Port 24 update:
The only January options I had sold were 10 MELA $10 calls, and they were exercised, with the stock at $11.05 last Friday.
With that cash, I bought 300 more Dendreon shares today, and sold 3 Feb $32 calls against them for $0.89 per share.
I am living by my resolution to be a little more active in the Port! I also sold the following calls today:
16 ELN March $9s for $0.30
15 SGMO Feb $7.50s for $0.25
10 MELA Feb $12.50s for $0.20
2 AMAG Feb $55s for $0.50
I almost sold calls against ALTH - but I feel there is a little more room beneath the stock before selling calls. AOB needs to climb closer to $5 to make it worth selling calls, and NBIX at $2.50 is not satisfactory to sell the $2.50s, and the $5s are not worth anything yet.
The Port 24 thus has the following stocks (covered calls in parentheses)
1500 ALTH
200 AMAG (2)
2000 AOB
4900 ARNA (24)
700 DNDN (3)
1600 ELN (16)
1000 MELA (10)
2000 NBIX
2000 PGNX (20)
1000 RMTI (10)
2500 SGMO (15)
.. with cash of $2,680. This gives me a port value of about $132,500 and a 19.3% annualized return. I'm getting closer to my 24% return, again!
Stocks:
Genvec released a PR that they have licensed their hearing loss pre-clinical work to Novartis, for $5M plus milestones and royalties. They also hit the 184 death interim trigger in the PACT trial on Friday, and will have data in 10 to 12 weeks. I'm nearly as excited about Genvec as I was about Dendreon, but caution that the risk/reward is much slighter here at $2 than at $0.76 when I first mentioned it here a few months ago. I was still buying in my real-world IRA at $1.70, but am probably done for now.
Dendreon had an interview published in the Xconomy online magazine with the new COO Hans Bishop. It is a MUST READ, here: http://www.xconomy.com/seattle/2010/01/19/dendreons-new-operations-man-hans-bishop-aims-to-keep-provenge-trains-running-on-time/
Sangamo had good results (albeit from one patient, in a Phase I trial) here: http://finance.yahoo.com/news/Sangamo-BioSciences-Announces-prnews-1693198508.html?x=0&.v=1
Regards,
Trond
Tuesday, January 19, 2010
Thursday, January 7, 2010
Port 24 update, Dendreon, and GenVec
I neglected to mention yesterday that I bought 1000 shares of Rockwell Medical Technologies (RMTI) at $7.73 in the Port24. I turned and sold February $7.50 calls for $0.85 each.
I wanted to clarify in my end-of-year post that although my annualized rate of return in the Port24 is only 13%, the gross return was about 25% - we've gone from $100,000 to $125K in 19 months. I took the time to see what benchmarks might be like: the S&P in the same time frame had a -10.5% annualized return (including dividends) and the Nasdaq was 8.1%.
GenVec and Dendreon both received an opening nod and a "buy" recommendation from Roth Capital Partners this morning. Further upgrades will probably be coming shortly.
GenVec in particular is nice to see at $1.60+ this morning as it officially constitutes a double from my initial rec back in October ($0.76 was my first buy in my real-world IRA). For the record, I was still buying yesterday at $1.37. With the rise and my further buys, it is now actually my second largest holding (after Dendreon) and at this rate might be the largest in a couple days... :-)
Regards,
Trond
I wanted to clarify in my end-of-year post that although my annualized rate of return in the Port24 is only 13%, the gross return was about 25% - we've gone from $100,000 to $125K in 19 months. I took the time to see what benchmarks might be like: the S&P in the same time frame had a -10.5% annualized return (including dividends) and the Nasdaq was 8.1%.
GenVec and Dendreon both received an opening nod and a "buy" recommendation from Roth Capital Partners this morning. Further upgrades will probably be coming shortly.
GenVec in particular is nice to see at $1.60+ this morning as it officially constitutes a double from my initial rec back in October ($0.76 was my first buy in my real-world IRA). For the record, I was still buying yesterday at $1.37. With the rise and my further buys, it is now actually my second largest holding (after Dendreon) and at this rate might be the largest in a couple days... :-)
Regards,
Trond
Wednesday, January 6, 2010
Stock market vs. the economy
It used to be that if the economic climate was good, the stock market would do well also. Conversely, with the release of bad economic data, the market would have a "correction".
I believe that the correlation between the two is much weaker now. I think there are two main reasons why this is so.
More money
There is simply too much money sloshing around the system right now. The advent on 401(k) plans and discount brokerages in the last 20 years has meant an explosion in the amount of money being invested. Something like 40% of workers now have some sort of directed stake in the market - where it used to be around 6%. Add to that the burgeoning number of private and even sovereign equity funds...
That money has to find a home. With more money chasing stocks, the general price level will rise, even with no rise in the value of the underlying companies.
Trading mentality
I am not talking day trading here! But the automated rebalancing of 401(k) plans, ETFs that get moved around every day, a general populace that is more comfortable staying in stocks during "bad" times, and a growing number of individual investors who arewilling to buy dips in the market, all contribute to flattening out some of the more violent swings we have seen previously.
Are there any lessons here? Perhaps not - just a general reminder that over the last 10 months as the market has gone up, please understand that the economy itself may not follow suit immediately. Make sure you rebalance, if that is your choice, as your allocations have certainly swung dramatically from a year ago. Do you have an emergency fund? Are you pre-paying your mortgage? Paying more than the minimum on your credit cards?
I am not convinced that the "green shoots" will truly take root in 2010. Please make sure your family is living below your means, saving (and investing) money, and adequately insured.
Regards,
Trond
I believe that the correlation between the two is much weaker now. I think there are two main reasons why this is so.
More money
There is simply too much money sloshing around the system right now. The advent on 401(k) plans and discount brokerages in the last 20 years has meant an explosion in the amount of money being invested. Something like 40% of workers now have some sort of directed stake in the market - where it used to be around 6%. Add to that the burgeoning number of private and even sovereign equity funds...
That money has to find a home. With more money chasing stocks, the general price level will rise, even with no rise in the value of the underlying companies.
Trading mentality
I am not talking day trading here! But the automated rebalancing of 401(k) plans, ETFs that get moved around every day, a general populace that is more comfortable staying in stocks during "bad" times, and a growing number of individual investors who arewilling to buy dips in the market, all contribute to flattening out some of the more violent swings we have seen previously.
Are there any lessons here? Perhaps not - just a general reminder that over the last 10 months as the market has gone up, please understand that the economy itself may not follow suit immediately. Make sure you rebalance, if that is your choice, as your allocations have certainly swung dramatically from a year ago. Do you have an emergency fund? Are you pre-paying your mortgage? Paying more than the minimum on your credit cards?
I am not convinced that the "green shoots" will truly take root in 2010. Please make sure your family is living below your means, saving (and investing) money, and adequately insured.
Regards,
Trond
Wednesday, December 30, 2009
Happy New Year
Thanks to all who read this - I have not been good about keeping up posting, or even the Port 24. I shall strive to do better in the new year, as I want to bring my returns back up to the 24% level.
I am closing out the year with a few calls being sold in the Port. 24 Arena Feb $4s, 10 Electro-Optical Jan $10s, and 20 Progenics Feb $5s ... all with a monthly return of about 4%.
I will be ending 2009 with an annualized rate of return of about 13% - good, but far short of my target. I do take comfort in the fact that I ignored the Port for long stretches of time and would have made a few more percentage points on the calls I neglected to sell.
My worst move this year was to not sell ARNA on the spikes. That cost me around $20,000. Of course I would not have sold at exactly the high point, but I really should have lightened up. On the plus side, I did exactly that with BioCryst - buying low, selling high, and selling a lot of calls in the interim. Dendreon was the clear winner this year - going from around $5 to the current $26.
Next year should see Dendreon achieve FDA approval for Provenge, Electro-Optical gain approval for MelaFund, partnerships for Arena and Neurocrine, and significant appreciation for Elan, Amag, and Allos. I find myself hoping that GenVec starts trading options as I would love to have some GNVC in the Port.
May everyone have a fun and safe New Year!
Regards,
Trond
I am closing out the year with a few calls being sold in the Port. 24 Arena Feb $4s, 10 Electro-Optical Jan $10s, and 20 Progenics Feb $5s ... all with a monthly return of about 4%.
I will be ending 2009 with an annualized rate of return of about 13% - good, but far short of my target. I do take comfort in the fact that I ignored the Port for long stretches of time and would have made a few more percentage points on the calls I neglected to sell.
My worst move this year was to not sell ARNA on the spikes. That cost me around $20,000. Of course I would not have sold at exactly the high point, but I really should have lightened up. On the plus side, I did exactly that with BioCryst - buying low, selling high, and selling a lot of calls in the interim. Dendreon was the clear winner this year - going from around $5 to the current $26.
