Friday, August 21, 2015

Indicators Are Lining Up For More Than Just A Correction

I generally don't try to time normal corrections in the market, but I get more defensive when more major tops threaten. Now is such a time. I've been dialing up defense the last couple weeks, and I think the sell-off of the last couple days may be intensified into September. I haven't had time to write much about this here on my blog, but I did publish an article How Afraid Should We Be Of The Margin Debt Climb over at Seeking Alpha. This was an exclusive article, meaning I can't publish it anywhere else, so you will have to go there to read it.

My basic point was that there are too many good predictors lining up for a crash to be business as usual. Coincident with that I am changing the Smartphone Index I keep here at the blog to cash, as well as the portfolio.

The market instability that's coming on could get pretty dangerous with a lot of it swirling around debt and currency issues, meaning it could quickly become "systemic" as it did in 2008. I noticed on Fast Money last night they were talking about the race to devalue (not just the China move recently) and how it all seems to have started this round on May 2014 with the ECB's blitz of money printing. I have never been a fan of money printing, and I wrote an article attempting to project where it could all go back in 2012 A Triangulated Forecast For June 2013 wherein I projected where the money printing trend would become dangerously unstable. I was seeing a gold price move up along with the printing that hasn't happened, but the printing blitz has also involved a gold manipulation blitz.

My 2013 article was basically about the likely outcome of a global debt reset sometime after money printing destabilizes. It has been destabilizing for the last couple years and now be the start of the "reset" involving much market distress beforehand. Last night's Fast Money commentary featured the remark that currency moves that used to take 6 months are now happening in just hours. This idea of a global jubilee (or Shemitah as was the subject of the 2012 best-seller The Harbinger) has been bandied about for many years now, and if it plays out per the timing of Sabbath 7 year cycling, it will involve a lot of market turbulence in September. So far, the 7 year cycling has been dead on. In September, 2001 we had 9/11 and for the first time in America's modern history, Wall Street was shut down for many days. Seven years later we had the crash of 2008. It is now 7 years after that and the jubilee may be at hand. There are a lot of critics of Jonathan Cahn's book, but what are the odds of the 7 year timing we've had thus far being just pure coincidence?

As for gold, a subject of my 2013 article, The twin parabola fractal may still play out, because the divider downtrend may end up being about four years, which would put the second parabola starting about now. If gold is to follow money printing exactly, the separator would be a little over three years according to the chart I showed for the eight central bank balance sheets as a percent of global market cap. If gold were to take off now into the second parabola here in late 2015, four years after its late 2011 peak of the first parabola, it would be following pretty closely this money printing formation allowing perhaps for the manipulation blitz.

The manipulation of gold may come to an end if a jubilee debt reset takes place and the financial world is reorganized. So what role gold would play or at what price is really unpredictable. The most likely direction would be up you would think, but who knows. I don't think gold would have the safety factor traditionally given to it in such a scenario.

Whether the current market turbulence is a beginning of such a development is far from certain. If money printing can continue with some stability, we still have a slow, stable recovery proceeding, and we will have very low interest rates for some time, and we still have US retailing wanting to lead the markets higher as is evident from a glance at the RLX. But the current situation certainly calls for a boatload of caution.

Sunday, August 2, 2015

For Those Of Us Who Missed Puma

Puma Biotechnology (PBYI) was one of those legendary rocket rides in this thrill park of biotech that you want to buy in clear 20/20 hindsight. It is a development stage company working mainly on neratinib, a drug for breast cancer among other things, and its prospects moved the stock out of its slumber for its first couple months as a public company in 2012, into a wild ride up from around 20 to 260 in about two years. "Where was my buy order in 2012?" you have to ask yourself.

Well maybe the market is giving us a redo on that. There is another small, little known biotech working on the same thing and, if it makes you feel any better, Puma's neratinib has fallen on hard times as reported in the 2015 ASCO Conference. The drug is now showing some 2.3% more effectiveness than placebo with the added benefit of severe diarrhea. This news has crushed PBYI from 260 back to around 85: (click on image to enlarge)

Neratinib is not the only iron in the fire for Puma, but as this chart clearly shows, the market places a very high value on what happens to their breast cancer efforts. The incredible climb in the stock is now very broken.

