Getting The Run Around on Hot Weight Loss Drug Co's

First OREX, now ARNA.

Earlier this month, I got squeezed on OREX and took a hit on some PUT's. ARNA over the last week or so has gone berserk too. From 1.7's to 3.5's on nothing but speculation, even the IB's are downgrading on this move. ARNA has two major upcoming catalysts, an FDA advisory panel (10 May) and PUDFA (24 June). Approval would be a surprise.

I have been in and out twice, 2.88 stopped 3.04 (Monday), 3.03av (stopped 3.15) (Wed-Fri). I was probably a bit too panicky covering pre market this morning, but despite mainly negative viewpoints from the weight loss drug Adcom (Thursday), ARNA would not fade. We got to 2.7's, hind sight should have taken half off there, given how hot the sector is. Also when it hit 3.4's, that was the best setup, mornng pop after a big run, but there were no borrows, I could have bought some puts though.

Generally some average trading on a good setup that never really played out. But my biggest mistake - maybe I was just looking at the wrong stock....

Had been burnt on OREX so never considered it as a short into the Adcom. It was much less volatile than ARNA and very over extended. Good lesson there.

Affymax Inc (AFFY) - Classic Sell on Approval Trade

Affymax Inc. (AFFY) won US approval for Omontys on Tuesday. The stock has had an almighty run-up and approval was expected - a great combination for a sell on the news trade.

I went short at $15 and bought $15 April Puts at $1.2. I covered the next morning at 13.7's and got the puts away yesterday at $2.50. Could have been a bit more patient, but a great trade nevertheless.

MAP Pharmaceuticals Inc (MAPP) - Goes Green on a CRL

Tuesday was a phenomenal short squeeze. MAPP received a CRL and squeezed shorts from $13 pre-market to $17.50 intra-day. The CRL was not a harsh one (no new clinical trials required), but probably delays approval by one year and there are many unanswered questions.

To Short or To Long?

Short Case – Probable one year delay to market, Questionable Mgmt - late 10k filing & refusal to discuss key points on CRL, little share price decline on CRL.

Long Case – approval more likely now (if you believe management) & price targets at IB’s increasing a little (not surprising given they need cash).

For me this is a compelling short. I picked up short at 16.30av (Tuesday and Wednesday), and fortunately some April $15 puts this morning (at 55c).

So far so good. When MAPP finally release their 10k, this may provide more negative news. Also the stock is 80% insto owned, so maybe we see fresh selling from them in the new quarter (next week). MAPP intend to meet with the FDA to discuss the CRL (6 weeks + time), until then there is great potential for more fades.

Also, see this good MAPP review.


Open Trades Short
AFFY, AFFY (Apr $15 puts), MAPP, HUSA (April $7.5 puts), NGSX, SVVC

Open Trades Long
ALXA, RGEN, EXEL

More Vermillion (VRML) 'Short the News'

VRML popped 20%+ yesterday on patent news. However the real news is in the recent 10k release, and it is ugly.

2011 VRML sales - $2m & cash burn at $20m. The company has a market cap of $30m and only enough cash to keep it going for the rest of the year. Plus a research note out today explains why it's poor sales will only get worse. Massive dilution or bankruptcy is the future for VRML.

I shorted yesterday - av 2.20. Will look to cover some round 1.50's over the next couple of weeks. Maybe hold a core position for the inevitable collapse at some stage this year.

VRML's 'short the news' history...

SVVC - 60% premium to NTA!

My original call was right on, SVVC has gone full parabolic and has been trading at a 60%+ premium to NTA!! All this with no extra FB buys since last Thursday.

I loaded up on shorts this week, $39 av. Will look to cover mid to low 30's (tomorrow hopefully), then look to do it all over again. Great fades today.

Would love just to sit on a core short position, but worried about buy in's pre FB IPO.

Open Trades Short
AFFY, AFFY (Apr $15 puts), MAPP, HUSA (April $7.5 puts), NGSX, SVVC

Open Trades Long
ALXA, RGEN, EXEL

Closing Trades (PLX, VXX, AMPE)

AMPE, I covered half on Wednesday as per the trade plan. On Friday AMPE issued yet another PR (3 for the week!), I covered the last half of my position $3.79 (pre market), anticipating yet another pop on news for a another great short opportunity. However 3rd time was not a charm, and to make it worse, all of IB's shares were taken pre-market (100k disappeared disappeared in a flash), so I could not re-short when the morning pop never arrived. A little unlucky. Stock is still drifting down, tempted to get back in, but market is so hot.

These trades were opened before this blog began so I will be brief.

PLX May $5 calls, biotech run-up to catalyst (PDUFA May). Everything biotech been going crazy. Sold calls at 1.95 from 1.40. Playing it fairly safe given PDUFA date is + six weeks away, but the biotech market has had a great run.