Next year should see Dendreon achieve FDA approval for Provenge, Electro-Optical gain approval for MelaFund, partnerships for Arena and Neurocrine, and significant appreciation for Elan, Amag, and Allos. I find myself hoping that GenVec starts trading options as I would love to have some GNVC in the Port.
May everyone have a fun and safe New Year!
Regards,
Trond
Monday, November 9, 2009
Biotech trees and investment forests
FezHenry has a very interesting comment about my last post (valuing biotechs). I like (and agree with) several of his points - I have taken the liberty of copying the majority of it below, as I want to highlight the parts I agree with, and show why I think differently on others.
>>Thank you for taking the time to post such an in-depth response. The reason why I asked initially is because all of those biotech stocks you've mentioned have had zero positive free cash flow over the past ten years. This rate of cash burn has always been a reason why I have never personally invested in bio-tech's, because in my opinion, the majority of them just end up as giant cash-sucking research machines in the long run.
Yes, that giant sucking sound was not just jobs moving to Mexico - it is also biotechs (and nearly all early corporations) siphoning cash out of investors and giving them back lottery tickets. And you know what typically happens with lotteries...
I like how you've analyzed these stocks in such great detail, and you've obviously done some interesting modeling as well, but I'm somewhat concerned that you may be missing the investment forest for the bio-tech tree. For a company to be a proper investment, it needs to be able to generate more than just positive earnings...it has to be able to generate free cash flow.
Free cash flow (FCF) - or ANY kind of cash flow - is an attribute of a good company. And I agree FCF is something a typical investor will be looking for. Let's explore WHY that is.
Once a company is making more than it spends, on a real earnings basis, there are typically four things they can do with it. They can (i) pay a dividend (ii) retain earnings and reinvest in the company (usually better equipment to manufacture more quickly or more cheaply), (iii) reinvest in R&D for new or better products) or (iv) acquire other companies, with which they hope to make more or better products than it costs to acquire them.
But please note something about these choices:
Option i is perhaps the best from the investor's point of view (I can certainly spend extra money better than my favorite company can!) but note that the company then does not grow.
Option ii is wonderful up to a point, but you can make only so many widgets at a lesser price that people are willing to buy at any price.
Options iii and iv act just like what the company did when they themselves were the ones raising capital, through issuing more shares or debt. The difference of course is that they can pay for it as a going concern, but a couple products that don't make it from the lab to the shelf, or bad acquisitions, and that money is still sucked away.
My point is NOT to slam products, or making money via them. It is that companies making these profits will eventually have to revisit risk and invention. They have a far firmer foothold than pre-earnings corporations, but still have to allocate their capital in an intelligent way.
I think you may need to pay more heed towards how these companies are financing their revenues, and the impact on their profitability in the long term, otherwise you are just gambling that one of them will discover the next big thing.
Ah, but here's the thing. Even the next big thing is not a guarantee of a great company that is a good investment.
As example #1, I will pick on Tivo. I had a roommate who literally was probably one of the first 100 people to buy one. And the next day, he went and bought another (the larger storage one) for a second room. He LOVED A-V equipment and was a technophile. And he was right - everyone loved it. The problem is that the company made some poor choices with marketing and has been a dog for several years. Someone who waited for the sales to begin, measured them for a few quarters, projected them into the future, and was finally confident enough to buy, was the person who finally capitulated several years later for a loss.
Example #2 will be your choice of the financials over 2006 and 2007. Maybe Bear Stearns? Profitability up the yin-yang, darling of Wall Street, sweet credit ratings, and at the height amazing earnings that were projected to increase at astronomical multiples. Even though they did not make widgets, making deals can be just as profitable. But we all know how that ended up.
I am NOT dissing a company making actual profits. Many companies make great marketing decisions, and do not go charging into bubbles, as these two examples show. But simply having real FCF is not the only answer either.
I hope you don't think that I'm trying to rain on your parade, so to speak. I know that you have superior analytical skills from working with you @ CNB all of those years, but I just think you need to maybe take more of a fundamental view on some of these companies so you can properly estimate your risk. From a fundamental perspective, I personally wouldn't invest in any of these companies until they can at the very least, generate positive free cash flow and be able to stand on their own without financing their operations via shareholder dilution, or excessive leveraging...
Pre-earnings biotechs, as a category, are far riskier, as FezHenry notes, because to raise the funds necessary to maintain operation, they have to leverage debt, or sell more shares.
Note that I do not worry too much about the dilutative nature of issuing more shares (to a point!) - I may own 1.05 millionth of a company instead of 1 millionth but those existing shares then have $0.00001 more cash per share. And if I trust management enough to use that cash, I do not care if they raised it in a secondary or by achieving FCF.
Now here is the real difference, I believe, in the investing styles. I view fundamentals as more than just the metrics of cash per share, earnings per share, current ratios, and debt/equity. To me the fundamentals are "is what the company is doing, advancing its potential?" and "do I trust the management?"
... but I follow Warren Buffett's first two rules of investing:
1. Never lose money.
2. Never forget rule #1.
I think FezHenry and I are actually closer to each other than apart. I am a huge Buffett fan (I just finished Alice Schroeder's Snowball: Warren Buffett and the Business of Life and it is a fantastic telling of Buffett's life) but what you actually get out of it is that Buffett the investor is inhuman. I do not have the investing resources nor the time horizon of Buffett the investor. He can buy entire companies which gives him pricing power. He can sit on Coca Cola for 30 years. I freely admit I cannot.
But - there are a couple things I like to emulate him on. You do your research (due diligence), you talk to people, you fanatically find out every scrap of information you can, and when you get your fat pitch, you buy. Buffet talks of a punch card where you only make 20 investing decisions over your whole life. If you use 1/20 of your lifetime buys on Sangamo, you will want to make sure it is a great opportunity.
The other quality I have learned from Buffett, through Ben Graham, is that Mr. Market truly is insane. You can buy the same company for $20 a share one day and for $19 a share the next day. It is NOT 95% as good a company the second day, it is simply a function of fear, greed, reaction, hope, and maybe a little bit of the weather in New York. So if after my research I am in a company and I am convinced it is overvalued for the moment, I can sell some of my position without freaking out that I am breaking "Buffett's rules". The key for me from this second point is that you enter a position into a company you like with a core position, and can also trade around that position.
Please check out this post for an idea of what I am speaking of: http://www.fwallstreet.com/blog/31.htm
Done! And a good example of what you are leery of. However, I will point out that as a company, it may not be making money, but some investors had an amazing ride. Investing is a zero sum game - every share that gets bought means someone else has sold. The company really isn't more or less valuable - it is simply the relative pressure of the fear versus the greed.
I hope I haven't gone down too many rabbit holes and you are still with me. To close, my argument really boils down to my biotechs simply haven't started selling products yet. Once they do, the metrics you want to use (fundamentals) will either bear out the story, or they won't. You have different information available to you with the Buffetesque companies you choose to follow - actual sales information. I have to model out the potential sales before they happen with the companies I choose to follow. I do have to make the leap of faith that I have the next best thing, but you are making the implicit leap of faith that your competitors won't come out with the next, next, best thing.
As always, thanks for the thought provoking comments.
Regards,
Trond
>>Thank you for taking the time to post such an in-depth response. The reason why I asked initially is because all of those biotech stocks you've mentioned have had zero positive free cash flow over the past ten years. This rate of cash burn has always been a reason why I have never personally invested in bio-tech's, because in my opinion, the majority of them just end up as giant cash-sucking research machines in the long run.
Yes, that giant sucking sound was not just jobs moving to Mexico - it is also biotechs (and nearly all early corporations) siphoning cash out of investors and giving them back lottery tickets. And you know what typically happens with lotteries...
I like how you've analyzed these stocks in such great detail, and you've obviously done some interesting modeling as well, but I'm somewhat concerned that you may be missing the investment forest for the bio-tech tree. For a company to be a proper investment, it needs to be able to generate more than just positive earnings...it has to be able to generate free cash flow.
Free cash flow (FCF) - or ANY kind of cash flow - is an attribute of a good company. And I agree FCF is something a typical investor will be looking for. Let's explore WHY that is.
Once a company is making more than it spends, on a real earnings basis, there are typically four things they can do with it. They can (i) pay a dividend (ii) retain earnings and reinvest in the company (usually better equipment to manufacture more quickly or more cheaply), (iii) reinvest in R&D for new or better products) or (iv) acquire other companies, with which they hope to make more or better products than it costs to acquire them.
