Investing in biotech stocks - My experience so far

BrockStoker

Interesting week. Seeing some green shoots at least it seems. I used the last £2K of Mrs Brock's ISA allowance (for some reason the first attempt at funding for this tax year failed for the full allowance but 18K worked - presumably an iWeb related issue, I know they have been having funding issues - so I had another 2K left) to buy another 325 AMRS(1875 total) at the start of the week. I also bought another 200 BNGO (700 total) for my own ISA, meaning that's all the dry powder gone and I'm done buying for the moment.

It seems I bought BNGO at the right time - the day after there was a buyout rumor, and the following day it announced that the UK was buying it's Saphyr system. Then to top all of that it published a paper about how it's system is enabling researchers to make significant progress in the fight against cancer:

https://finance.yahoo.com/news/bionano-genomics-announces-publication-approach-120000261.html

I'm really liking the outlook for BNGO and thinking it could be another Ilumina or Pacific Biosciences at least. TXG, which is another similar stock also did well for me, and IMHO shows the type of potential stocks like this have - if you can buy them while still undervalued, which I think is the case here, despite large gains already for those who bought in the lows of the last 6-12 months.

Only just over a week away from earnings - IIRC AMRS/EVFM on the 4th and ARWR is on the 6th May. Lets hope for good news all round!

Lastly, I put together a little comparison of these stock's charts on Monday, which I think shows that they were all more or less doing the exact same thing at the same time, albeit some stocks had more downward pressure on them than others, but it's scary to think (or comforting?!) such a relatively diverse group of companies (with a wide spread of fundamentals) can be affected in a very similar way, effectively because on paper they are in the same sector.

tom9980

Evofem are on shaky ground, management have made so many mistakes now that they have dug a fairly deep grave.

They made an awful deal with baker brothers that they need to buy out. The only way to do that is to do another capital raise further diluting the stock, the problem is they need that cash for Phexxi rollout. 

They raised $30m at $1.75 recently when the share price was over $2.50 with the hope the share price would increase for the next tranch of dilution rather than raise more. Now bear in mind investors were already angry with management decisions. Investor confidence has reached a new low and took the share price below the offering price. It wasn't just the xbi tanking at the same time. So now they only have cash for a few months and the share price has gone down.....oops

They spent a lot on advertising and sales have flatlined now. They simply spent $50m? for nothing it seems. I still don't understand why they are rolling it out the way they are, this product should be cheaper and easily accessible. Most of what they are selling is free on insurance or given away, note they only tell us script numbers not profit. 

They are lobbying for get Phexxi a new designation because at the moment everyone sees it as spermicide. By the time that happens the company will have gone bust due to cash burn or sold out.

Management all just asked for a raise, seriously have the gall to want a payrise after their recent performance? The team is too big and all overpaid, they drastically need to trim outgoings to get evo100 to FDA approval which is 2 years+ away.

They desperately need euro/international partners.

The company needs a miracle, major management changes or to be bought out. Luckily that seems likely because they do have a FDA approved product and evo100 in the pipeline.

Glad I sold at $2.80 when they announced the $150m shelf offerings. Currently watching but under no illusions that this is very high risk.

BrockStoker

@tom9980 Thanks for the post. I do agree with much of what you say. There's no doubt management have dug themselves a bit of a hole. I do think they have the product that could easily get them out of that hole, if they can get their act together. When I first invested I knew they were high risk, so it's a case of, either they survive and thrive, or they will flounder. Either way, I'm sticking with my shares.

It's not unusual for biotechs to have high cash burns, and to cut it fine. It's also true that there is a high rate of failure in the sector for smaller companies trying to make it, but this one is 99% of the way there.

Edit to add: There's one other option. Someone might buy them out, although for that to happen I think we might need to see significant sales growth.

BrockStoker

Not a bad start to the week. Even EVFM up, but star of the day has to be BNGO. I thought today would be an appropriate time to get a few screenshots of the new portfolios (as well as the older ones) as they broke even today for the first time. Also because the performance charts are back - YH tactic to remind you that paid for is better? Not exactly sure what the performance charts on the new ISA's are doing, but I guess they will eventually correct themselves. Note that the cost/share numbers in my 2021 ISA are only estimates (due to the previously mentioned AJB issues) and some buys have been lumped in together - it's the total portfolio value which matters anyway.

Mrs Brock's old ISA:

My old ISA/SIPP:

Mrs Brock's 2021 ISA:

My 2021 ISA:

Voyager2002

In the first screenshot you posted early this morning (Mrs. Brock's old ISA), is the third line Rolls Royce?

Well, I suppose a ride on a jet-plane can be a form of therapy...

BrockStoker

@Voyager2002 Yes, it is. It's not a stock I'd normally be interested in, but Mrs Brock wanted it along with a certain UK water company which I'm not at all keen on, so we compromised and I just bought some RR.