VXX. I was long and I got burnt. Really undisciplined (no stop).Was out of the trade mid last week fortunately, all the vol EFTS have imploded over the last few days.


Open Trades Short
AFFY, AFFY (Apr $15 puts), MAPP, HUSA (April $7.5 puts), NGSX, SVVC

Open Trades Long
ALXA, RGEN, EXEL

Broadvision (BVSN) Back End of the Pump

Shorting BVSN has been fraught with difficulty up until last week. It was the pump that didn't stop. I have already been burnt, so was apprehensive re-entering the trade. However the Wednesday crack finally signalled the pump is done.

I shorted the Thursday morning bounce at (av $35.83) with a $37 stop, and covered into the morning Friday panic (32.10). I will be looking for similar trades over the next few weeks, unfortunately a long term short is out of the question for this one, borrow rates are 100%+.

GMLP Holds Strong

I was stopped out of GMLP on Friday. I doubled the short on GLNG weakness on Thursday, but GMLP held strong and I was stopped out at 37.15. Should have just taken the position off at high 36's on Friday morning when it was apparent the trade was not working despite GLNG's morning drop. Small loss.

No luck despite the GLNG drop... (original trade plan here)

The Squeeze Is On (SVVC)

SVVC released its 10k yesterday. The share price shot up over 10%. The final sentence on P32:

"On March 20, 2012 we acquired an additional 70,000 shares of Facebook at a cost of approximately $2.2 million"


Yesterdays post was bang on, if they buy more FB, the share price will go crazy. 


The disclosure of a $2.2m purchase increased the market value of SVVC by almost $10m! The Squeeze is on.

The Safest Way to Short Facebook

I have been squeezed on my short position in Firsthand Technology Value Fund (SVVC). Av entry $26, av sell $29, I now have a small position. I was short in size, that's what really hurt me. I thought the upside was very limited, but my thinking was wrong.

The catalyst that sparked the dramatic stock price run-up was the disclosure that SVVC has bought Facebook shares. Before this disclosure, SVVC was a sleepy closed end technology fund, holding largely cash and trading at a 35%+ discount to book vale (BV).

On 31st December SVVC had a book value of $84m. The current mkt cap is 97m a whopping 15% premium. A closed end fund normally trades at a 10-20% discount, $19-$22 would be reasonable share price for SVVC.

Given Facebook (FB) only represented a small portion of the portfolio (10% approx), this for me was a short at $25.

The game changer came at the start of the month when SVVC announced they had doubled their FB holding. I shorted more on this, this was stupid, this was great catalyst for a long entry. FB is one of the  most anticipated IPO's in history, demand for stock will be huge and the only option for retail shareholders to get a guaranteed piece of the action before the float is SVVC - an illiquid micro cap!

Even slapping on a 30% premium to SVVC's FB holding (this giving FB a $130b valuation), the current share price is still at a 7% premium to BV. If SVVC double their FB holding again this takes BV to the current share price ($29). In this instance this extremely illiquid stock could explode up to the mid to high 30's. This would create a phenomenal short opportunity. Once FB goes public, there is no reason to own SVVC stock at a premium. Post FB IPO, SVVC will track back to the low $20's.

Open Trades Short
AMPE, HUSA (April $7.5 puts), NGSX, SVVC, GMLP

Open Trades Long
PLX (May $5 calls), VXX 

Micro Cap Squeeze (NGSX)

After the successful AMPE and PATH trades, time to fess up to some problem trades.

First up NeurogesX, Inc (NGSX). Micro Cap biotech stock fresh off an FDA rejection. Sell side analysts Wedbush release a research note with a $2 price target. The share price popped to 60c from 48c on this, I started shorting there....and have not stopped since. The stock is now at 70c, my average price is 62.6c and my position size is maxed (50% greater than I originally intended!). The general trade plan, 'short hyped up sell side research' is a sound one. But clearly my execution has been poor.

Where did I go wrong?


To small: NGSX is very illiquid (mkt cap $20m) and has been prone to extreme short term moves. The initial pop, 48c to 60c was not extreme enough. 
Size of Trade: I have have gone in 50% above my max. Need to stick to plan and learn to accept such irrational stock moves.


What do I do now?


Today the close was strong. This worries me and moves are so extreme, I got partial (very small) covers this morning at 61c and it closes at 72c! This on a no news day, four days after the upgrade. It could well break out and go to 80c tomorrow.

My plan is to sell 1/3 at open tomorrow (70c or lower), I will sell 2/3 if I get a fade to low 63ish. If it gaps  tomorrow morning, I will sit on my hands and look for 2/3 cover in the low 70's during the day.