But please note something about these choices:
Option i is perhaps the best from the investor's point of view (I can certainly spend extra money better than my favorite company can!) but note that the company then does not grow.
Option ii is wonderful up to a point, but you can make only so many widgets at a lesser price that people are willing to buy at any price.
Options iii and iv act just like what the company did when they themselves were the ones raising capital, through issuing more shares or debt. The difference of course is that they can pay for it as a going concern, but a couple products that don't make it from the lab to the shelf, or bad acquisitions, and that money is still sucked away.
My point is NOT to slam products, or making money via them. It is that companies making these profits will eventually have to revisit risk and invention. They have a far firmer foothold than pre-earnings corporations, but still have to allocate their capital in an intelligent way.
I think you may need to pay more heed towards how these companies are financing their revenues, and the impact on their profitability in the long term, otherwise you are just gambling that one of them will discover the next big thing.
Ah, but here's the thing. Even the next big thing is not a guarantee of a great company that is a good investment.
As example #1, I will pick on Tivo. I had a roommate who literally was probably one of the first 100 people to buy one. And the next day, he went and bought another (the larger storage one) for a second room. He LOVED A-V equipment and was a technophile. And he was right - everyone loved it. The problem is that the company made some poor choices with marketing and has been a dog for several years. Someone who waited for the sales to begin, measured them for a few quarters, projected them into the future, and was finally confident enough to buy, was the person who finally capitulated several years later for a loss.
Example #2 will be your choice of the financials over 2006 and 2007. Maybe Bear Stearns? Profitability up the yin-yang, darling of Wall Street, sweet credit ratings, and at the height amazing earnings that were projected to increase at astronomical multiples. Even though they did not make widgets, making deals can be just as profitable. But we all know how that ended up.
I am NOT dissing a company making actual profits. Many companies make great marketing decisions, and do not go charging into bubbles, as these two examples show. But simply having real FCF is not the only answer either.
I hope you don't think that I'm trying to rain on your parade, so to speak. I know that you have superior analytical skills from working with you @ CNB all of those years, but I just think you need to maybe take more of a fundamental view on some of these companies so you can properly estimate your risk. From a fundamental perspective, I personally wouldn't invest in any of these companies until they can at the very least, generate positive free cash flow and be able to stand on their own without financing their operations via shareholder dilution, or excessive leveraging...
Pre-earnings biotechs, as a category, are far riskier, as FezHenry notes, because to raise the funds necessary to maintain operation, they have to leverage debt, or sell more shares.
Note that I do not worry too much about the dilutative nature of issuing more shares (to a point!) - I may own 1.05 millionth of a company instead of 1 millionth but those existing shares then have $0.00001 more cash per share. And if I trust management enough to use that cash, I do not care if they raised it in a secondary or by achieving FCF.
Now here is the real difference, I believe, in the investing styles. I view fundamentals as more than just the metrics of cash per share, earnings per share, current ratios, and debt/equity. To me the fundamentals are "is what the company is doing, advancing its potential?" and "do I trust the management?"
... but I follow Warren Buffett's first two rules of investing:
1. Never lose money.
2. Never forget rule #1.
I think FezHenry and I are actually closer to each other than apart. I am a huge Buffett fan (I just finished Alice Schroeder's Snowball: Warren Buffett and the Business of Life and it is a fantastic telling of Buffett's life) but what you actually get out of it is that Buffett the investor is inhuman. I do not have the investing resources nor the time horizon of Buffett the investor. He can buy entire companies which gives him pricing power. He can sit on Coca Cola for 30 years. I freely admit I cannot.
But - there are a couple things I like to emulate him on. You do your research (due diligence), you talk to people, you fanatically find out every scrap of information you can, and when you get your fat pitch, you buy. Buffet talks of a punch card where you only make 20 investing decisions over your whole life. If you use 1/20 of your lifetime buys on Sangamo, you will want to make sure it is a great opportunity.
The other quality I have learned from Buffett, through Ben Graham, is that Mr. Market truly is insane. You can buy the same company for $20 a share one day and for $19 a share the next day. It is NOT 95% as good a company the second day, it is simply a function of fear, greed, reaction, hope, and maybe a little bit of the weather in New York. So if after my research I am in a company and I am convinced it is overvalued for the moment, I can sell some of my position without freaking out that I am breaking "Buffett's rules". The key for me from this second point is that you enter a position into a company you like with a core position, and can also trade around that position.
Please check out this post for an idea of what I am speaking of: http://www.fwallstreet.com/blog/31.htm
Done! And a good example of what you are leery of. However, I will point out that as a company, it may not be making money, but some investors had an amazing ride. Investing is a zero sum game - every share that gets bought means someone else has sold. The company really isn't more or less valuable - it is simply the relative pressure of the fear versus the greed.
I hope I haven't gone down too many rabbit holes and you are still with me. To close, my argument really boils down to my biotechs simply haven't started selling products yet. Once they do, the metrics you want to use (fundamentals) will either bear out the story, or they won't. You have different information available to you with the Buffetesque companies you choose to follow - actual sales information. I have to model out the potential sales before they happen with the companies I choose to follow. I do have to make the leap of faith that I have the next best thing, but you are making the implicit leap of faith that your competitors won't come out with the next, next, best thing.
As always, thanks for the thought provoking comments.
Regards,
Trond
Thursday, November 5, 2009
Valuing biotechs
FezHenry asks how I come up with the valuations for the biotechs I suggested. That is a fair question, and not an easy one to answer.
When you have companies that make products, have revenue, and (gasp) actual profits, then the task can be a bit easier. There are a number of metrics such as price-to-earnings (P/E), or price-to-sales, that you can use to compare a company against another within the industry and see which is a better deal. I am suspicious of these metrics, by the way, on the whole, because earnings are massaged quite a bit, and even sales can be "managed" from quarter to quarter. But at least there are real numbers to work with!
Biotechs that have no products available for sale yet are much trickier. Look at BioCryst (BCRX) which today announced its first order for the IV version of its swine flu drug peramivir. The pricing was MUCH more aggressive than the Street expected and the stock responded with a 15% gain on the day! At this point, forecasting more sales really depends on how much more the government will stockpile, whether doctors start prescribing it off its emergency-use label, if and when the other countries that have negotiated with the company (Israel, China, e.g.) start ordering, and perhaps most immediately important - whether Japan gives its emergency use authorization and they get an order for 500,00 to 1M doses. That would be a $1B order minimum, or $200M at its Shionogi royalty rate - one order alone that is half its market cap! Can you say hello $20s or $30s, from it's $11.39 today? (and yes, I have a little BCRX in my IRA - not a lot but I think this one, too, will do well in the next year)
Back to the actual question though.
Let's take Dendreon for an example, simply because I can do these numbers in my sleep. Provenge is not approved yet, so we have no real metrics. We don't even have a good price point on them - Dr. Gold has stated the one plant they have now, at full capacity, can produce $500M to $1B of sales. It however, is only 25% built out presently... and to complicate matters, they are planning two new plants, each of which will produce 3/4 of the NJ facility.
Now, you probably should also look at the number of patients a year who will get prostate cancer, at the phase at which this will be prescribed (post-androgen therapy) and make an estimate of the market penetration, and then figure the number of patients who actually get the drug multiplied by the cost per treatment. Suffice it to say I believe within 5 years, these three plants will all be at full capacity. (1+3/4+3/4) plants at $500M to $1B gives you a range of revenue of $1.25B to $2.5B ( you can usually also figure in modest price increases per year, but I'm ignoring that, for now). You can use the midpoint, but I like to assume the low point as a reality check. So $1.25B of sales is our first checkpoint.
Now you can apply some other metrics. Five-to-seven times sales is one rule of thumb for projected market cap. So using 5 * 1.25 gives us a $6.25B market cap, 5 years out. Our market cap now is about $3.2B so it's nearly a double - call it $55 from today's $27.78.
But wait!
We now need to discount back to the present, adjusting for risk. I have assumed approval and I have assumed revenues into the future (they will not be making $1.25B next year). At least I assumed the lower levels for the other choices! We can say there is a 10% risk that Provenge is not approved, or has a delay. There may be a 15% discount per year into the future revenue stream. All told that $55 in the future may only be worth $32 or so today. Still a nice 10 to 15% discount to today's price! And please note if I use the midpoints of revenue and times sales, we would arrive at a market cap of $11.25B - or a share price of $90 or so. Discounted that would be $60ish, compared to today's $27.78 - nice! I like to be conservative but I also like to see what might be in store.
