Volatility Update 9-4-20

Chart Showing XBI breakdown 9-3-20 thru 9-4-20

Broader Market Conditions

Between yesterday and today the broader markets have been in a free-fall and the biotech sector was not immune despite missing out on the August rally experienced by the Dow, S&P 500, and Nasdaq. In fact, Apple (which lost -$179.9billion in value yesterday, the largest drop in history) and other major tech stocks, as well as large companies in the Dow and S&P 500 continued to sell-off hard today.  

Conditions In Small Cap Biotech

Market conditions are very volatile right now so we are maintaining a cash position, but also deploying capital to add to core positions (BCRX, GRTS, LJPC, NGM, RCUS). In our experience, it’s times like these that are perfect for adding to positions. Remember, our strategy for making money in the market is not that of a day trader. We build positions adding on days like today when it feels like the sky is falling and there’s no bottom in sight. We have done extensive research on the aforementioned companies and see no reason why our thesis will not play out. 

• BCRX: Despite good news after good news the stock price keeps falling. The company is on the cusp on launching its first rare disease drug with peak sales potential north of $500M. This alone should put its market cap around $3B. Add to that a potentially best-in-class oral Factor D inhibitor, galidesivir, and FOP asset, and it’s clear that where it is trading now with a $500M market cap is the result of manipulation.
• GRTS: Since reporting its Phase 1b data in July the stock price has declined nearly 70%. The data was actually very good and was from a very difficult to treat population of cancer patients. The company is nearly trading at cash value. We are 100% buyers at this level.
• LJPC: The time will come when LJPC returns to $7-8. Sales of giapreza took a small hit last quarter as a result of less open heart surgeries being performed b/c of COVID. Tang has kept buying aggressively at these levels reaffirming his confidence in the company. If you can be patient we have no doubt this investment will pay. In our view, Tang’s end game is to sell the company.
• NGM: Insiders have continually been purchasing shares when the price drops below $18 suggesting that we are near the floor at today’s prices. This company is fundamentally sound and one of the only companies which is in the green today.
• RCUS: A future blue-chip oncology company in the making. Arcus is partnered with Gilead and has a robust cash position ($500M) with a relatively low quarterly cash burn ($40M). The stock is down almost $10 from its offering price in May and had insider buys recently with the CEO buying $1M worth of shares between $20-22/share. On top of this you factor in stellar science and leadership team it’s a no brainer to add at these levels
• DRIO: Our thesis and price target is maintained. Dario is a strong buy at these levels. If you haven’t yet, click here to read our updated research from this week. Bottom line is management is on the cusp of closing deals with payers and employers which should translate into increased revenue in the coming quarters and certainly years. However, once these deals are official and press released we feel the stock will fly to $30 at which point we take profits. 

Have a great holiday weekend everybody. We will be on the hunt for some fresh SMS alerts to make us all some gains early next week! As always feel free to reach out!