened. Bye bye, RTI.

AUXL - buy threshold at 28. Auxilium also dipped below threshold intra-day, just before Xiaflex was approved sending the share price to 33. Auxilium is still an interesting story and possibly undervalued, but the thesis of my argument is no longer applicanle. Auxilium is off the list.

ADLR - buy threshold at 1.45. The share price touched 1.45 and then recently climbed as high as 2.1 on an uptick in Entereg sales before falling back. I didn’t buy, but if the share price drifts back below 1.5 again I’ll strongly consider it.

ANDS - buy threshold at 1.9. Anadys never hit my 1.9 threshold but came close after the market reacted poorly to preliminary data from the ANA598 phase II trial. The data was essentially uninterpretable due to unexpectedly high response rates in the standard-of-care arm, but the market seems to have re-thought its position and the share price now stands at 2.35. Given the uncertainty surrounding ANA598, I’ll maintain my 1.9 threshold for now.

Just to keep things going, I'm throwing two more bottoms into the mix.

Discovery Laboratories (DSCO) – market cap 79M, share price 0.51. Cash 31M, debt 12M, burn 6-9M. Discovery Labs is a classic baby biotech soap opera, with a price chart that reflects huge leaps of optimistic speculation invariably followed by crashing disappointments. Obviously, I’m hoping that at the current price the next move will be a leap rather than another crash. It appears the theme for 2010 will be preparation for yet another response to the FDA’s objections to the company’s data for stability of Surfaxin. There’s no telling how the FDA will deal with that response, but history tells us that optimism will resuscitate Discovery’s share price out of the sub-1 zone. And the most recent dilutive financing made it more safe to buy. I went in for 10000 shares at 0.55, and I’m down about $400.

Medivation (MDVN) – market cap 402M, share price 11.99. Cash 278M, debt 0, burn 6-26M. I waited years for Dimebon to be erased from the Medivation equation, so that they could become worth following again as a potential investment. I expect Medivation to rise again once the AFFIRM phase III trial of the prostate cancer drug MDV3100 draws closer to completion. The fly in the ointment is the ongoing partnership with Pfizer, which could end up getting tossed at any time and will probably drop another 20% haircut on the stock. I’d consider a GBMB buy if Pfizer drops Dimebon and the share price goes into the single digits.  

9 Comments – Post Your Own

#1) On March 24, 2010 at 2:27 PM, expatriot08 (28.69) wrote:

Thanks for your insights on those stocks. Love to hear your thoughts on ARYX. You think they have another rally left in them?

Report this comment
#2) On March 24, 2010 at 4:03 PM, dcsilver (62.24) wrote:

I'm starting to read everything you've written... TTHI is an interesting pick, but with 10 deaths at higher doses, I'm not sure I'd expect much from the patients on lower does of their Alzheimer's drug.  I'm surprised you haven't put AMRN on here.  I think it bottomed at at 1.00...

Report this comment
#3) On March 24, 2010 at 6:33 PM, totallyoblivious (29.87) wrote:

I'm loving these writeups you're doing; BDSI I've had my eye on in hopes it would drop a little more, but I may have to just bite the bullet and dive in at this level.  DSCO is looking very interesting to me too, but this one looks like it'll either crash or skyrocket depending on what happens with Surfaxin.  I'd be interested in hearing your thoughts on BNVI, which I think is near a bottom while waiting for news on approval for a phase 3 start of Menerba.

Report this comment
#4) On March 24, 2010 at 8:20 PM, dcsilver (62.24) wrote:

Also, I forgot about CBRX and ANPI.  Any thoughts?  I'm thinking of dropping some money into ANPI at .85 (worried about a new round of dilutive financing on the horizon)....  Don't think that I missed the down thumb on AMRN either by the way... Healthy debate is good.

Report this comment
#5) On March 24, 2010 at 10:37 PM, zzlangerhans (99.78) wrote:

I already follow over 100 biotech stocks that meet CAPS rating criteria or have done so in the recent past. That doesn't leave me much free time to pick through the hundreds of penny stocks out there for one or two potential winners. ANPI I looked at and erroneously entered a green thumb. I no longer muck with biotechs with sick debt.

If you buy DSCO and then wait to see what happens with Surfaxin, or buy TTHI and hold through the result of the AZD-103 phase II, you have missed my point. The idea of the bottom-picking strategy is to identify biotechs which are undervalued for their potential and sell them when they have risen in advance of the catalyst, not to try and make money by guessing the outcome of the catalyst.

Report this comment
#6) On March 24, 2010 at 10:55 PM, zzlangerhans (99.78) wrote:

Oh right, Aryx. Another sore spot, as I had very high hopes for this baby. But tecarfarin failed in phase III and the company couldn't find partnerships for budiodarone or ATI-7505. As of Q3 2009 the company had 14M cash and 12M debt, and historically burns 8-10M per quarter. My interpretation of the recent "strategic options" statement is "we are broke". The question is what the Q4 PR will tell us next week: partnership on lousy terms (share price increases by 50%), fire sale (share price doubles), or bankruptcy (no share price). Do you feel lucky? Then spin the wheel ...

Report this comment
#7) On March 25, 2010 at 9:50 AM, dcsilver (62.24) wrote:

That's respectable... I was excited about the green thumb on ANPI.  They pop on a caps screener for 4/5 star stocks with 10% insider and insitutional ownership.  I find it odd that you enjoy finding the bottom feeders and want to hit the pop before the catalyst yet were so negative about AMRN.  I know you have mocked my "enhanced fish oil" is good theory, therefore AMRN is good, but the fact remains that this is a well funded (i.e. won't need a dilutive round of financing before results are announced) two product phase III pipeline.  I already have my limit sell order in at $3.50 which I believe AMRN will "pop" to before the results of the phase III studies are announced. 

 

Unfortunately, I'm about tapped on my baby biotech investing as I have to much money invested in EXEL and AMRN  at the moment.  I was looking at ANPI but I still couldn't quite put my finger on what they are/are not doing to be successful in the future.

 

Best of luck - enjoying the zzlangerhans back reads at the moment.

 

DCS

Report this comment
#8) On March 26, 2010 at 3:25 PM, TSIF (99.96) wrote:

You have other admirers ZZ!!   Interesting point on DSCO.  I played it last time up to about $1.30.  I had lost interest in it, but it's still on my watch list. I upped my exposure to BDSI this morning. 

AS exhibited by your experience, these bios are mostly high risk/reward not for the faint of heart.  I have a tough time letting them go on an upcycle when I should.

Good luck, and THANK you for sharing!!!

TSIF

Report this comment
#9) On April 21, 2010 at 10:34 PM, herbertslojewski (70.29) wrote:

Well, I've picked up and then dropped a few shares and made a few bucks on BDSI in the last few days but saw an opportunity yesterday and today to go in heavy and picked up just shy of 75,000 shares.  Hope your optimism on this is going to make magic for us.  I liked it for a couple of weeks back but then had to have it when it took that 16% hit.  Cheers.  Herb Slojewski

Report this comment

Featured Broker Partners


Advertisement