Stockmoney Lizards Newsletter - Issue #2
Editorial Issue 2
Dear stockmoney hunters and biotech lovers,
these times are hard and it's hard to write about biotech when bombs are falling. It is hard to understand what bombs are supposed to do in a highly interconnected world other than cause pain. We are pacifists and condemn any violence.
The #XBI continues to dive. The pandemic is in retreat, but we now have geopolitical issues moving the market. Although we assume that this is only short-term price influence. Nevertheless, we want to look ahead and better times will come again.
In addition, we present to you our carefully selected and latest hot biotech stock and we use these times to bring our portfolio up to speed. Stay tuned, fuck war, your Lizards.
Index
- Biotech market report
- Sample portfolio - Follow our trades
- Money management & portfolio balance
- Stock report - Vanda Pharmaceuticals Inc. (VNDA)
Biotech market report - impact of war in Ukraine?
Although 2022 is still young, it has been a tough and eventful year for the stock markets. Whether cryptocurrencies, tech, biotech or even blue chip stocks, the uncertainty on the markets was already high due to inflation and interest rate increases. Most recently, the uncertainty was exacerbated by the looming Ukraine-conflict and all major stock indices continued to lose ground. The Nasdaq100 lost more than 200 points since the beginning of the year, the S&P500 500 points, and the XBI shredded a staggering 22% in 2022.
Nevertheless, as is often the case, it is not so much the negative events itself that are unsettling the markets, but the uncertainty about the occurrence of these events. After it became clear yesterday that the invasion of Ukraine had begun, there was a run through all sectors and the bulls took control again. These mechanisms have been observed in the past, often after the invasion began, sentiment reversed, as the following chart shows:
Kiev under fire - sanctions decided
As Russian tanks continue to advance into Ukraine and Russia has taken the capital Kiev under fire, the European Union decided on a comprehensive package of sanctions against Moscow. However, the exclusion of Russia from the international payment system Swift was not made, as this would also be disadvantageous for the EU in its trade relations. A direct conversation between French President Emmanuel Macron and Russian head of state Vladimir Putin remained without result.
Inflationary pressure likely to increase
The West's sanctions and their impact on the economy and markets will differ in the face of commodity shortages compared to the war over Ukraine's Crimean peninsula in 2014. Moreover, the deglobalization trend reflected by geopolitical risks is likely to exacerbate the other major global concern: inflationary pressures.
However, the uncertainty has been eliminated, and in our view the Ukraine conflict will only play a minor role in the further course of events, especially for our biotechnology segment (#XBI moved +4.58% yesterday).
Let’s get right to the point and analyze the XBI chart. From November 2021 until now, there have been several bear traps. We saw 2 big bear flags that moved the XBI almost 40% down. And now? Well, there are two possibilities:
1. We see another short-term down-move until about ~ $77 until we bottom.
2. Or - and this is by far the more realistic scenario - we have seen the lows from here. Although the previous low of january 28 of $83.89 was briefly breached, there was a strong intraday run that lifted the XBI to >+4% at the end of the day. Although there is still a lot missing to speak of a trend reversal from a technical point of view, the signs for this are very good! Conquering and closing above the $90 support line would be a great start.
Buy biotechs, strong year ahead, #XBI will multiply.
Another important chart is the short-term XBI chart, where we can see a double bottom configuration which is indicating another uptrend.
Sample portfolio - Follow our trades
We tweeted it yesterday: there will be a new sample portfolio that we keep up to date and share with you here and on twitter. Our virtual holdings are $100 to make calculations easy and helps you to keep track ouf our trades. In our first issue, we presented AnaptysBio (NASDAQ: ANAB) as our first undervalued biotech stock pick. We initiated a position of ~6% to our stock portfolio. You can thus track us and see when we are building or selling positions. Also, we added a ~5% position of our current stock pick Vanda Pharmaceuticals (NASDAQ: VNDA). We are planning to keep you updated on our trades in order to show you how we are managing our portfolio.
How to trade micro, small and midcap biotech stocks - money management
Keynes said in the 1930s: “Markets can stay irrational longer than you can stay solvent.” This being said, it is clear that it is probably not a good idea to go “all in” in a highly volatile small cap biotech stock. Although we admit that there are different trading and portfolio management strategies. Which strategy you choose may be dependent on what type of person you are, how much time you have etc.
We believe that the biotech sector has a promising future and that there are fundamental reasons to believe that biotech companies are excellent investments. Especially in the micro, small and mid-cap sector, there are many undervalued companies that are waiting for a revaluation and where excellent returns can be achieved. Nevertheless, it is quite possible, especially in these stocks, that temporarily - especially in bear market phases - higher book losses are recorded and a stock is quoted between -30% and -50% of the purchase price.
Therefore, we recommend adhering to several basic principles. These may seem simple at first glance, but for many investors they are rarely easy to adhere to due to emotions:
1. Diversification
Spread your risk. Especially binary, partly unanticipated events (e.g. upcoming study results, public offerings) can pulverize your investment. By spreading your money over several investments, you reduce the risk and you can always compensate for the loss of one or two positions. It is also advisable to not only hold stocks from one sector, but also hold positions in conservative or alternative investments such as bitcoin, gold or blue chip stocks.
2. Risk assessment and adjustment of the respective position size
Each investment should be subjected to a risk reward assessment beforehand. Even if you have potentially high profits from investments with a high chance, you should keep this position size rather small if it is also associated with an increased downside risk.
