Two bottoms and a put
Two stocks to watch for the GBMB portfolio:
Sunesis Pharmaceuticals (SNSS) - market cap 69M, share price 0.31. Cash 49M, debt 0, quarterly burn 5M. Two developments coincided to bring Sunesis to my attention as a potential bottom. First, the company received a 6 month reprieve from NASDAQ delisting which lessens the short-term risk of a reverse split. Second, the company announced a 16M dilutive financing which took a 25% bite out of the share price. At GBMB, we love to pick up shares after dilutive financings because we escape the dilution but get the added security of additional cash. However, one must maintain an extremely high level of skepticism when dealing with a biotech stock priced under 50 cents. Many of these outfits have no genuine prospects or are out-and-out fraudulent. Where does Sunesis stand? After staff reductions they have a single-compound pipeline. Vosaroxin, formerly known as voreloxin, formerly known as SNS-595 is a cell-cycle inhibitor which has completed a phase II trial in ovarian cancer and is currently in two phase II trials for AML. The ovarian cancer data was uninspiring but in 12/2009 the share price jumped 500% when the company presented preliminary AML data at the ASH meeting.That's right, 500%. I'm unsure when topline data is expected from the AML trials, but it's notable that ASH is coming up again in two months. After last year's performance, a run-up wouldn't be surprising. Biotech investors don't forget 500% bumps quickly. I'm in for GBMB below 0.3.
Vical (VICL) - market cap 124M, share price 2.2. Cash 32M, debt 0, quarterly burn 7-8M. I was on the verge of red-thumbing Vical when their share price dumped out after failure of their angiogenesis gene therapy in phase III and a large below-market dilutive financing. But with the 30M from the financing the company is well capitalized through mid-2011, when they are expected to announce topline results of the phase III trial of Allovectin-7 in melanoma. I'm expecting a strong run-up to occur at some point prior to results but I'm also 80% sure that the results will be negative, which is why I'm setting a low threshold of 2 for a GBMB buy. Last but not least, tenmiles recently joined the green thumbs here which is a fairly strong prognostic indicator.
And finally a new put prospect:
AVEO Pharmaceuticals (AVEO) - having never risen above 10 during their short life, AVEO's share price is flirting with 14 in the aftermath of Merck's termination of the partnership on early stage cancer drug AV-299. Normally developments like this are met with sharp declines in share price rather than 50% jumps. Assurances from all parties that Merck's action is due to reprioritization of their pipeline may have been expected to blunt the damage, but not reverse it. Furthermore, the main driver of AVEO's share price should be the TIVO-1 phase III trial of AV-951 in renal cell carcinoma, which was not affected by the recent developments. Therefore my final assessment of AVEO's recent 50% price jump is irrationality compounded by manipulation which is unlikely to be sustained through topline results of TIVO-1 in mid-2011. This would be a strong put candidate if any options were available, which they don't seem to be. So another question to my options crowd - does no options listed on Yahoo Finance and Google Finance mean no options available? Should I expect an options market to form? Who determines the existence of an options market in a stock with a 400M cap and reasonable volume?