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BC Tracking Portfolio Series B
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GPCB
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S
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8/03/07
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13.41
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Open
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12.52
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6.6
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SPY
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L
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7/02/07
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151.79
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Open
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145.23
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-4.3
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* Price for Open position is price at close August 13.
August 14
Just a note on Series B. With the VIX still above 25 this is a dicey time to be trading, at least for me. I like all
the current open positions. Please note there are two entries for the short position on GPCB. After opening the initial
short the price took a large jump up which, based on what I wrote a few weeks ago, seemed completely irrational. Being convinced
the stock is still a good short I added more, and I think this was the correct decision. Hopefully the portfolio will go
green soon.
August 5
Russell Rebalancing Review
For the week ending June
8 I featured biotech stocks I thought would be added or removed from the Russell 2000.
The point of this was that according to researchers at the University
of Illinois at Chicago (Rev.
Quant. Finan. Acc. 2006, 26, 409–430)
for the years 1993-2000 stocks added to the Russell 2000 experienced a positive 7.6% abnormal return (i.e. above the broader
markets) for a period of two days before the announcement date to 20 trading days after the reconstitution date, and that
stocks dropped from the Russell 2000 experienced abnormal losses of 6.6% for the same time period.
I thought it would be fun
to see the progress of this. This year the Russell rebalancing was done June
22. My prediction was that AKRX, ALTH, ARQL, AXCA, BMTI, GNVC, HALO, IMMU, MDVN, NRGN, PDGI, SGEN, TRCA, VNDA, XOMA would
be added, and that ADLR, ANX, ANDS, AGIX, AVII, AVNR, BCRX, GTOP, GNTA, HNAB, NFLD, NUVO, RNVS, TRMS would be removed from
the Russell 2000. In the end the only prediction that was wrong was AXCA, which
was not added.
The rationale behind shifts
in price makes sense: upon addition to, or deletion from, the Russell 2000 index
mutual funds will buy or sell the stock. As well, stocks in a major index are
more likely to attract analyst coverage. But, would this have been a good trade
this year (at least in biotech stocks)? To check this I looked at closing prices
on June 20 (two days before) compared with prices on July 23 (twenty trading days after).
For further comparison I added closing prices on from last Friday (August 3).
Results are presented in the tables below.
So, was trading biotech based
on Russell rebalancing a good idea this year? Looking at the tables below it
would have been a disaster. From close on June 20 to July 23 the S&P 500
was up 1.9%. The average return for the added biotech stocks in the table above
was a loss of 9.8%. Only one of the stocks added to the Russell actually saw
an increase in price! As it turns out, the biotech stocks dropped
from the Russell 2000 faired better, only losing an average of 7.4%. Over the
same time period the AMEX biotech index (BTK) lost 1.2%.
I recall a finance professor’s
take on trading systems: “they work until they stop working”.
Biotech Stocks Added To Russell 2000
Biotech Stocks Deleted From Russell 2000
July 30
Portfolio Update
I mentioned on July 2 that
I was opening a position in ELN at 22.31. This proved to be a terrible move and
I closed this today at 17.35. My play was an FDA advisory panel would recommend
approval for Tysabri for the treatment of Crohn’s disease. While the panel
doesn’t meet until the 31st, Europe’s FDA equivalent on July 23 recommended against permitting this use. Also, on Friday the FDA released documents expressing concern over the risks associated
with Tysabri relative to the benefits for Crohn's patients. I still like the comany, and may look to get back in later. Obviously this isn’t the best way to start off a new portfolio, but that’s
investing.
Despite recent setbacks I
still like Savient (SVNT) even though it’s down a bit: biotech stocks are
not entirely immune to market upheaval so I’m not concerned just yet. In
addition, Cardiome Pharmaceuticals (CRME), a Canadian company I like, is trading at less than $9. As I’ve mentioned before they have a PDUFA date for their atrial fibrillation drug on October. I added this to the portfolio at 8.59 and would add more if it dips further.
In addition, based on last
week’s focus GPC Biotech (GPCB) I have opened a short position at 11.85.
As a comparison for Series
B I added a final row of the S&P 500 ETF SPY has been added.
July 27
GPC Biotech
GPC Biotech (GPCB) took a
big hit (the stock closed at $20.36 on July 24 and opened at $13.35 on July 25) on July 25 when an FDA advisory panel voted
unanimously to wait until a complete Phase 3 study of their drug Satraplatin is available. GPCB
had been trading at over $32 on July 19. Often this type of price decline can be a good buying opportunity. Or not.
