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The GBMB in review, part III



April 10, 2011 – Comments (0) | RELATED TICKERS: GHDX , MDVN , DEPO

This is the final installment of my three-part review of the first year of the GBMB strategy. Last Saturday I discussed the stocks that I bought and then sold. On Tuesday I covered the stocks still in the account. Today’s post is a discussion of the GBMB stocks I never bought, either because they never crossed my established threshold or for whatever reason I didn’t want to act right away.

Genomic Health (GHDX) – PR 17.28, BT 17, N 12.25, P 27.4, CP 26.32. I really have no explanation for what happened to this stock in 2010. In May the share price had dropped to 15.5 and the company was predicting total 2010 revenues of 180-190M. The Oncotype DX assay for colon cancer was being marketed and the company was claiming strong uptake. The share price bottomed in July after the company revised predicted 2010 revenues to 174-178M. Since the bottom, the share price has more than doubled. The company recently reported total 2010 revenues of 178M, in line with the upper range of their estimates when the share price was 12. Total 2011 revenues are expected to be 200-210M, but of course the company hasn’t been shy about downward revisions before. And full year 2011 profits are still expected to be anemic at 3-5M. The company barely mentions Oncotype DX for colon cancer in their PR, and it is unclear if this test will contribute anything to future growth. The company remains vulnerable due to their dependence on a single test. To me, it seems that the company looked stronger when their share price was 12 than it does now at 26. I gave up on the GBMB pick when their share price continued to plunge seemingly without end, focusing instead on Myriad in the same sector. As it turned out, I was ultimately proven correct on Genomic Health but I would have been seeing red most of the summer and fall. I see the stock as very vulnerable at this level and I’m only keeping my outperform pick open for accuracy purposes. Then I’ll watch the share price go to 90 after I switch to an underperform.

Ligand (LGND) – split-adjusted PR 11.76, BT 10.8, N 8.27, P 11, CP 9.89. Honestly, it’s just way too much work to try and divine how much revenue Ligand can be expected to derive from their murky licensing deals with multiple large pharmas. So far, nothing encouraging has materialized despite a seemingly endless succession of drug approvals and positive catalysts. Like a high-maintenance girlfriend, I dumped Ligand from the GBMB. Had I gone ahead with this investment, not a lot would have happened with it to this point.

Transition Therapeutics (TTHI) – PR 3.66, BT 3.4, N 2.38 & 1.87, P 4.40 & 5.30, CP 3.78. Got your Dramamine? Then take a look at the two year chart on Transition. Bet you didn’t realize the company name referred to their share price, which is always either skyrocketing or plunging. I dropped Transition from the GBMB when their diabetes candidate failed and I saw no remaining value in the pipeline. I still would have come out way ahead on this trade, but all I see is randomness and manipulation. Completely unpredictable.

Auxilium (AUXL) – PR 28.51, BT 28, N 20.5, P 37.78, CP 21.5. The stock dropped below my threshold so briefly I didn’t get the chance to buy it, but if I had I would have been richly rewarded after FDA approval of Xiaflex. The gains weren’t held for long, but I don’t think I would have stuck around on the way down. Auxilium is actually shaping up as a potentially interesting GBMB situation again, as the stock remains suppressed by nervousness about generic Testim.

Adolor (ADLR) – PR 1.55, BT 1.45, N 1.45 & 1.01, P 2.1 & 1.6, CP 1.44. The share price brushed my buy threshold a month after I put them in GBMB and then shot quickly up to 2.1. The share price then found new lows at 1.01 after the failure of the Pfizer collaboration before recovering to 1.6. I probably would have made money buying this at the GBMB threshold and at worst would be at a wash at the current price. In terms of future prospects, I’m not seeing much justification for the current upward trend. Entereg sales don’t seem to be going anywhere, the pipeline is weaker than ever, and most of the cash hoard has eroded. Looks like it’s time to give up on my green thumb pitch with a 100 point deficit and start over.

Medivation (MDVN) – PR 11.99, BT 10, N 8.84, P 20.26, CP 20.11. Although the stock dropped below my threshold, I hesitated to buy because of potential negative catalysts from the HORIZON trial of Dimebon in Huntington’s and/or discontinuation of the partnership with Pfizer. Now here we are on the eve of data results from Horizon and the share price has more than doubled from lows on optimism for prostate cancer drug MDV3100. I might get interested in the stock again if it declines disproportionately on poor data for Dimebon, but there aren’t any guarantees for the late stage clinical trials of MDV3100 either.

Depomed (DEPO) – PR 2.97, BT 2.6, N 2.57, P 10.04, CP 8.8. Ouch again. Another stock that barely dipped through my buy threshold and then rocketed upward without me. No doubt I would have caught the top of this one as well, which is when I terminated my CAPS outperform pick. At the moment I’m negative, given my doubts about the commercial potential of Gralise.

Anthera (ANTH) – PR 3.3, BT 3, N 3.85, P 6.82, CP 6.43. Anthera never made it back to my threshold, but has risen and fallen a couple of times and would have treated me well even if I had bought it at the price when I reviewed it. Again, I’m currently negative on the stock.

Adventryx (ANX) – PR 1.81, BT 1.7, N 1.73, P 2.99, CP 2.34. The stock just missed my intial buy threshold, and amusingly just missed my upwardly revised buy threshold a couple of months later. Once again I missed out on some potentially nice gains. I’m currently neutral on the stock since the share price has markedly declined since NDA acceptance. I’m not confident of any recurrent Bottle Imp effect for Adventryx in advance of their September 1 PDUFA and I don’t need that Sword of Damocles hanging over my brokerage account. If the share price drops back below 1.9 before June I might give it another look.

Sunesis (SNSS) – split-adjusted PR 1.86, BT 1.8, N 1.8, P 3.24, CP 2.14. Once again I nailed the bottom at the time of my initial review and the share price peaked about 70% higher. I would have sold close to the top because I would have had no reason to hold after ASH and initiation of the phase III trial. Now I’m not seeing any reason to buy the stock with a dearth of potential positive catalysts for the remainder of the year.

Transcept (TSPT) – PR 6.45, BT 6, N 5.98, P 9.49, CP 9.01. Yet another stock that I left untouched after ir barely broke my buy threshold and then rose substantially. I see the stock as evenly priced now given the probabilities of FDA approval in July and commercial success.

Of the eleven GBMB stocks I didn’t buy, only Ligand would have hurt me and very slightly. Genomic Health and Transition Therapeutics would have delivered some short-term pain but ultimately paid off handsomely, and the other eight stocks would have stayed in the green from virtually the moment I bought them.

So what have I learned from this three-part retrospective, with the caveat that 2010 was a good year for baby biotech and the stock market in general?

1. I seem to be pretty good at choosing my stocks. I only reviewed a couple that are deep in the hole from my threshold price but of course those are among the ones I chose to buy.

2. I should be more willing to buy stocks at my threshold price, rather than being obsessed with catching them exactly at the bottom.

3. I absolutely need to hold my winners when they're following my predicted trajectory, rather than selling to lock in an arbitrary "decent" gain.

Hopefully this one-year review will lead to improved returns for the GBMB account, rather than disaster as my more bullish strategy runs head-on into the feared double-dip.


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