The companies prospects are bleak, next catalyst is to agree with the FDA that drug NGX-1998 could begin a phase 3 trial. At best the trial would start near the end of 2012! NGSX only have enough money to last till the end of the year (despite massive layoffs). Huge dilution is coming. Plus the stock is now under $1, so may be de-listed from the NASDAQ.

Open Trades Short
AMPE, HUSA (April $7.5 puts), NGSX, SVVC, GMLP

Open Trades Long
PLX (May $5 calls), VXX  

Perfect PATH & AMPE Trade Plans

Yesterdays PATH  and AMPE trade plans were spot on.

PATH - no NDA filing announcement on the earnings call and the stock collapsed when the market opened. I covered some in the morning (4.01) and the rest in the afternoon (4.13). 4.87 entry.

AMPE - I was hoping for a pop and got a nice assist from another company press release. This one was concerning a successful patent application. This was positive but the patent application was expected to be successful. I went short at 4.37 on the morning pop.

AMPE has $11m cash. Dilution likely over the next few weeks. I am expecting the fades to continue. Had a weak close today, tomorrow looks promising. Hoping for some low 3 covers. 

Ampio Pharmaceuticals (AMPE) sell the news

AMPE was way up on news today. This stock was covered earlier this year by Hedge fund biotech trader Martin Shkreli. His Seeking Alpha short idea was working well till today. 

The news was positive but lacked detail. GekkoWire, a prominent biotech trader summed it up:

 And Shkreli certainly has not changed his mind:

I think its a great 'sell the news' setup. AMPE is a sketchy co up on sketchy news. I am hoping for a pop tomorrow morning (low 4's) to add to my short (3.8's). $4.50 is my stop (close), aim to cover low 3's.

Open Trades Short
PATH, AMPE, HUSA (April $7.5 puts), NGSX, SVVC, GMLP

Open Trades Long
PLX (May $5 calls), VXX 

NuPathe Inc (PATH) - fades to continue

PATH have earnings tomorrow morning. The stock was up over 50% last week. Many attributed the rise to a seeking alpha research note. The article lacked any new insight to the stock but in this market its not hard to make biotech's fly.

I anticipate tomorrows earnings call to come and go with no news. There is a chance PATH may announce the re-filing of  the NDA for NP101, this is expected within the first half of this year.

The real catalysts are what come next, the FDA will either reject or accept the NDA (within 60 days), and if accepted, announce a PDUFA date (6 months +). On this date (or sometimes slightly before) the FDA will either approve or decline NP101.

So tomorrow, there is an outside chance they announce the NDA filing with their quarterly numbers. This would be positive but not hugely so, I am short (4.80's) and would cover immediately on this news. 
In hindsight I probably got a little greedy not taking at least some profits in the 4.30's on Friday. However tomorrow looks promising, PATH had a weak (great) close today, if nothing comes of the call, I may get more aggressive on my short, expecting fades to continue. Hoping for low 4's covers.

Open Trades Short
PATH, AMPE, HUSA (April $7.5 puts), NGSX, SVVC, GMLP

Open Trades Long
PLX (May $5 calls), VXX

Muddy Waters Tweets Golar Research (GLNG & GMLP)

Last week renowned short sellers Muddy Waters Research tweeted an interesting research report on Golar LNG Limited (GLNG) & Golar LNG Partners LP (GLMP). The research from an anonymous source was extremely bearish, claiming both stocks should be trading at 20% to 50% of their current values.A couple of days later Muddy Waters Research tweeted out a link to a bullish report by research house Unit Economics, defending both companies.Muddy Waters Research has no position.

The structure of these companies reminds me of the Macquarie Bank Model. Macquarie sources assets (toll roads, airports etc) and spins them off to Satellite companies. Macquarie collects a raft of fees (+ one off sale profits) & investors in the Satellite companies get their 'safe' and high yielding asset. The incentive for Macquarie is to keep on sourcing and selling more and more assets into the Satellite companies. The quality and price of new asset sales to the Satellite co's tend to favour Macquarie shareholders over the Satellite co's.

In this case GLNG is Macquarie and GMLP is the satellite co. GLNG sells LNG shipping vessels into GMLP. Both co's could well be shorts, but I favour GMLP for the above reasons (it has a much more limited upside).

GMLP is currently trading at $36, the bearish report gave it a valuation of $8 the bullish report gave it a valuation of $41. The key valuation drivers is the discount rate & capital capacity. Both reports were erring on the extreme side of things when calculating their price targets.

Given the run-up in share price and the convincing nature of the bearish report, I have taken a short position ($36.69). I am running a tight stop ($37.2 - high since the negative report was released). This trade will not set the world on fire, I'm hoping for the current range to crack on the downside and cover $34-35's, best case scenario they dilute (unlikely given I will have this position on for two to three weeks).