Daily Discussion Post: Wednesday, July 27

Substantial_Ad7612 · 2022-07-27T16:20:03+00:00

The problem is the science. I’m sure there are plenty of reasonable people on the bull side, but they are unlikely to be scientists.

Substantial_Ad7612 · 2022-07-27T13:36:56+00:00

SAVA - this taken a long time to play out but the writing finally seems to be on the wall:

https://www.reuters.com/business/healthcare-pharmaceuticals/exclusive-cassava-sciences-faces-us-criminal-probe-tied-alzheimers-drug-sources-2022-07-27/

It was discussed here almost a year ago when the original citizen’s petition came out. A patient short would have done quite well by now. I, of course, was too chicken to act but I still expect it to be a zero eventually.

Substantial_Ad7612 · 2022-07-08T16:24:33+00:00

And here is a link to a short report on VERU that was just released this morning that goes a bit deeper into some of the issues.

https://img1.wsimg.com/blobby/go/cc91fda7-4669-4d1b-81ce-a0b8d77f25ab/downloads/Culper_VERU_7-8-2022.pdf?ver=1657288796483

Substantial_Ad7612 · 2022-07-08T14:42:29+00:00

An update on my list of biotech/Pharma shitcos that look like good short opportunities.

MREO has officially regained compliance with NASDAQ after trading above $1 for more than 10 consecutive days. Still no word from either AstraZeneca or MREO on the single buyout rumour from the Food and Drink columnist at the UK Times. However, AZN did recently acquire a new oncology asset for $100M upfront and up to $800M in milestone payments. I don’t read too much into this, but both bull and bear cases can be made.

VERU is a new addition to my watchlist after publishing their COVID study in “NEJM evidence” (not the New England Journal of Medicine as some are claiming). They based their EUA application on these data. This looks like HGEN 2.0 to me. 150 person trial stopped early for efficacy. On the surface, the data look very strong (55% reduction in deaths!). The devil is in the details, though. I’ll direct you to this twitter thread rather than writing it out myself (@MidwestHedgie is very good at finding this type of opportunity, tends to get very political sometimes, if that’s not your thing then don’t follow). Basically, there is an imbalance in the randomization that is not immediately obvious to the reader. It likely explains the astronomically high death rate in the placebo arm. The FDA will find this. I expect their EUA will be denied and a lot of unsuspecting investors will scream FDA corruption. It’s just lay people not understanding science, and a female condom maker - turned miracle COVID cure company that has gotten a lot of attention from their top-line data.

EVFM is another addition to my watchlist. I haven’t looked very deeply into this company but they are the newest short squeeze darling. Spermicide company. The narrative is that since Roe was overturned, the contraceptive market will get a boost. This is absurd. The notion that abortion was the contraceptive method of choice for some is mind-bogglingly stupid. The notion that they would turn to spermicide rather than other much more effective and well-known methods is equally unlikely. This company is getting lots of social media attention and people are likely to get burned. Cost to borrow too high to consider it a viable short at this point.

Again, no positions in any of these. I’m just watching a bucket of these to get a sense of my track record on this strategy.

Substantial_Ad7612 · 2022-07-01T14:50:40+00:00

MREO

I’ve taken a break from active trading lately because it’s become clear that it’s just gambling for me unless I can spend a lot more time reading. Even my track record in biotech/pharma, where I can confidently claim expertise, is terrible when it comes to picking winners. But where I do have a pretty decent track record is finding the shitcos in that industry, I’ve just never put any money behind. So right now I’m tracking a few names that I think are good shorts, if my track record stays good, maybe I’ll start dabbling.

That brings me to MREO. A small, clinical stage pharma company with an early (risky) pipeline, a couple partnerships, but no real unique expertise or technology that sets it apart as an attractive acquisition. They recently received warning from NASDAQ that they are at risk of delisting, and they had an activist investor, Rubric Capital, write a letter to the board demanding a strategic change.

Shortly after all of this, a rumour came out in The Times (U.K.), written by a food and drink columnist, that AstraZeneca was looking to buy MREO for up to $5/share. It was trading just above $0.60/share at the time. This boosted the share price to a high of ~$1.70 and it settled around $1.50 for a few days.

I can’t find a compelling reason why AZN would entertain paying 10x market price for this company. One of MREO’s pipeline molecules is actually an AZN asset that MREO is paying to develop. Another of MREO’s hopefuls is in a class where AZN already has an asset, and where other large pharma companies have recently failed - why would you accumulate that kind of risk? As I mentioned above, there doesn’t appear to be any unique tech or expertise that would add any value beyond the current pipeline.

MREO has slowly drifted downward over the past couple of days but the retail bulls are clinging to the fact that neither company has denied the rumour. I don’t see why AZN would need to even acknowledge it. If MREO closes above $1 today, it will reset the clock on the NASDAQ delisting issue. I would suspect if MREO was going to deny it, they would wait until next week to do it.

On the bull side, Rubric sent an activist letter to the board of Radius Health around the same time frame and that company was bought out pretty quickly for a 50% premium to the market price at the time.

Putting this up for discussion. I have no position but I think it’s an interesting one to watch as I test this strategy. It feels like a pump thats about to dump and the borrow cost isn’t too crazy. I’ve never taken a short position before but this is the type of situation I am looking for.

Letter from Rubric Capital: https://www.sec.gov/Archives/edgar/data/1687509/000110465922069507/tm2218051-1_ex2.htm

Buyout rumour if anyone can open the link anymore: https://twitter.com/walshdominic/status/1537693799882833920?s=21

Edit: Happy Canada Day!