Enter Oncothyreon (ONTY) and their similar effort against breast and other cancers. Their story is just the inverse of Puma with the stock sliding since 2012, but with a stunning reversal after some very promising data released just before ASCO this year:

The two are so similar that the developments of this year are creating some internet buzz about PBYI and ONTY being a pair trade, shorting PBYI and long ONTY, with talk of ONTY being the new Puma. I like ONTY technically and the insiders at the company have started liking the stock also lately with several million dollars worth being bought up over the last year or two by a variety of people. The "IH" (insider held) number is still a little too low for my taste (only around 8%) but this tiny company could possibly start attracting some more serious insider buys. The quiet consolidation it has been in the last two months showed virtually no response to the market correction - nice strong handed behavior that typically precedes nice climbs, if the other technicals are good.

So if you missed Puma and are willing to deal with the risk, you might want to look at ONTY as a redo.

Saturday, June 6, 2015

A Drug Stock To Watch

If you're looking for a big biotech that is "not keeping up at all" with the hot sector, as a recent 24/7 Wall St piece on five laggards detailed, then check out Idera Pharmaceuticals (IDRA) for a possible catch up move. Actually Idera isn't all that big with less than a half billion dollar market cap, and it is just a $3 stock right now. But don't you wish you had bought all those $100 plus biotechs when they were just $3 ?

I won't even go into the fundamentals because there aren't any. Idera has no current revenue, but what's even worse is that they had some tiny revenue back in 2010 and then lost that. However, the new medicine developers don't trade on current numbers, and if you're going to profit from them, you have to turn a blind eye to the usual stuff.

If you need a brief primer on the new medicine, I refer you to my recent article at Seeking Alpha "Insider Wisdom And The New Medicine". Here I want to look at a part of the new medicine called "gene silencing". Since the completion of the 13 year Human Genome Project and the platforms that, since around 2006, have made a complete map of anyone's gene operations routine and cheap, they have been fooling around with our genes' programming and are on the verge of learning a few tricks to changing the channel on errant genes and the associated diseases.

DNA makes a material from which our proteins are made called RNA. Proteins facilitate everything including disease. Gene silencing was first conceptualized in 1998 when researchers at the University of Massachusetts found that certain types of RNA can turn off the programming of certain genes. And if you interfered the right way, you could turn off the production of any protein you wanted including those errantly causing a disorder. It was important and new because some 85% of our proteins can't be targeted with traditional medicine. This earned the Nobel Prize in Medicine in 2006 and began the wing of genetic medicine known today as RNAi (the "i" is for interference) and prompted the founding of Alnylan Pharmaceuticals (ALNY) in Cambridge.

Since then it's been a roller coaster ride for RNAi fans as recounted by a recent MIT Technology Review article "Gene-Silencing Drugs Finally Show Promise".

All told, there are about 15 RNAi-based drugs in clinical trials from several research groups and companies. “The world went from believing RNAi would change everything to thinking it wouldn’t work, to now thinking it will,” says Robert Langer, a professor at MIT, and one of Alnylam’s advisors.

But I don't want to look at ALNY in this post, but another of those companies working on RNAi, Idera Pharmaceuticals, also of Cambridge. It was founded in 1989, long before gene silencing came along, but now it is the major focus of the company. They have nothing in Phase III and are one of those speculations with all the associated risk, but I would like to point out a recent development that probably tilts the gambler's odds a good bit in your favor.

To appreciate that development, you should probably read the Seeking Alpha article mentioned above and also the Genomic Health article here on my blog. There are certain key insiders to pay attention to in biotech therapy development and Julian Baker is one of these. On February 13 this year, he stepped in with a near $20 million insider buy (he is a director) and this, along with the stock's fractal condition (my analysis method) makes this stock worth watching: (click on image to enlarge)


Idera came down from around $15 pre- '08 into a protracted base from which it began to emerge in 2013. The Bakers had it in their funds back then and sold some just before the market got really bad. As the graphs on the Bakers show in my articles, when they buy over about $20 million worth in any one year, big rises typically begin in a year or two. That just happened with Idera. It is in a 1 1/2 year base (black lines) and is not a buy until it is clear of it. But if and when such a break occurs, the climb could be pretty good.

Saturday, March 28, 2015

A Couple of Short Squeezes in Drugs ?

I don't know how fond you are of profiteering off the misfortune and agony of other investors (as in being long short squeezes) but I've run across two that look interesting and may tweak your interest if you're the sadistic, opportunist type. Drug development by the small companies is a dangerous playground where short sellers like to play. Generally I venture there only when the technicals are very good and the insiders, who hopefully know as much or more than the shorts, show a lot of confidence. I don't go looking for a short squeeze.