BrockStoker

Good PR from Arrowhead regarding ARO-ATT today:

https://finance.yahoo.com/news/arrowhead-announces-improvement-fibrosis-aro-113000834.html

Not much reaction so far, but we are green, and have a raft of data to come.

There was also a great post from BioBoyscout on the YF MB today regarding valuation which I'll post below - it's also worth going there to read the replies:

https://finance.yahoo.com/quote/ARWR/community?p=ARWR

"Valuation dilemma. I believe that Arrowhead is coming to a cross-roads where valuing the company "fairly" will become very difficult. If Arrowhead can show that it can successfully target diseases extrahepatically in multiple tissues, the world is truly their oyster - more so than even I can fully imagine, or even begin to understand what the "fair" method of valuation really is.
While biotechs generally get valued by the drugs that are in their pipeline based on the diseases they're able to treat, and what kind of sales they can generate from that particular patient population. Those sales are then risk-adjusted and then also further adjusted to determine their present value. This is a fairly simple, straight-forward process to come up with a fair valuation. However, the tables are turned on this process when you have a tweakable technology that has literally of hundreds, if not thousands, of applications in areas that no other drugs can come close to in effectiveness, particularly when you can go outside of the liver to other tissues. An RNAi knockdown chart is just not in the same ballpark as a knockdown chart using other modalities. This is clearly a game changer, and as I said earlier, the world becomes your oyster.
So how do you value such a biotech? Do you just continue to value the drug pipeline as you normally do? That's one approach, however, everyone now knows that there are PLENTY of new targets coming, and it's just a matter of time. Why? because the drug development process for an RNAi drug is a fairly straight-forward process, and that process is the TRiM platform - just insert a genetically validated target, run your bioinformatics to determine your targets, test your targets, apply your appropriate targeting ligand, and !!!!!!, you have a super effective drug that will just blow away any other modalities out there.
So what does this mean? It means that even though you may not have a pipeline of 100 RNAi drugs today, you have the very solid potential of developing a pipeline in the near future that has a very high chance of being able to produce, and I hate to say it, well over a trillion dollars in sales. That is exactly why, if extrahepatic truly works, Arrowhead scientists should be multi-millionaires.
So that begs the question, HOW DO YOU VALUE SUCH A COMPANY that has a flexible platform to hit all sorts of other targets? It HAS to have a valuation beyond the existing portfolio, as you know that it's the goose that's laying golden eggs. It's easy to throw any number out there for many reasons, i.e. $1B, $5B, $20B, $30B, or even $50B or $100B, as you know that this platform will end up delivering and provide a fantastic ROI. The drug candidates are there, the need for more effective drugs in other tissues is there, and the money to pay for these drugs is also there.
So that's the valuation dilemma. How do you fairly value the TRiM platform once extrahepatic proves out? I have plenty of ideas, and it will be interesting to see how analysts move forward. I do think it would help if the company laid out a 15-30 year plan of what is truly possible, as that would help investors understand the amount of potential future revenue that's at hand. That would also help value TRiM. Chris wasn't kidding when he was using the word franchise to describe all the various different tissues and targets they can go after. I think he knows he's sitting on a gold mine, and he just needs some time to see it through.
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“You Can Watch Me, Mock Me, Try To Block Me But You Cannot Stop Me.” The Wolf of Wall Street, 2013."

Thrugelmir

BrockStoker said:

Lastly, I put together a little comparison of these stock's charts on Monday, which I think shows that they were all more or less doing the exact same thing at the same time, albeit some stocks had more downward pressure on them than others, but it's scary to think (or comforting?!) such a relatively diverse group of companies (with a wide spread of fundamentals) can be affected in a very similar way, effectively because on paper they are in the same sector.

Rising inflation and as a consequence rising interest rates will hurt growth orientated companies. Detachment from fundamentals is making many look seriously overvalued. With pie in the sky valuations in many instances. Going to be some investors left with burnt fingers. 

BrockStoker

@Thrugelmir Very true. Of course, the hope here is that rapidly growing revenues/earnings will make these stocks stand out from the rest (those with actual "pie in the sky valuations").

Thrugelmir

BrockStoker said:

@Thrugelmir Very true. Of course, the hope here is that rapidly growing revenues/earnings will make these stocks stand out from the rest (those with actual "pie in the sky valuations").

Nasdaq currently has over 400 unprofitable (as yet) growth companies. Simply not feasible for all to meet expectations as they currently stand. That's more than at the time of the Dot Com boom. Biotech is your speciality , certainly not mine. Though I likewise have a passion for UK micro caps. At least with those it's possible (or was) an opportunity to meet and talk directly to the management of the Company at the AGM.