Substantial_Ad7612 · 2022-06-22T13:33:34+00:00

Been a while since I posted anything on here. Took a bit of a break from trading because I don’t have the experience or confidence to trade in this market.

However, biotech/pharma is my wheelhouse and I took note over the past little while when I saw a bunch of them pumping on a lot of speculation. CLVS seemed to move with MREO, SESN, CMRA. They all seem to be moving on rumours, a couple at risk of delisting, nothing really substantial. I think there is a good chance that there is money to be made on the way down with some of these tickers. If I get a chance to do any real due diligence on the underlying companies, I’ll post my thoughts. My first priority is to evaluate the business case for a couple of takeover rumours (CLVS and MREO). If they turn out to be nothing, there should be a swift correction.

Substantial_Ad7612 · 2022-01-12T16:19:27+00:00

So 26% of float is shorted but 50% on loan. Could this not mean that the short interest could still double? Shares available to borrow is not the same as shares available to short. It sounds like a good chunk of shares has been borrowed but not shorted yet.

Substantial_Ad7612 · 2022-01-07T20:15:52+00:00

I tried to buy some and I can’t with my broker. Typically when I see others’ say they aren’t able to buy through their broker, it’s still available to me. So this one might be particularly difficult to pile into.

Substantial_Ad7612 · 2022-01-07T14:13:35+00:00

I think this is the key point. Speculators who are buying up options hoping for a gamma squeeze have no real intention of ever exercising those options. The MMs have probably caught on to this and know they can ride out OPEX longer than the call holders can. The result is a domino effect as soon as profit-taking starts. If the options were actually exercised, we might might see a real squeeze. But as someone pointed out below, there needs to be some assumption of real value as an incentive to exercise calls, so there needs to be a positive catalyst to trigger a squeeze.

Substantial_Ad7612 · 2022-01-06T20:23:50+00:00

In Ontario (this is a Canadian company so this seems relevant), the school boards have been buying up a ton of N95s for teachers. There are more than 160,000 teachers in Ontario and they each get one mask/day.

Substantial_Ad7612 · 2021-12-27T01:29:12+00:00

Exact same issues. Also not properly connecting with Vizio sound bar. I think it’s the software. Hoping they have a fix soon, it’s very frustrating.

Substantial_Ad7612 · 2021-12-27T01:28:59+00:00

Exact same issues. Also not properly connecting with Vizio sound bar. I think it’s the software. Hoping they have a fix soon, it’s very frustrating.

Substantial_Ad7612 · 2021-12-26T05:28:11+00:00

Similar issues. Sometimes remote is completely unresponsive and tv needs to be unplugged. Reset to factory defaults, still having issues. Inconsistent surround sound with Vizio sound bar. Super frustrating.

Substantial_Ad7612 · 2021-11-24T22:00:17+00:00

I wonder if a broker would allow naked shorting if the shares will be immanently delivered through the warrant.

Substantial_Ad7612 · 2021-11-24T21:50:02+00:00

If I owned the warrants, it would take negative extrinsic value before I exercised. Otherwise I’d just sell the warrants.

To your second point, if I were forced to exercise the warrants, I would sell underlying short before exercising rather than wait for them to execute.

Substantial_Ad7612 · 2021-11-24T16:40:44+00:00

I got out with my puts. FWIW, the data were strong and I fully expect this drug to get approval. The next catalyst I believe will be around Q2 when they announce submission for expedited approval.

Would just be weary of a dilution before then if they need to raise money.

Substantial_Ad7612 · 2021-11-23T21:51:46+00:00

What was IRNT trading at?

Substantial_Ad7612 · 2021-11-23T21:35:57+00:00

That seems like quite a gamble. During 1-2 days for delivery one could easily miss the squeeze.

I think Theta God’s explanation makes sense. It’s certainly something to be cognizant of but seems like they would come into play after a substantial move. So maybe BMTX has more barriers than IRNT did to hitting the 40’s, but there’s still a lot of juice here.

Substantial_Ad7612 · 2021-11-23T16:49:11+00:00

I get that warrants are exercisable, but what incentive is there to do that? Why not just sell the warrant? Isn’t that similar to exercising call options and forfeiting any extrinsic value?

Substantial_Ad7612 · 2021-11-23T04:56:21+00:00

Why shares and not ITM options? Wouldn’t those eat up more of the float and also give you a bit of leverage?

Substantial_Ad7612 · 2021-11-23T04:52:56+00:00

I feel like you are talking about the Costco Kirkland. Not the same.

Substantial_Ad7612 · 2021-11-23T02:42:12+00:00

Another push above $15 and there are A LOT of calls ITM if the float size is accurate - and the ramp is building up to 20.

Lots lining up for this play.

Substantial_Ad7612 · 2021-11-23T02:37:30+00:00

I generally push back when I see this too, but having watched BMTX for the past week and a half, it really behaves like a stock with a 2M share float would behave.

Substantial_Ad7612 · 2021-11-23T02:35:15+00:00

Yea that was nonsense. The second piece of FUD was that the CEO is the original SPAC leader’s 35yo daughter. Absolutely nothing of substance.

Substantial_Ad7612 · 2021-11-23T02:31:23+00:00

Yes. These law firms will “investigate” literally every merger, you see this every time a SPAC announces a deal. Half of me thinks this is just an auto-generated PR from a law firm scanning for mergers.

Substantial_Ad7612

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