You can also use the P/E ratio, once you estimate sales, to arrive at a price. At $1.25B (again, the low point in assumptions) in sales, the margins should be around 25% so there would be $312M in profit. I am going to assume they will issue more shares within 5 years and there will be 150M shares outstanding. That would be over $2 per share in earnings, and with an assumed x25 earnings multiple, we arrive at $50 per share - slightly less than my $55 from the times-sales estimate.
Note all these example all estimate ONLY United States revenue. Dendreon is actively seeking a rest-of-world partner - where they will collect a royalty on ex-US sales. These royalties will have an effect on the bottom line, perhaps as much as 20-25% of the US revenue.
They also have other immunotherapeutics in their pipeline that will follow Provenge, all based off the same method of action. They have learned HOW to construct trials for cancer vaccines, and their agents for breast, ovarian, kidney, colon, and lung cancers should move along more quickly through trials than Provenge did. This will become a growth stock once investors realize cancer may become a manageable disease through these immunotherapeutics.
Whew - lecture on Dendreon is now over. The take away from this lesson should be that there are a HUGE number of assumptions that go into any kind of estimate like this. Patient count, adoption rate, pricing, earnings, competition, production capacity - any of these could be off by factors of 50% or more! My usual method is to try to use the low points of most ranges to come up with a basement level price, and then start tweaking numbers, as not ALL categories will be at the lowest possible point. If the basement price looks attractive compared to today's price, though, you just may have a winner.
Too, the companies do not have to succeed in the end, for the stock to move in the next year or so. Each of these are "story stocks", where there is news coming out in a specific time frame. I actually think my 50-100% price rise will be accomplished BEFORE the actual news. I want to buy in to companies where there is some reason to believe the drugs work, let the pre-announcement excitement build, and then sell some-to-most of the position before the actual news. If GNVC hits $1.50 next spring, I will sell about half of my holdings and then let the rest ride into the interim results.
I have a lot more work to do on some of these models, but I will say that GNVC and SGMO look incredibly mispriced right now, based on potential sales. GNVC could be worth $30+, from today's $0.93 - but the trial itself still may go for 2 years, with a year plus from then for approval, and ramp up. Are you willing to buy $1,000 now, for $30,000 in seven years? SGMO could be a paradigm changer - where every company that wants to modify a single gene has to pay a royalty to Sangamo. In ten years, they may have 1,000 contracts for $10K to $50K each, as a yearly income stream along with their own drug sales from the trials they are running now.
Biotechs may be pie-in-the-sky, but several will pan out, into gold. There WILL be the next Amgen, the next Genentech... I think a couple of the names I've thrown out there may just be those companies.
Regards,
Trond
When you have companies that make products, have revenue, and (gasp) actual profits, then the task can be a bit easier. There are a number of metrics such as price-to-earnings (P/E), or price-to-sales, that you can use to compare a company against another within the industry and see which is a better deal. I am suspicious of these metrics, by the way, on the whole, because earnings are massaged quite a bit, and even sales can be "managed" from quarter to quarter. But at least there are real numbers to work with!
Biotechs that have no products available for sale yet are much trickier. Look at BioCryst (BCRX) which today announced its first order for the IV version of its swine flu drug peramivir. The pricing was MUCH more aggressive than the Street expected and the stock responded with a 15% gain on the day! At this point, forecasting more sales really depends on how much more the government will stockpile, whether doctors start prescribing it off its emergency-use label, if and when the other countries that have negotiated with the company (Israel, China, e.g.) start ordering, and perhaps most immediately important - whether Japan gives its emergency use authorization and they get an order for 500,00 to 1M doses. That would be a $1B order minimum, or $200M at its Shionogi royalty rate - one order alone that is half its market cap! Can you say hello $20s or $30s, from it's $11.39 today? (and yes, I have a little BCRX in my IRA - not a lot but I think this one, too, will do well in the next year)
Back to the actual question though.
Let's take Dendreon for an example, simply because I can do these numbers in my sleep. Provenge is not approved yet, so we have no real metrics. We don't even have a good price point on them - Dr. Gold has stated the one plant they have now, at full capacity, can produce $500M to $1B of sales. It however, is only 25% built out presently... and to complicate matters, they are planning two new plants, each of which will produce 3/4 of the NJ facility.
Now, you probably should also look at the number of patients a year who will get prostate cancer, at the phase at which this will be prescribed (post-androgen therapy) and make an estimate of the market penetration, and then figure the number of patients who actually get the drug multiplied by the cost per treatment. Suffice it to say I believe within 5 years, these three plants will all be at full capacity. (1+3/4+3/4) plants at $500M to $1B gives you a range of revenue of $1.25B to $2.5B ( you can usually also figure in modest price increases per year, but I'm ignoring that, for now). You can use the midpoint, but I like to assume the low point as a reality check. So $1.25B of sales is our first checkpoint.
Now you can apply some other metrics. Five-to-seven times sales is one rule of thumb for projected market cap. So using 5 * 1.25 gives us a $6.25B market cap, 5 years out. Our market cap now is about $3.2B so it's nearly a double - call it $55 from today's $27.78.
But wait!
We now need to discount back to the present, adjusting for risk. I have assumed approval and I have assumed revenues into the future (they will not be making $1.25B next year). At least I assumed the lower levels for the other choices! We can say there is a 10% risk that Provenge is not approved, or has a delay. There may be a 15% discount per year into the future revenue stream. All told that $55 in the future may only be worth $32 or so today. Still a nice 10 to 15% discount to today's price! And please note if I use the midpoints of revenue and times sales, we would arrive at a market cap of $11.25B - or a share price of $90 or so. Discounted that would be $60ish, compared to today's $27.78 - nice! I like to be conservative but I also like to see what might be in store.
You can also use the P/E ratio, once you estimate sales, to arrive at a price. At $1.25B (again, the low point in assumptions) in sales, the margins should be around 25% so there would be $312M in profit. I am going to assume they will issue more shares within 5 years and there will be 150M shares outstanding. That would be over $2 per share in earnings, and with an assumed x25 earnings multiple, we arrive at $50 per share - slightly less than my $55 from the times-sales estimate.
Note all these example all estimate ONLY United States revenue. Dendreon is actively seeking a rest-of-world partner - where they will collect a royalty on ex-US sales. These royalties will have an effect on the bottom line, perhaps as much as 20-25% of the US revenue.
They also have other immunotherapeutics in their pipeline that will follow Provenge, all based off the same method of action. They have learned HOW to construct trials for cancer vaccines, and their agents for breast, ovarian, kidney, colon, and lung cancers should move along more quickly through trials than Provenge did. This will become a growth stock once investors realize cancer may become a manageable disease through these immunotherapeutics.
Whew - lecture on Dendreon is now over. The take away from this lesson should be that there are a HUGE number of assumptions that go into any kind of estimate like this. Patient count, adoption rate, pricing, earnings, competition, production capacity - any of these could be off by factors of 50% or more! My usual method is to try to use the low points of most ranges to come up with a basement level price, and then start tweaking numbers, as not ALL categories will be at the lowest possible point. If the basement price looks attractive compared to today's price, though, you just may have a winner.
Too, the companies do not have to succeed in the end, for the stock to move in the next year or so. Each of these are "story stocks", where there is news coming out in a specific time frame. I actually think my 50-100% price rise will be accomplished BEFORE the actual news. I want to buy in to companies where there is some reason to believe the drugs work, let the pre-announcement excitement build, and then sell some-to-most of the position before the actual news. If GNVC hits $1.50 next spring, I will sell about half of my holdings and then let the rest ride into the interim results.
I have a lot more work to do on some of these models, but I will say that GNVC and SGMO look incredibly mispriced right now, based on potential sales. GNVC could be worth $30+, from today's $0.93 - but the trial itself still may go for 2 years, with a year plus from then for approval, and ramp up. Are you willing to buy $1,000 now, for $30,000 in seven years? SGMO could be a paradigm changer - where every company that wants to modify a single gene has to pay a royalty to Sangamo. In ten years, they may have 1,000 contracts for $10K to $50K each, as a yearly income stream along with their own drug sales from the trials they are running now.
Biotechs may be pie-in-the-sky, but several will pan out, into gold. There WILL be the next Amgen, the next Genentech... I think a couple of the names I've thrown out there may just be those companies.
Regards,
Trond
Watchlist
I desperately need to update my watchlist - I hope to have some time this weekend to do so.
I am very bullish on several stocks at this point - I'd have looked like a genius if I'd pointed out Sangamo yesterday ($6.30, up 16% today...) but there are a number of others too. SGMO, by the way, IS a watchlist stock and I will have an updated "buy under" price this weekend. I think it may give some back tomorrow, so I wouldn't just grab some today.
Allos (ALTH, $5.88 today) is one stock that I expect to be at or over $10 in the next 6 months or so. They have an approved drug, aggressive pricing, and a low number of shares outstanding (relatively). The worst case would be a buyout at a 10-20% premium.
