zzlangerhans (99.76)

GBMB update

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.