But I'm long two names that also are becoming a worry for a very large shorted float - Newlink Genetics (NLNK) and Intercept Pharmaceuticals (ICPT).  Intercept has some Phase II and III drugs for liver and related illness with proprietary bile acid compounds. Newlink has a line of cancer drugs, but of particular interest lately is their ebola vaccine, which is being fast tracked into use. It is the new synthetic approach where the vaccine is 'built' not grown with live virus and is much safer and can be made in large quantities needed by such things as an ebola outbreak.

I won't bore you with more medical knowledge than that, mainly because that's about all I know anyway. Both stocks carry a huge shorted float of around 28% with days to cover 11 for NLNK and 4.5 for ICPT, creating a tight squeeze for shorts to get out if the stocks keep climbing, especially for the smaller Newlink. The NLNK shorts are in retreat having backed down from a 32% level just two months ago. Both stocks have extremely high insider ownership at 29% for NLNK and 41% for ICPT, making the insider army even greater than the short army. Both of these groups of people are very smart and well informed, and when they rumble, the gains can be extreme.

Stocks tend to repeat chart patterns, and a striking resemblance caught my attention between Newlink's condition now and Intercept's condition about a year ago. Let me show you: click on image to enlarge


Both stocks have a ramp up in short interest over this time frame, although ICPT was only around 10% of the float. The treatment of the market (also a very smart group) in both cases is remarkably similar, in a similar business. There is growing accumulation in both, a similar burst of very high volume, sharp up moves about 6 months previous, then a similar settling into a quiet climb atop the 140/200 day moving average support, which is about the best divider I've found between intact climbs and those breaking up. The quiet climb amid accumulation is also a similar positive.

What happened to ICPT after this pattern about a year ago? In one of the most brutal annihilations of shorts ever, ICPT reported a good trial result on their main liver drug, the only treatment for a disorder that about 12% of US adults suffer from, and the stock vaulted some 580% over the next two days. Bits and pieces of shorts were laying everywhere.

Will the same thing happen to Newlink? Who knows. But there is an interesting similarity. Just sayin'.



 
 
 
 
 
 
 
 
 
 

Thursday, April 10, 2014

Genomic Health And The New Medicine

If I were to describe to you a movie plot where an imbalanced young college genius began experimenting with an inkjet printer building 3D structures, only using living human tissue paste instead of ink, you'd think it was a ghoulish invention of a Stephen King type, and you might not want to watch the movie. But such a thing has actually happened, and they are making, not a movie, but an industry about it.

Dr. Thomas Boland is our imbalanced young man, and as a write up last month in The Economist Printing a Bit Of Me described it:
Dr Boland started experimenting in the summer of 2000 using an old Lexmark inkjet printer that was sitting in his former lab at Clemson University in South Carolina ... At the time he wasn’t looking to print 3D biological structures, just proteins or cells in two-dimensional patterns
But the concept of 3D printing biological structures quickly began to catch on with other scientists over the next couple of years.
In Dr Boland’s case, he simply added to an HP printer a platform that could move up and down. In 2003 he filed for his first cell-printing patent and collaborated with Dr Forgacs and three other colleagues on a paper for Trends in Biotechnology in which they predicted that in this century “cell and organ printers will be as broadly used as biomedical research tools as was the electron microscope in the 20th century.”
"They've got to be kidding" was my first reaction to all this (click on images to enlarge):






But this image from explainingthefuture.com doesn't look very much different than the actual printer they are using at Organovo (ONVO) to print liver tissue samples they intend to begin selling to drug development companies this December! The whole-organ printing depicted above is something they see as maybe being 20 years into the future, although at Wake Forest, they are already printing bladders and putting them in people.

Anthony Atala, is a leader in this field and director of the Wake Forest Institute for Regenerative Medicine in North Carolina. In a Fool article last October, "
Organovo's 3 Biggest Opportunities in 3-D Bioprinting", they discuss the progress made toward organ printing:
So far, surgeons have been able to implant a variety of engineered flat, tubular and hollow tissues into patients, including skin, cartilage and muscle. Dr Atala has also successfully implanted lab-grown bladders and urethras into young patients. But solid organs are another matter.