Neurocrine (NBIX, $2.16 today) is another that SHOULD have news in the next 6 months that will propel it to at least a double and perhaps more. Several trials will yield news and a partnership awaits. I unfortunately have thought this for a few months now and have been buying steadily all the way down. Time will tell but this is rapidly becoming one of my larger stakes, just from the risk/reward.
GenVec (GNVC, $0.93 today) is the final one I will toss out - again, interim trial data expected within 6 months and the data should be really nice. Not good enough to file with the FDA immediately, but good enough to attract partners and/or suitors.
All of these (SGMO, ALTH, NBIX, and GNVC) should be 50% or higher in the next 6 months. I will make a note to revisit this post in May 2010 - I invite you to do some research on these companies and ask any questions you wish.
Regards,
Trond
I am very bullish on several stocks at this point - I'd have looked like a genius if I'd pointed out Sangamo yesterday ($6.30, up 16% today...) but there are a number of others too. SGMO, by the way, IS a watchlist stock and I will have an updated "buy under" price this weekend. I think it may give some back tomorrow, so I wouldn't just grab some today.
Allos (ALTH, $5.88 today) is one stock that I expect to be at or over $10 in the next 6 months or so. They have an approved drug, aggressive pricing, and a low number of shares outstanding (relatively). The worst case would be a buyout at a 10-20% premium.
Neurocrine (NBIX, $2.16 today) is another that SHOULD have news in the next 6 months that will propel it to at least a double and perhaps more. Several trials will yield news and a partnership awaits. I unfortunately have thought this for a few months now and have been buying steadily all the way down. Time will tell but this is rapidly becoming one of my larger stakes, just from the risk/reward.
GenVec (GNVC, $0.93 today) is the final one I will toss out - again, interim trial data expected within 6 months and the data should be really nice. Not good enough to file with the FDA immediately, but good enough to attract partners and/or suitors.
All of these (SGMO, ALTH, NBIX, and GNVC) should be 50% or higher in the next 6 months. I will make a note to revisit this post in May 2010 - I invite you to do some research on these companies and ask any questions you wish.
Regards,
Trond
Thursday, October 29, 2009
Personal Finance - Credit
I'm taking a break from my stock market portfolio to talk about credit this morning.
The banks seem to be on a mission to raise credit card rates, close accounts, and generally, make as much money off folks as they can.
Now, I love the concept of capitalism so I do not argue against their right to do this. However, you need to protect yourself as you can, and in this day and age, that also means protecting your credit score. Let me give you an example.
My wife has had a Bank of America credit card for nearly 20 years now. Due to our particular circumstances, this card rarely was used - we considered it primarily an emergency card - a very temporary place to throw charges on in case of major car repairs or family news requiring travel, for example. We have not used it for over a year, and last week she tried putting a small charge on it, simply to have used it. Imagine her surprise when she was declined, and found out BoA had cancelled the card, without informing us.
The company would not reinstate the account, although of course they asked if she wanted to apply for a new card. This was hurtful to our credit for two reasons.
First, she has had this account for a very long time - longer than any of my accounts! Part of your score is determined by the duration of your credit relationships. Closing this account probably shaved 10 to 30 points off our score.
Second, closing the account lowered the amount of credit we have available by $18,000. Our ratio of debt to debt capacity got raised - which will also lower our score.
Recent signs have the economy improving in the short term, but there are still some issues in the banking system that need to be worked out. Lending standards may be tight for years in the future - and your credit score is solely responsible for if you can get a loan, and if so, how much, and at what rate that loan will be for. Here are a couple tips:
1. Use each of your cards at least once a year.
2. If you are going to close an account, all else being equal, first close the account that you have had for the shortest amount of time.
3. Make sure you pay your cards on time. One late payment on ONE card can kick off mandatory rate increases on ALL your cards.
4. Check your credit history at least once a year, for free, at http://www.annualcreditreport.com/. There are three credit bureaus, and you can check each once per year for free. Make sure you go to the site listed above, as others may charge you for accessing a credit report. Each of the three may have slightly different information, so it is worthwhile to check all three, but consider staggering them throughout the year, maybe one each four months. (for most people, checking all three may not be necessary - unless you have been informed any of your personal information has been stolen)
5. Open your "junk mail" - make sure it is not something from your existing accounts, changing your account terms. Many banks are raising interest rates (for an interesting video about BoA raising a lady's rate from 13 to 30%, and her reaction, see http://www.youtube.com/watch?v=jGC1mCS4OVo) and you do have an option. If you do not need the account, you have the right to close the account and keep the existing rate until you pay it off under the original terms. Be aware this may affect your credit score, however, as it will change your debt ratios...
If you have questions, please leave a comment. I'll do my best to reply to all.
Regards,
Trond
The banks seem to be on a mission to raise credit card rates, close accounts, and generally, make as much money off folks as they can.
Now, I love the concept of capitalism so I do not argue against their right to do this. However, you need to protect yourself as you can, and in this day and age, that also means protecting your credit score. Let me give you an example.
My wife has had a Bank of America credit card for nearly 20 years now. Due to our particular circumstances, this card rarely was used - we considered it primarily an emergency card - a very temporary place to throw charges on in case of major car repairs or family news requiring travel, for example. We have not used it for over a year, and last week she tried putting a small charge on it, simply to have used it. Imagine her surprise when she was declined, and found out BoA had cancelled the card, without informing us.
The company would not reinstate the account, although of course they asked if she wanted to apply for a new card. This was hurtful to our credit for two reasons.
First, she has had this account for a very long time - longer than any of my accounts! Part of your score is determined by the duration of your credit relationships. Closing this account probably shaved 10 to 30 points off our score.
Second, closing the account lowered the amount of credit we have available by $18,000. Our ratio of debt to debt capacity got raised - which will also lower our score.
Recent signs have the economy improving in the short term, but there are still some issues in the banking system that need to be worked out. Lending standards may be tight for years in the future - and your credit score is solely responsible for if you can get a loan, and if so, how much, and at what rate that loan will be for. Here are a couple tips:
1. Use each of your cards at least once a year.
2. If you are going to close an account, all else being equal, first close the account that you have had for the shortest amount of time.
3. Make sure you pay your cards on time. One late payment on ONE card can kick off mandatory rate increases on ALL your cards.
4. Check your credit history at least once a year, for free, at http://www.annualcreditreport.com/. There are three credit bureaus, and you can check each once per year for free. Make sure you go to the site listed above, as others may charge you for accessing a credit report. Each of the three may have slightly different information, so it is worthwhile to check all three, but consider staggering them throughout the year, maybe one each four months. (for most people, checking all three may not be necessary - unless you have been informed any of your personal information has been stolen)
5. Open your "junk mail" - make sure it is not something from your existing accounts, changing your account terms. Many banks are raising interest rates (for an interesting video about BoA raising a lady's rate from 13 to 30%, and her reaction, see http://www.youtube.com/watch?v=jGC1mCS4OVo) and you do have an option. If you do not need the account, you have the right to close the account and keep the existing rate until you pay it off under the original terms. Be aware this may affect your credit score, however, as it will change your debt ratios...
If you have questions, please leave a comment. I'll do my best to reply to all.
Regards,
Trond
Thursday, October 22, 2009
Port 24 update and real-world trades
Well I did not get a chance to post yesterday but I made some changes in the Port.
I sold the last 400 BCRX, bought 2000 PGNX and 1500 ALTH, and sold 10 MELA calls (Nov $10s, for $0.40).
BioCryst is close to either getting an Emergency Use Approval or not. I would miss the price spike, but I also will miss the cratering if it does not get it. This Port is not for extreme trading -- I will definitely focus on biotechs (simply because that is what I follow for the most part) but the covered call strategy works perfectly by buying into biotechs, selling calls against the premium generated by trial or approval hype, and then selling BEFORE the actual date.
In my real-world IRA, I have been buying NBIX ($2.74), PZG ($1.27) and MNKD ($5.13). All of these are, in my estimation, good for a double or more in the next 12 months.
The Port stands as follows:
2000 AOB
2000 NBIX
1600 ELN
400 DNDN
4900 ARNA
2500 SGMO
2000 MELA (10)
2000 PGNX
200 AMAG
1500 ALTH
Cash: $5,231.55
Regards,
Trond
I sold the last 400 BCRX, bought 2000 PGNX and 1500 ALTH, and sold 10 MELA calls (Nov $10s, for $0.40).