Satraplatin looks like a promising cancer drug. It’s related to cisplatin, a platinum containing drug that cross-links DNA.
A big advantage of Satraplatin is that it’s taken orally, not an injection.
One important detail about Satraplatin: it was
initially being developed by Bristol-Myers, but they stopped a clinical trial after only 50 patients were treated due to “…low
commercial priority for this drug by BMS at the time.” This is a valid explanation. A large company like Bristol-Myers
just can’t make a big profit from a smaller drug such as Satraplatin. Sensing
opportunity, Spectrum Pharmaceuticals (SPPI) licensed the drug, and subsequently re-licensed it to GPCB.
Resistance to platinum drugs is
becoming a problem. In a study published in Biochem.
Pharmacol. (2007, 74, 20–27)
in vitro resistance to cells engineered to be resistant to platinum crosslinkers was nearly 5 times less for Satraplatin
than for either cisplatin or oxaliplatin. As both incidence of prostate cancer and resistance to Pt agents are rising, this
bodes well for future sales.
The drug actually looks promising. Results of a 950 patient Phase 3 study published in Lancet Oncology
(2007, 8, 290) as a second line treatment for hormone refractory prostate cancer (HRPC) were good. Six months
after treatment, 30% of the Satraplatin cohort and 17% of the placebo
group had not progressed: after one year these figures were 16% and 7%, respectively.
Regardless, the FDA still wants to see a more complete dataset.
So, a company selling at
steep discount with what looks to be a viable drug could be a bargain. Or it
could still be overpriced. The FDA’s decision pushes approval of Satraplatin
back to late 2008 in a best case scenario. According to GPC’s SEC filings,
the primary patents covering Satraplatin expire in 2008 and 2010 in the United
States, and in 2009 in most other countries. This
leaves a very limited time frame in which to sell the drug before generic competition forces the price down. The chemistry of making Satraplatin is straightforward, so generic competition is pretty much assured.
Now,
GPC can seek an extension of up to 5 years of patent coverage, but whether they obtain this or not is uncertain. Further, it remains uncertain even if the FDA will approve the drug after the final data is submitted.
Also, it’s unclear how robust sales will be. While I do believe an orally available cross-linker will be of benefit, this won’t necessarily translate
into sales. The company does have an antibody in a Phase 1 study, but that's
years from any payoff.
The
company has enough money to see them through the next couple of years. My take
is even at this steep discount this stock is dead money.
July 2
As noted in the Blog on June 26 all open positions in the BC tracking portfolio have been closed. As half the year is
over, this seems a good time. The average return on this "Series A" was 27.8%.
I was hoping for some weakness in ELN to buy back in in advance of an FDA advisory panel meeting on application of Tysabri
for Crohn's disease scheduled for July 31. This hasn't happened, so I will start "Series B" off with ELN at 22.31.
My guess, as was the case last time ELN had an advisory panel for Tysabri last year (for MS), is this is a "sell the
news" situation. That is I think this is a trade, not a long term hold. To be clear, I do like the company long term,
but I think the stock will take a 10-20% jump after the meeting and trend back down in advance of the FDA's actual decision
in October.
I also like SVNT, as mentioned a few weeks ago, and will add at $12.26 in advance of clinical results on Puricase. I
will update both of these in a table soon.
Another stock that will move in the next quarter is Biosante (BPA). Their drug Elestrin was launched by Bradley Pharmaceuticals
(BDY) a few weeks ago. The issue here is how much of the estrogen replacement market Elestrin can stake out. Results of
this will likely have to wait until BDY and BPA release Q3 sales data. Until then this will be a good chart to watch closely.
My guess is the stock will consolidate until this data is released, but any abnormal volume could be a predictor.
BC Portfolio
(Series A, closed June 26, 2007)
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Ticker
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L/S
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Date Bought
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Paid
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Date Sold
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Price*
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% Change
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INSM
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L
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11/20/06
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$1.40
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12/06/06
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$1.46
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4.3
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NPSP
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L
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11/27/06
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5.25
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12/14/06
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4.57
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-13.0
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IDEV
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L
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12/18/06
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7.25
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01/29/07
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6.26
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-13.7
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ENCY
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S
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11/06/06
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5.76
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12/29/06
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4.17
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27.6
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IMCL
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S
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09/25/06
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29.61
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2/28/2007
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29.08
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1.8
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QGQ OU***
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L
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