AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO)

CAPS Rating: 3 out of 5


Player Avatar zzlangerhans (99.82) Submitted: 12/15/2013 9:25:50 AM : Outperform Start Price: $1.62 AVEO Score: -42.68

I threw in the towel on my Aveo trade just recently, sold almost all my shares for a huge loss, and switched to a red thumb. I have to say it was a good move because the stock continued to perform weakly despite having more cash than market capitalization, and then plunged anew on word that the BATON phase II trial of tivozanib in colorectal cancer was unlikely to meet the primary endpoint. At the low of 1.53, Aveo had a market cap of 79M and an asset balance of 109M.

I had pointed out in my underperform pitch that biopharmas trading below cash tend to be value traps, but experienced traders know how to steal the cheese from the traps before the jaws snap shut. The stocks tend to be springy, plunging fast and then bouncing back as "value" investors swoop in once the sellers are out. You just need to be sure the sellers are done for the day so you don't get sucked into the trap. I was a little slow to catch the rebound but I went in with large volume and was out before the close to make back $1500 of the $24000+ I lost on the stock this year.

I'm not sure if or how I'll approach Aveo with real money again in the near term. For the medium term, I'm comfortable with my green thumb at least until the next quarterly earnings in February or March, when another 20M+ in cash will be subtracted from the asset balance and the value equation will readjust. Until then, Aveo is likely to rebound on even mildly positive news. They could choose to utilize what I call the Merrimack effect from the failed CRC trial - claiming activity of tivozanib in biomarker subsets. There are also BATON trials in progress in renal cell carcinoma and breast cancer. Aveo also has an early stage pipeline outside of tivozanib. The most promising drug from the pipeline is AV-203, an ErbB3 antibody in phase I for solid tumors.

I have a lot of ground to claw back to get even with Aveo, in CAPS and in real life, so I expect to be following future developments closely. The last thing I want to do is donate more cash to other Aveo traders.

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