BioCryst is close to either getting an Emergency Use Approval or not. I would miss the price spike, but I also will miss the cratering if it does not get it. This Port is not for extreme trading -- I will definitely focus on biotechs (simply because that is what I follow for the most part) but the covered call strategy works perfectly by buying into biotechs, selling calls against the premium generated by trial or approval hype, and then selling BEFORE the actual date.
In my real-world IRA, I have been buying NBIX ($2.74), PZG ($1.27) and MNKD ($5.13). All of these are, in my estimation, good for a double or more in the next 12 months.
The Port stands as follows:
2000 AOB
2000 NBIX
1600 ELN
400 DNDN
4900 ARNA
2500 SGMO
2000 MELA (10)
2000 PGNX
200 AMAG
1500 ALTH
Cash: $5,231.55
Regards,
Trond
Saturday, October 17, 2009
Port 24 update
Options expiration was yesterday and I was only exercised on 600 Dendreon shares. Elan, Sangamo, American Oriental, Arena, and Electro-Optical calls all expired with the premium as 100% profit.
Dendreon was a little disappointing, as I hate to see any shares of this company go, even in a ficticious portfolio. I had sold the $35s at $0.84, and then bought them back at a profit ($0.20), and then sold the $28s. It closed at $29.51 and so they were called away from me; I now have only 400 shares left (just under 10% of the Port).
I have to say I am a little surprised at Dendreon's strength. The addition of two new Board members (one, Ian Clark, the upcoming CEO of Genentech North America) certainly fueled speculation about the Rest-Of-World partner for Provenge being Genentech.
For me, the only real news of interest coming up is the amended BLA scheduled for mid-November. And the aBLA itself really is not newsworthy as they announced it a month ago. But - the sensitivity analysis should be included and hopefully made public. This sensitivity analysis is important to me because it will show the continued strength of Provenge over time. In April, the final results of the IMPACT trial showed a statistically significant reduction of risk of death of 22.5% over the placebo group. This 8+ month (results were released in April but the results were based off data cut off in January) should show an improving hazard ratio over and above the 22.5% aleready seen. I would like to see 26%+.
Elan will be having their quarterly earnings call on 10/21, but will be upstaged slightly on the 20th when Biogen releases Tysabri numbers for Q3. I expect to see continuing, although not blowout, growth in the patient count. However, I also expect Elan to announce they will swing to profitability in either Q4 or Q1 2010. We should see real growth in revenue from the EDT branch, and unfortunately we probably will not hear any real news of the Alzheimers platform on this call.
In my real money IRA, I have been buying GenVec (GNVC) and MannKind (MKND) for the first time and more Elan (ELN) and Sangamo (SGMO). I am very excited for GNVC but the move started earlier than I thought it would: I started buying at $0.76 per share and it already touched $1 this last week.
I'll be adding a couple watchlist stocks, mentioning now only that Allos (ALTH), AMAG Pharma (AMAG), and MannKind (MKND) should deliver 50-100% returns in the next 12-24 months.
Regards,
Trond
Dendreon was a little disappointing, as I hate to see any shares of this company go, even in a ficticious portfolio. I had sold the $35s at $0.84, and then bought them back at a profit ($0.20), and then sold the $28s. It closed at $29.51 and so they were called away from me; I now have only 400 shares left (just under 10% of the Port).
I have to say I am a little surprised at Dendreon's strength. The addition of two new Board members (one, Ian Clark, the upcoming CEO of Genentech North America) certainly fueled speculation about the Rest-Of-World partner for Provenge being Genentech.
For me, the only real news of interest coming up is the amended BLA scheduled for mid-November. And the aBLA itself really is not newsworthy as they announced it a month ago. But - the sensitivity analysis should be included and hopefully made public. This sensitivity analysis is important to me because it will show the continued strength of Provenge over time. In April, the final results of the IMPACT trial showed a statistically significant reduction of risk of death of 22.5% over the placebo group. This 8+ month (results were released in April but the results were based off data cut off in January) should show an improving hazard ratio over and above the 22.5% aleready seen. I would like to see 26%+.
Elan will be having their quarterly earnings call on 10/21, but will be upstaged slightly on the 20th when Biogen releases Tysabri numbers for Q3. I expect to see continuing, although not blowout, growth in the patient count. However, I also expect Elan to announce they will swing to profitability in either Q4 or Q1 2010. We should see real growth in revenue from the EDT branch, and unfortunately we probably will not hear any real news of the Alzheimers platform on this call.
In my real money IRA, I have been buying GenVec (GNVC) and MannKind (MKND) for the first time and more Elan (ELN) and Sangamo (SGMO). I am very excited for GNVC but the move started earlier than I thought it would: I started buying at $0.76 per share and it already touched $1 this last week.
I'll be adding a couple watchlist stocks, mentioning now only that Allos (ALTH), AMAG Pharma (AMAG), and MannKind (MKND) should deliver 50-100% returns in the next 12-24 months.
Regards,
Trond
Friday, September 25, 2009
Various stocks and two Port24 trades
One of the nice things about selling covered calls is that when a stock goes down, you can buy back the calls you sold, at a profit.
That is exactly what I did today for the Port; I had sold 6 Oct $35 DNDN contracts for $84 each and bought them back today for $20 each -- $350 profit after commissions.
Then I turned around and sold 6 Oct $28s for $100 each.
Do not get me wrong, Dendreon is still a stock I want to own. But I do not believe it will be above $28 in the middle of October. They announced yesterday that the amended BLA will not be filed until the middle of November, and so I just don't see any real gains through then. If we see a spike downwards, I very well may simply buy these back too...
I also bought (for the Port) 2000 AOB at $4.83 and sold the Oct $5s for $20 each. [disclosure: I also did this today in my real IRA with 1000 shares...]
I did well in selling ALTH - they did get approval, as I thought, but revenue and profits are going to be a few months away and so the market did not treat Allos very well today. As a 6 month stock, I think buying today would be a good thing, but it is not quite right for the Port today.
ARNA is also a screaming buy today. Note it could well drop some more in the next week but at $4.60 a share there is too much upside to ignore it. I have a sizeable stake in the Port already, so will not be buying, but it could make readers very happy one month (Obesity conference at the end of October) and one year (FDA approval) out.
Regards,
Trond
That is exactly what I did today for the Port; I had sold 6 Oct $35 DNDN contracts for $84 each and bought them back today for $20 each -- $350 profit after commissions.
Then I turned around and sold 6 Oct $28s for $100 each.
Do not get me wrong, Dendreon is still a stock I want to own. But I do not believe it will be above $28 in the middle of October. They announced yesterday that the amended BLA will not be filed until the middle of November, and so I just don't see any real gains through then. If we see a spike downwards, I very well may simply buy these back too...
I also bought (for the Port) 2000 AOB at $4.83 and sold the Oct $5s for $20 each. [disclosure: I also did this today in my real IRA with 1000 shares...]
I did well in selling ALTH - they did get approval, as I thought, but revenue and profits are going to be a few months away and so the market did not treat Allos very well today. As a 6 month stock, I think buying today would be a good thing, but it is not quite right for the Port today.
ARNA is also a screaming buy today. Note it could well drop some more in the next week but at $4.60 a share there is too much upside to ignore it. I have a sizeable stake in the Port already, so will not be buying, but it could make readers very happy one month (Obesity conference at the end of October) and one year (FDA approval) out.
Regards,
Trond
Wednesday, September 23, 2009
More Port24 calls...
Busy day at lunch.
I sold the remaining 800 ALTH shares at $8.50. The decision date is tomorrow and while I believe they will get approved, the Port wants a steady 2% a month return, not the uncertainty of FDA politics. This is up from the $7.99 purchase price (as well as the premiums on the September calls) so I am ahead of the game.
I also bought 1000 more MELA. The FDA date is 12/7, so the Oct and Nov calls are going to be free money while we wait.
I sold the following calls:
DNDN - 6 Oct $35s for $0.84 (2.8% return)
ELN - 10 Oct $8s for $0.15 (2%)
MELA - 10 Nov $10s for $1.20 (12%, or 6% monthly)
ARNA - 29 Oct $5s for $0.40 (7.5%)
SGMO - 15 Oct $10s for $0.25 (2.8%)
I think the MELA and ARNA calls are the best play of all right now. The stocks may go down slightly but you keep the premium and the stock should recover before the expiration. And of course, if the stock stays where it's at, the premium is pure profit. 6 and 7% a month is nothing to sneeze at!
The Port is now at $138,700 -- a 28.4% annualized return. I have $12,653 in cash and the following positions:
Stock (calls written)
2000 NBIX
1600 ELN (10)
1000 DNDN (6)
2500 SGMO (15)
400 BCRX
4900 ARNA (29)
200 AMAG
2000 MELA (10)
Regards,
Trond
I sold the remaining 800 ALTH shares at $8.50. The decision date is tomorrow and while I believe they will get approved, the Port wants a steady 2% a month return, not the uncertainty of FDA politics. This is up from the $7.99 purchase price (as well as the premiums on the September calls) so I am ahead of the game.