3. Dynamic position size
If the share price rises without any fundamentally positive news, you must be aware of one thing: the more book profits your investment has, the more expensive the share and the higher the risk of a sell-off. The percentage of this position in your portfolio therefore increases. It is therefore advisable to round off these positions again and again so that point 2 is also fulfilled again. For example, if you have decided to keep your position at 6% of the portfolio, it may be advisable to sell it when it rises so that it is back at 6%.
4. Don't be greedy. Realize profits
You know these emotions. Your stock is down, you're sad and angry and disillusioned. On the other hand, you're euphoric when the price goes up. Determine beforehand what the fair value of your stock is and sell it when you see it reached. you can also sell parts of it as described in 2. and 3. and thus realize profits.
Stock report - Vanda Pharmaceuticals
Midcap biotech with cash and an efficient business model
Name of company: Vanda Pharmaceuticals ($VNDA, share price at closing 25 Feb 22: $12.37, -2.6%)
Rating: Bullish, Selling zone above 20$ (Upside of +60%)
Our company of interest is Vanda Pharmaceuticals, based in Wahsington D.C., heavily undervalued.
The company already has 2 drugs (tasimelteon, Hetlioz and iloperidone, Fanapt) approved in the market (EU and USA) and they own the complete sales rights for both. They also have a development pipeline that - while not as sexy as the gene editing, CAR-T and cell therapies companies - they have shown to bring to market successfully. Note that only 5% of all development drugs eventually come to the market, which is why we would like to highlight vanda pharmaceuticals here. They have more than $ 400 million cash, revenue of sales and a market cap of $ 710 million. In addition, Vanda was penalized due to a failure in a Phase III trial for gastroparesis, although the asset still has a good chance of being approved.
Hetlioz regulates the body's biological clock to control sleep-wake cycles and is marketed for the treatment of sleep-wake disorders that do not last 24 hours and sleep disorders associated with Smith-Magenis syndrome. Hetlioz has been approved in the United States as Hetlioz since January 2014 for the treatment of non-24-hour sleep-wake disorder. In Europe, Hetlioz was approved as an orphan drug for the treatment of non-24-hour sleep-wake disorder in blind people without any light perception in July 2015. Efficacy was demonstrated in two randomized, double-blind, placebo-controlled, multicenter, parallel-group studies (SET and RESET) in totally blind patients with Non-24. The drug is used perorally and requires a prescription. Vanda states that the demand for HETLIOZ exceeds the number of prescriptions filled. Although we expect these reimbursement challenges to impact Hetlioz near-term performance, we will likely see increasing growth here again. For Fanapt, the drug is currently being introduced as a neuroleptic.
Research and development pipeline
There are some pivotal trials and drugs in very early stages of development (which we do not discuss further, but which are always good for upside).
Study fail phase III trial Tradipitant - Gastroparesis:
Regular pharmacokinetic analysis also revealed that a number of tradipitant patients did not adhere to therapy. There will be a post-hoc analysis, of course, which is very likely to be positive. In addition, Vanda will be in discussion with the FDA, which we expect to provide impetus for the share price!
“Restricting the study analysis to the patient population who were not taking emergency medications and were compliant with treatment, we observed a significant and meaningful effect on most core symptoms of gastroparesis, of the previous 4-week study.”
Mihael Polymeropoulos
Fanapt - bipolar disorder and PD:
There are two ongoing expansions at Fanapt. Specifically, Vanda is developing a long-acting injectable form of this drug and is developing it for bipolar disorder and Parkinson's disease psychosis. The Phase III study for bipolar disorder (Fanapt) enrolled 50% of the patients and expected to complete enrollment by the end of 2022 while the iloperidone, the long-acting injectable program, is advancing.
Financials
As of December 2021:
- Cash / cash equivalents of ~$430 m
- cash-effective debt: $34 m
- shares outstanding: 55,900,855
- MCAP ~$709 m
- Enterprise value ~$279m
- HETLIOZ net product sales were $173.5 million for the full year 2021, an 8% increase compared to $160.7 million for the full year 2020.
- Fanapt net product sales were $95.1 million for the full year 2021, a 9% increase compared to $87.5 million for the full year 2020.
The chart, support, resistance
Figure 11: Stock chart since May 2021, daily candles. Source: Tradingview.com
- Technical downtrend since Nov 2022
- Closed above support line of $12.09 on 24 February 2022, bullish intraday signal
Management / Investor base
Management
CEO Dr. Mihael H. Polymeropoulos, M.D., founder of Vanda Pharmaceuticals, Inc. in 2003. Prior occupation: Vice President and Head of the Pharmacogenetics Department at Novartis AG from 1998 to 2003. 1992 - 1998: Chief of the Gene Mapping Section, Laboratory of Genetic Disease Research, National Human Genome Research Institute. Owns ~1.9% of the company.
Ownership
Top owner is Blackrock Inc. - Of course you know Blackrock. One of the biggest VC / PE firms worldwide. In 2021, BlackRock hit $10 Trillion assets under management.
A full overview of the ownership, that is >90% institutional, can be found here:
Rating
Disclaimer
We may have beneficial long & short positions in the shares of the stocks presented here. It expresses our own opinions regarding trades. It’s no investment advice. We are not receiving compensation for it. We have no business relationship with any company whose stock is mentioned here.
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