zzlangerhans (99.73)

GBMB update

December 14, 2010 – Comments (15) | RELATED TICKERS: DSCO , ANDS.DL , IDRA

Current holdings (as of close 12/13/10):

BDSI 5000 shares bought at 3.95, current price 2.81

DSCO 100000 shares bought at DCA of 0.2875, current price 0.17

MYRX 3000 shares bought at 3.8, current price 3.85

RTIX 3000 shares bought at 2.95, current price 2.7

IDRA 6000 shares bought at DCA of 3.15, current price 2.4

ANDS 10000 shares bought at DCA of 1.4, current price 0.98

ALNY 1000 shares bought at 10, current price 9.5

VICL 5000 shares bought at 1.9, current price 1.86

BIOD 5000 shares bought at 1.75, current price 1.62

Recent sales:

MYGN 2000 shares sold at 21 (bought at 18)

EXEL 3000 shares sold at 4.7 (bought at 3.69)

BIOD 3000 shares sold at 3.65  (bought at 3.94)

ARNA 5000 shares sold at 1.51 (bought at 1.6)

Status:

Total value of current GBMB holdings = $101800

Unrealized losses = $28100

Realized gains = $35712

Profit =$7612

It has been a sobering two months for the GBMB portfolio, with a $16000 decline in profits due to continuing weakness in core holdings Discovery, Idera, and Anadys. I have doubled down on all these investments after re-evaluating my analyses of these stocks and continuing to find them all significantly undervalued. Spitefully, they have each continued their decline after I doubled my holdings. I was forced to take losses on Arena and Biodel after being up ($6000 in the case of Biodel), which reinforced my beliefs about taking profits in biotech when possible. Meanwhile, I exited Myriad and Exelixis only to see them continue to rise (in the case of Exelixis, by an additional 25% on the day after I sold). Bottoms and tops continue to be difficult to find in the murky waters of small cap biotech. And now on to the updates.

DSCO - Discovery Labs at 0.17 is simply the best risk/benefit ratio I can recall seeing since I began analyzing these companies four years ago. Most biotechs with a market cap under 50M are dubious or outright scam outfits with highly speculative pipelines or drug candidates that have failed late stage trials. However, there seems to be little argument regarding the efficacy or utility of Discovery's liquid surfactant Surfaxin. What has taken the share price deep into all-time lows is the repeated failure of the company to get Surfaxin approved by the FDA over the last five years. Time and again the share price has risen only to be slapped down after the FDA issued Complete Response after Complete Response, citing complicated issues related to manufacturing and controls. Meanwhile, the rest of the pipeline has struggled and the company has diluted again and again to balloon the share count to 200 million. In short, the stock deserves to be ailing. But the company unquestionably has the cash to submit Surfaxin for approval once again in Q1 2011 and await yet another FDA response, likely in Q3. Despite the exhaustion and capitulation that has brought the share price so low, there is a high likelihood that the share price will rise dramatically as investors start to wonder if maybe, just maybe, the company got it right this time. After swearing off buying more shares at 50000, I doubled down yet again at 0.2 only to see another gap down on word of Nasdaq delisting. Is all the bad news in before we get to the catalyst? I'm probably the wrong person to ask, down $12000 and counting. And when I say that the risk/benefit ratio looks very good, that doesn't mean that the risk isn't very high. In this deep water you might find some beautiful trinkets, but be prepared for a bad case of the bends.

IDRA - Idera's share price is also approaching a 5-year low, if not an all time low. The steady decline in share price comes without any clear negative catalysts, and the current 66M market cap is supported by 43M in cash. This values a broad pipeline and extensive technology related to Toll receptors at all of 23M. IMO-2055 is now in four early stage cancer trials being conducted by partner Merck KGaA, some of which seem to have been going on for an awfully long time. As is frequently the case with cancer trials, the timeline of possible data releases is obscure. The company released some phase I data for IMO-2125 in hepatitis C null responders last month, which didn't seem very dramatic and didn't move the stock. Phase II trials will likely begin in early 2011. The company raised a red flag regarding "reversible immune responses" seen in nonclinical studies of IMO-3100, and will clarify in early 2011 whether that autoimmune disease candidate will progress to a phase II trial. I continue to believe that the stock is significantly undervalued relative to that of similar small biotechs, but the lack of strong catalysts on the horizon and recent downward momentum indicates caution at this point.

ANDS - like Idera, Anadys stock has been on a steady and seemingly bottomless decline since the company announced they would progress to a phase IIb trial of ANA598 without a partnership. Obviously, the money to fund that trial will have to come from somewhere, and the current 19M in cash reserves isn't going to cut it. The prospect of dilution at the current share price is bleak. I continue to rest my hopes on data from the ongoing phase IIa trial of ANA598, which the market seems to have forgotten about completely. Due to the staggered cohorts, I have had great difficulty in mapping out a timeline for the trial that would tell me when to start expecting data from 48 weeks of treatment. However, I believe there is a high likelihood that the data will be good enough to result in a substantial rebound in the share price. All I can do at this point is grip my 10000 shares and wait.

I decided to focus on my core holdings here rather than discussing new acquisitions such as Vical and Biodel, which will have to wait until a later date. Until then, be very very careful out there.