I also bought 1000 more MELA. The FDA date is 12/7, so the Oct and Nov calls are going to be free money while we wait.
I sold the following calls:
DNDN - 6 Oct $35s for $0.84 (2.8% return)
ELN - 10 Oct $8s for $0.15 (2%)
MELA - 10 Nov $10s for $1.20 (12%, or 6% monthly)
ARNA - 29 Oct $5s for $0.40 (7.5%)
SGMO - 15 Oct $10s for $0.25 (2.8%)
I think the MELA and ARNA calls are the best play of all right now. The stocks may go down slightly but you keep the premium and the stock should recover before the expiration. And of course, if the stock stays where it's at, the premium is pure profit. 6 and 7% a month is nothing to sneeze at!
The Port is now at $138,700 -- a 28.4% annualized return. I have $12,653 in cash and the following positions:
Stock (calls written)
2000 NBIX
1600 ELN (10)
1000 DNDN (6)
2500 SGMO (15)
400 BCRX
4900 ARNA (29)
200 AMAG
2000 MELA (10)
Regards,
Trond
Friday, September 18, 2009
ARNA and the Port24
ARNA had an exciting day. The BLOSSOM results were not quite as good as I hoped - but they will still file an NDA by the end of the year, and should get lorcaserin approval for weight loss.
I expect the shares will be volatile in the next couple months, but should creep upwards to ~$6 or $7 by this time next month.
The Port 24, after options expiration today, is on track.
I was exercised out of the ALTH $7.50 calls, but still have 800 shares that I had sold covered calls against at $10. The $7.50s were very good to me, as I bought the shares at $7.99 and sold the $7.5 strike for $1.65. That is a nice, 14% one month return!
ARNA $6 calls and MELA $10 calls expired, so I was able to keep the full premium (each at around 4%).
The Port is now worth $136,232.09, at a annualized return of 26.8%.
2000 NBIX
1600 ELN
1000 DNDN
2500 SGMO
400 BCRX
1000 MELA
4900 ARNA
200 AMAG
800 ALTH
Cash = $12,550
I expect the shares will be volatile in the next couple months, but should creep upwards to ~$6 or $7 by this time next month.
The Port 24, after options expiration today, is on track.
I was exercised out of the ALTH $7.50 calls, but still have 800 shares that I had sold covered calls against at $10. The $7.50s were very good to me, as I bought the shares at $7.99 and sold the $7.5 strike for $1.65. That is a nice, 14% one month return!
ARNA $6 calls and MELA $10 calls expired, so I was able to keep the full premium (each at around 4%).
The Port is now worth $136,232.09, at a annualized return of 26.8%.
2000 NBIX
1600 ELN
1000 DNDN
2500 SGMO
400 BCRX
1000 MELA
4900 ARNA
200 AMAG
800 ALTH
Cash = $12,550
Thursday, September 17, 2009
Dendreon and the Port24
Pete, selling is ALWAYS the hard thing to call.
One of the best things I think you can do is keep a trading journal, and when you buy something, write down what you expect and why you would sell.
I freely admit I have blinders on when it comes to Dendreon (and Elan). However, I have called DNDN the "safest one year stock" for a reason - within a year I see a fairly easy double. If I went into revenue projections and P/E or P/S ratios I could easily show how Dendreon could be worth $100 in 2 years, or way more than that beyond because of the pipeline. This is a retirement stock - akin to folks who bought Amgen two decades ago. (how's that for a pump!)
I have to say with today's volume and price, there may be news coming this weekend. At this point, if you would LIKE to have some Dendreon in your portfolio, I do not think I would sell.
---
I also want to mention that as of today, the Port 24 has a 34% return, or on an annualized basis, 25%. I have (finally) achieved the 24%+ returns I have been aiming for. In the coming months I will be much more aggressive on the covered calls and NOT simply waiting for price appreciation of the underlying shares.
Regards,
Trond
One of the best things I think you can do is keep a trading journal, and when you buy something, write down what you expect and why you would sell.
I freely admit I have blinders on when it comes to Dendreon (and Elan). However, I have called DNDN the "safest one year stock" for a reason - within a year I see a fairly easy double. If I went into revenue projections and P/E or P/S ratios I could easily show how Dendreon could be worth $100 in 2 years, or way more than that beyond because of the pipeline. This is a retirement stock - akin to folks who bought Amgen two decades ago. (how's that for a pump!)
I have to say with today's volume and price, there may be news coming this weekend. At this point, if you would LIKE to have some Dendreon in your portfolio, I do not think I would sell.
---
I also want to mention that as of today, the Port 24 has a 34% return, or on an annualized basis, 25%. I have (finally) achieved the 24%+ returns I have been aiming for. In the coming months I will be much more aggressive on the covered calls and NOT simply waiting for price appreciation of the underlying shares.
Regards,
Trond
Wednesday, September 16, 2009
Dendreon target
Pete asked about a price target for Dendreon (DNDN).
I hate the concept of targets, because people will always have different time frames and objectives.
If Dendreon hits $32.17 intraday, but closes at $31.81, and I have a $32 target, is that a "hit"? If it does that tomorrow but my target is a end-of-year 2009 $33 and it never quite breaks $33, is that a miss?
Not picking on you, Pete - just need to know where you are coming from in terms of why you want a price target. Now let's say you bought a mess of shares a couple days ago when the stock price went up 15% and you want a short term trade that gets you out with some chance of profit and safely, protecting your principal. THAT is a legitimate reason, and answerable (although of course, only in my opinion).
So here we go!
First, realize there have been a bunch of biotech conferences recently, and Dendreon has scheduled an Analyst Day in NY on 9/24. So word is getting out about Provenge, and there is always the chance of a blockbuster partnership agreement, or further trial info. So it's not surprising it's been "frothy" lately.
The company has basically promised that they will be reviewing commercialization plans at the presentation. I hope they will give more color on pricing and production quantity per quarter. Armd with more information, the expectation is that the analysts will be blown away with the amount of revenue Dendreon may make even as quickly as next summer, and raise their price targets -- which may make more funds and institutions buy in.
I actually expected us to stay under $25 through this Friday (option expiration) and would not be surprised at all to see us dip down there again. But, we should stay between $24 and $28 up through the Analyst Day presentation.
IF the company announces by 10/1 that they have submitted the amended BLA to the FDA for Provenge, then I would think we'll stay at $25 as a floor, and we make hit the $30s through the fall.
But -- allow me to stop speculating on a monthly basis: by June 30, 2010 Provenge will be approved and we should have a Rest-of-World partnership agreement. Those two events should lift us safely out of the $30s - I expect in one year (9/16/2010) the share price will be around $45-50 - nearly a double from here. Note there could easily be spikes, bringing us much higher than that for a day or two.
I would hold on to any shares you have - if they are earmarked longer-term. If you bought some purely to make some short term profit - I'd lock in gains now. Analyst expectations are always hard to read -- you may leave $2 on the table but we could easily sink $2 for the next couple months also.
Regards,
Trond
I hate the concept of targets, because people will always have different time frames and objectives.
If Dendreon hits $32.17 intraday, but closes at $31.81, and I have a $32 target, is that a "hit"? If it does that tomorrow but my target is a end-of-year 2009 $33 and it never quite breaks $33, is that a miss?
Not picking on you, Pete - just need to know where you are coming from in terms of why you want a price target. Now let's say you bought a mess of shares a couple days ago when the stock price went up 15% and you want a short term trade that gets you out with some chance of profit and safely, protecting your principal. THAT is a legitimate reason, and answerable (although of course, only in my opinion).
So here we go!
First, realize there have been a bunch of biotech conferences recently, and Dendreon has scheduled an Analyst Day in NY on 9/24. So word is getting out about Provenge, and there is always the chance of a blockbuster partnership agreement, or further trial info. So it's not surprising it's been "frothy" lately.
The company has basically promised that they will be reviewing commercialization plans at the presentation. I hope they will give more color on pricing and production quantity per quarter. Armd with more information, the expectation is that the analysts will be blown away with the amount of revenue Dendreon may make even as quickly as next summer, and raise their price targets -- which may make more funds and institutions buy in.
I actually expected us to stay under $25 through this Friday (option expiration) and would not be surprised at all to see us dip down there again. But, we should stay between $24 and $28 up through the Analyst Day presentation.
IF the company announces by 10/1 that they have submitted the amended BLA to the FDA for Provenge, then I would think we'll stay at $25 as a floor, and we make hit the $30s through the fall.