"Bioprinting" is the name given to this Herman Munster stuff, believe it or not, and as the "Printing a Bit Of Me" article notes in it's lead statement, "Bioprinting: Building living tissue with a 3D printer is becoming a new business". The business sense of it is easily seen when you consider what goes on in drug development. Of every 5000 drugs invented, only 5 are allowed to be tested on any of us living humans, with only 1 of those being approved for sale. But those 4999 failed drugs have soaked up some $5 billion dollars in testing, making the one approved very very expensive for us all. Our healthcare crisis, and I think you could call it that, could be solved in great part with a new era of drug testing on bioprinted human tissue.  As biopharma companies begin getting printed human tissue to test with, it is going to weed out the ones that can't ever be sold much more quickly and with only a tiny fraction of the cost.

One of every four failed drugs in phase III trials, or those yanked from the market once approved, fails because of liver toxicity. This is after the $5 billion wad has been blown to develop it. So Organovo, the only public company so far doing bioprinting for biotech development, is focusing on selling printed liver portions first, to possibly knock a huge hole in the typical drug approval cost.

This is a new direction in medicine possibly affecting Genomic Health (GHDX) in particular. It will effect many healthcare companies, but Genomic is in the business of working on cancer tissues taken from patients to develop custom tailored therapies based on the genomics of that particular patient. A "cure" for cancer as was envisioned years ago as some silver bullet discovery has given way these days to the reality of genetic differences in us all, and a cure for one of us isn't a cure for someone else, even with the same cancer. There likely may never be a silver bullet, other than good nutrition, inherited genes, and avoidance of toxins, etc. Genomic Health treats each cancer as a separate disease with only genetic predispositions and groupings to target with treatment designs. As was explained in the fool article:
Organovo is collaborating with Oregon Health and Science University's Knight Cancer Center to develop the technology. The pair is expected to publish results from several studies after the second half of next year, after which a pathway for commercial develop can be established. While any number of pharmaceutical companies would surely be interested, it would also be worthwhile to partner with a cancer diagnostics company such as Genomic Health to expedite commercialization and improve the chances of building a successful platform.
Genomic Health performs genomic analysis on tumor samples to identify tumor-specific characteristics. If Organovo can print multiple tumor types with certain genetic dispositions (as occurs in the real world), pharmaceutical companies or doctors could rapidly develop individual regimens based on the cancer tissue and patient's genetics
This possibly positive new development among others is attracting a high level of insider buying in GHDX from the Bakers. If you follow Biotech very much, you probably are aware of the Baker brothers, Felix and Julian, their investment funds and other corporate entities. Julian Baker has been on the Genomic Health Board since 2000 and was joined in 2012 by Dr. Felix Baker, who holds a PhD in immunology. They are also on the boards of several other biotech companies. They know more about biotech than you and I combined ever will, and have a reputation of astonishing success with their insider buying of biotech stocks.

I want to present here, not an involved chemical argument for Genomic Health, because, quite frankly, when I read discussions about myelodysplastic syndromes and multi-tyrosine kinase inhibitors, it just makes my head spin. I want, instead, to show some patterns in the insider activity of the biotech stocks the Bakers have been buying over the last decade and how that relates to GHDX. Insiders typically know more than the market participants as is evidenced by study after study concluding that stocks with high insider buying add several points of alpha to a portfolio. And the Bakers seem to know more than your average insider (I did some charting to check on that). There are just a handful of stocks that the Bakers have zeroed in on with massive buying, and by that I mean anything over about $40 million worth. I included the buys of their funds as well as their personal purchases. I did not include granted options or any activity other than market buys of shares.

First let's look at Seattle Genetics (SGEN) (click on images to enlarge)

Here we see $multi-million buys starting to crop up in 2006 at a very opportune low point in SGEN's price history. After a quick climb that more than doubled the stock, there was no big buying in 2007. Then the buying returns and intensifies until 2012, when the stock embarks on a fast multi-bagger and the buying shuts down again. Last year the buying is back at even higher levels. 

Now let's look at Incyte (INCY):


There was some small buying (by their standards) in 2003 and 2004, then two years of no buying. The heavy buying starts in 2007 with about $60 million bought in 2011. As with SGEN, the stock goes into a fast, multi-bagger explosion. The Bakers saw something very good many years before the market did.

Now let's look at  Pharmacyclics (PCYC):

Here, you get the feeling the Bakers were a little tardy in latching onto this rocket having only bought in two years and "only" about $40 million worth before the launch. All the buying in 2012 was done in January and a little in February, just ahead of ignition.

Which brings us to Genomic Health (GHDX):



Here we see the buying started in 2010 and heavy buying setting in during 2011 and intensifying in 2012 to a level much higher than in any year of the previous cases. You have to like the chances of a multi-bagger climb ensuing in the not-too-distant future. The Bakers tend to accumulate heavily for 3 or 4 years, which historically is a very good buy signal. And that's just what they have done with Genomic Health at this point.

The timing of the buying beginning in 2010 is interesting in light of the evolution of  bioprinting and what a massive help to GHDX it could be:

  • 1984 - Charles Hull invents 3D printing in general, creating a 3D model from pictures that began to be used for tests before money was spent on manufacturing
  • 2003 - Dr. Thomas Boland, in his lab at Clemson, modifies of a Lexmark printer to print 2D living cell arrays on a scaffold
  • 2004 - Several other scientists begin modifying printers to print 3D cell structures on scaffolds, and Dr. Forgacs, co-founder of Orgnaovo, first prints 3D living tissue without scaffold
  • 2010 - Organovo prints first human blood vessel without scaffold
  • 2011 - Organovo develops multiple drug discovery platforms and 3D bioprinted disease models
The blood vessel accomplishment in 2010 may seem minor, but a huge hurdle in printing living matter for realistic testing of therapeutics is the creation of the circulatory part. With their buying of GHDX starting also in 2010, one has to wonder if the Bakers were watching this development and are optimistic about the game changing prospects it may hold for Genomic Health.

Their game is simply this, as stated at their Linkedin page:
Genomic Health, Inc. (NASDAQ: GHDX) is the world's leading provider of genomic-based diagnostic tests that address both the overtreatment and optimal treatment of early stage cancer, one of the greatest issues in healthcare today. The company is applying its world-class scientific and commercial expertise and infrastructure to lead the translation of massive amounts of genomic data into clinically-actionable results for treatment planning
The "massive amounts of genomic data" are the gene mapping that used to be a hot topic decades ago. The Human Genome Project was launched in a 1987 budget to Congress with the goal of mapping our genomic make up over the next 15 years. In 2006, they announced an essentially completed project, although "it remains the world's largest collaborative biological project" according to Wikipedia. That was the year coincidentally that the Bakers began their massive buying of Seattle Genetics in the above graph. Now with the advent of bioprinting, a new age of medicine may be dawning where $billions of development money will be chopped out of the creation of effective therapy . They can now begin testing willy nilly on real live human disease types, so much of which is gene determined, without the massive waste of time and money spent on animals, cultures, and all the poor substitutes they have been working on all these years.

Is this a possible reason for the bull market in the biotechs emerging the last couple of years? The biotechs are often thought of as unstable and dangerous in overpriced, frothy markets. But even if you feel that way about the present market, check the behavior of the Baker selections above over the '08 crash. They were vastly more resilient than the market. You can not even find an "08" in their charts. Maybe they're not a "safe place to hide" like a utility, but the advances in medicine will go on pretty much independent of the economy.

Genomic Health is just a $823 million market cap company with plenty of room for growth and a very tiny float of just 17 million (the Bakers have bought up most of the shares) so it could move fast in a bullish development. They have zero debt, $105 million in cash, and a 4.8 current ratio, but unexciting bottom line performance with downgrades and a slumping stock price.

As for basic fundamentals for GHDX, they have growing revenues over the last 5 years and a price/sales of  3, which is reasonable for a biotech. But that's about all you can say for it. The cash flow multiple is over 90 with earnings waffling between positive and negative. They need a game changer. The Bakers seem to think one is on the way. 

Tuesday, March 18, 2014

Synthetic Biologics A buy

I'm adding Synthetic Biologics (SYN) to the blog's portfolio. This is a bio-pharma stock that strangely enough trades on the Amex. (click on image to enlarge)


I bought this at $2.45 after a clear break of the resistance at $2 on massive volume increases. I am working on a Seeking Alpha article on this stock which will be a premium submission (exclusive) so I can't say much about it here. I'll post when the article can be seen at SA.


Full House Resorts A No Buy

The direction out of the large formation I outlined in my previous article is now pretty clear - down. After looking at some nice things about this stock, I said that it shouldn't be bought until it broke the pennant to the upside. It came nowhere near doing this and has now gone into technical weakness. It may go into another technical condition later on, but that will probably take awhile.