But -- allow me to stop speculating on a monthly basis: by June 30, 2010 Provenge will be approved and we should have a Rest-of-World partnership agreement. Those two events should lift us safely out of the $30s - I expect in one year (9/16/2010) the share price will be around $45-50 - nearly a double from here. Note there could easily be spikes, bringing us much higher than that for a day or two.
I would hold on to any shares you have - if they are earmarked longer-term. If you bought some purely to make some short term profit - I'd lock in gains now. Analyst expectations are always hard to read -- you may leave $2 on the table but we could easily sink $2 for the next couple months also.
Regards,
Trond
Thursday, August 27, 2009
Port24 update
Well, I had my AOB and MELA called away from me last Friday in the Port. I am sad at losing MELA as I expect it to gain quite a bit over the next couple months - it started Wednesday with a couple dollar spike. I ended up buying some back and selling the $10 strikes. Again, too early, as it is up over $10 today.
On Wednesday I sold 29 ARNA $6 Sept calls at $0.20. They have announced that the BLOSSOM trial results will come out in late September and I halfway expect these will be called away. If it is still under $6 in mid-Sept I will not be crying as I expect at least a 50% stock move on the results soon thereafter.
Yesterday I bought my MELA back at $9.50 and sold the Sept $10s for $0.45. The FDA will rule on MelaFind by December so these should be good for trading until the November series.
Finally, I also bought 1600 ALTH at $7.99... selling 8 Sept $7.50 calls and the other 8 Sept $10 calls. Allos has an advisory committee meeting on Sept 2 so the price should either be above $10 or back in the $6s.
So the Port now has the following holdings: (# calls sold against holding)
2000 NBIX
1600 ELN
1000 DNDN
2500 SGMO
400 BCRX
1000 MELA (10)
4900 ARNA (29)
200 AMAG
1600 ALTH (16)
Cash = $6,567...
... for a total worth of about $125,000. This is a 19.46 annualized return... still below my target of 24% but well above the market returns over a similar period (S&P and NASDAQ).
Note that I actually do not think either the S&P nor the NASDAQ is a correct index to compare the Port against, as I think of this as an absolute return fund. If I am not positive, I don't care if I beat the market by 100%.
Current favorites:
Look for ALTH to return ~30-50% in the next week.
ARNA is one of the best September covered call plays ever at the $5 strike. 10%+ return for less than a month with a large margin of safety.
Regards,
Trond
On Wednesday I sold 29 ARNA $6 Sept calls at $0.20. They have announced that the BLOSSOM trial results will come out in late September and I halfway expect these will be called away. If it is still under $6 in mid-Sept I will not be crying as I expect at least a 50% stock move on the results soon thereafter.
Yesterday I bought my MELA back at $9.50 and sold the Sept $10s for $0.45. The FDA will rule on MelaFind by December so these should be good for trading until the November series.
Finally, I also bought 1600 ALTH at $7.99... selling 8 Sept $7.50 calls and the other 8 Sept $10 calls. Allos has an advisory committee meeting on Sept 2 so the price should either be above $10 or back in the $6s.
So the Port now has the following holdings: (# calls sold against holding)
2000 NBIX
1600 ELN
1000 DNDN
2500 SGMO
400 BCRX
1000 MELA (10)
4900 ARNA (29)
200 AMAG
1600 ALTH (16)
Cash = $6,567...
... for a total worth of about $125,000. This is a 19.46 annualized return... still below my target of 24% but well above the market returns over a similar period (S&P and NASDAQ).
Note that I actually do not think either the S&P nor the NASDAQ is a correct index to compare the Port against, as I think of this as an absolute return fund. If I am not positive, I don't care if I beat the market by 100%.
Current favorites:
Look for ALTH to return ~30-50% in the next week.
ARNA is one of the best September covered call plays ever at the $5 strike. 10%+ return for less than a month with a large margin of safety.
Regards,
Trond
Tuesday, August 11, 2009
Karl Denninger
Market-Ticker.org is one of my daily stops.
One of yesterday's posts, rendered to its core, is that overdraft fees, especially levied AT the ATM -- where the bank can obviously simply compare the amount being taken out versus the account balance and not allow the transaction -- are an intentional and unconscienable outrage.
Today may be a little over the top theatrically, but the outrage is genuine. I strongly urge the 3 or 4 minutes it might take to read it.
http://market-ticker.org/archives/1317-DAMNIT,-STOP-THE-LOOTING-NOW!.html
Regards,
Trond
One of yesterday's posts, rendered to its core, is that overdraft fees, especially levied AT the ATM -- where the bank can obviously simply compare the amount being taken out versus the account balance and not allow the transaction -- are an intentional and unconscienable outrage.
Today may be a little over the top theatrically, but the outrage is genuine. I strongly urge the 3 or 4 minutes it might take to read it.
http://market-ticker.org/archives/1317-DAMNIT,-STOP-THE-LOOTING-NOW!.html
Regards,
Trond
Wednesday, July 29, 2009
Marketocracy - top 100!
To those who don't know, Marketocracy com allows you to "manage" a mutual fund, having to follow strict diversification and cash management rules.
In the period ending June 30, 2009, I finally cracked the top 100 for the first time. In over two years, I have beaten the S&P 500 by 78%.
http://www.marketocracy.com/cgi-bin/WebObjects/Portfolio.woa/ps/FundPublicPage/source=CmOhHbFfEfOmLoNbMaKiAbDf
Yay me!
Regards,
Trond
In the period ending June 30, 2009, I finally cracked the top 100 for the first time. In over two years, I have beaten the S&P 500 by 78%.
http://www.marketocracy.com/cgi-bin/WebObjects/Portfolio.woa/ps/FundPublicPage/source=CmOhHbFfEfOmLoNbMaKiAbDf
Yay me!
Regards,
Trond
Tuesday, July 28, 2009
Port 24, Sangamo, and Elan
Made one trade today in the Port -- sold 4 Aug $12.50 calls against my BioCryst. 4 BIUHV at $0.75.
With the MELA, BCRX, and SGMO spikes, the Port is now at an 18.3% annualized return. I'm getting close to my projected 24%!
Sangamo has had a surprising few days of strength. I think unless there is news it'll fall back somewhat -- anything under $5.10 ($5.76 today) would be a very good buy.
Elan will hear soon about palperidone palmitate -- JNJ's schizo drug that the EDT division re-formulated and which is now in front of the FDA. An approval here will mean some significant royalties in the future, and I expect a nice 2-5% bump on that news.
Regards,
Trond
With the MELA, BCRX, and SGMO spikes, the Port is now at an 18.3% annualized return. I'm getting close to my projected 24%!
Sangamo has had a surprising few days of strength. I think unless there is news it'll fall back somewhat -- anything under $5.10 ($5.76 today) would be a very good buy.
Elan will hear soon about palperidone palmitate -- JNJ's schizo drug that the EDT division re-formulated and which is now in front of the FDA. An approval here will mean some significant royalties in the future, and I expect a nice 2-5% bump on that news.
Regards,
Trond
Wednesday, July 22, 2009
More Port 24 updates
Did a bunch at lunch today.
Sold the 6000 JAV for a 1 month 43% profit. It very well may keep going but I'm taking it off the table.
Bought 1800 AOB at $5 and sold the Aug $5 calls for $0.25. Around a 4% profit if over $5 in a month...
Sold 4 Aug $24 Dendreon calls for $0.90.
Bought 200 AMAG. Have not sold calls yet as I think it will go up in a couple weeks.
This is the current Port:
1800 AOB (18)
2000 NBIX
1600 ELN
1000 DNDN (4)
4900 ARNA (29)
2500 SGMO
400 BCRX
2000 MELA (20)
200 AMAG
$1980.36 cash
ann. = 10.62%
In my real IRA I also bought some AMAG today. I'll have to update my Favorite stocks!
Regards,
Trond
Sold the 6000 JAV for a 1 month 43% profit. It very well may keep going but I'm taking it off the table.
Bought 1800 AOB at $5 and sold the Aug $5 calls for $0.25. Around a 4% profit if over $5 in a month...
Sold 4 Aug $24 Dendreon calls for $0.90.
Bought 200 AMAG. Have not sold calls yet as I think it will go up in a couple weeks.
This is the current Port:
1800 AOB (18)
2000 NBIX
1600 ELN
1000 DNDN (4)
4900 ARNA (29)
2500 SGMO
400 BCRX
2000 MELA (20)
200 AMAG
$1980.36 cash
ann. = 10.62%
In my real IRA I also bought some AMAG today. I'll have to update my Favorite stocks!
Regards,
Trond
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