Everyone’s Piling Back Into Equities: Here’s Where PropThink is Involved

Tekmira Pharmaceuticals (TKMR) announced a secondary offering on Wednesday and priced the deal before Thursday’s open. Tekmira is selling 3,750,000 common stock at a price of $8.00, a 10% discount to the previous day’s close. We expect that, with full exercise of the over-allotment option, the financing will net Tekmira around $31 million, bringing the company’s cash balance to approximately $70 million. At a market capitalization of roughly $160 million following the deal, we continue to view Tekmira as markedly undervalued for a strong RNAi contender. We discussed in a note to PropThink Premium subscribers why this raise may be particularly important for the small Canadian company.

TKMR closed Friday at $9.05, a 100% gain over our April initiation and well above the secondary pricing.

ASTM was a great trade for PropThink Premium subscribers who followed suit. Here’s what we wrote on Tuesday, October 15:

Aastrom Biosciences (ASTM) will affect a 1-for-20 reverse split tomorrow, October 16, in order to maintain its NASDAQ listing. Its low market capitalization, cash, and extremely small float are likely to attract a new investor/trader following, and investors should consider a speculative long position based purely on these qualities.

Following the reverse, ASTM will have approximately 4.4 million shares outstanding, a share price (based on Tuesday’s $0.20 open) of $4.00, and a market capitalization of just over $17 million. We estimate Aastrom’s cash balance at approximately $11M at the end of the third quarter . . . Fundamentally, ASTM has a long ways to go before being, in our view, worth putting real money behind. But, we’re interested in holding ASTM based on tomorrow’s reverse split. Aastrom’s markedly low valuation and stem cell focus will attract new investors, and ASTM has a history of gaining a hard-nosed and rabid following. It won’t take much to move the stock given the small number of shares circulating.

Aastrom’s reverse went through as planned and the stock closed the Wednesday session at $3.74 on minimal volume. ASTM rallied on Thursday and closed the week at $5.20, a 40% gain in just two trading sessions. And, the technicals suggest this run may continue into next week.

We’re offering a free 30-day trial of PropThink Premium, our exclusive research service, to investors who sign up at PropThink.com. We deliver market insights, trade ideas, and fundamental research to Premium members throughout the week, and are always available for questions and comments about the healthcare landscape – and our top picks.

PropThink initially recommended owning Enanta Pharmaceuticals (ENTA) in July, four months after the company IPO’d, when the stock traded at just over $17.00. ENTA climbed to a high of $26.39 in September but has since been under pressure, closing Friday at $20.30 after dipping as low as $18.31 during the trading session. In the last two weeks, it’s become apparent that one of ENTA’s largest shareholders, Saints Capital Granite, LLP, has been trimming its position regularly. As of the latest filing, SCP has sold 25% of its original position, and we suspect that the selling continued through the end of the week given ENTA’s weakness. SCP has 1.43 million shares remaining, and it’s unclear how much the firm will take off the table. Assuming the fund closes the position entirely, there’s more selling pressure to be had. The dip on Friday was a perfect opportunity for those still building a position. You can read more about ENTA here.

We increased our exposure to ImmunoCellular Therapeutics (IMUC) significantly this week. The underlying thesis to our IMUC holding – that the stock will move higher in advance of the Phase IIb ICT-107 results – remains. Full disclosure: the trade is a little tricky as we don’t plan to hold through the event (expected any time before 2Q14) without a hedge, and the company has said they don’t plan to offer more details on timing. IMUC continued a breakout that began on Thursday. Hitting previous 52-week highs ahead of this data, at $3.69, is quite realistic in our view.

Investors got the first glimpse this week at data that could expand the market for Keryx Biopharmaceuticals’ (KERX) developmental anemia drug, Zerenex, by three-fold and open the drug to a billion-dollar market opportunity. Zerenex recently completed a Phase III program for Zerenex in patients with end-stage renal disease who are on dialysis. The drug had a profound effect on not only the affects of ESRD, but the ability for doctors to use less supplemental iron and fewer erythropoietin stimulating agents. This week, an abstract from a Japanese study of Zerenex in chronic kidney disease patients who have not yet progressed to dialysis was revealed ahead of the November meeting of the American Society of Nephrologists. Keryx will present its own CKD data around the ASN meeting as well. You can read more about Zerenex, Keryx, and why we’re bullish into the upcoming catalyst in Mr. King’s Wednesday write-up. Long-term aside, the trade was good for 20% in two trading sessions.

Last week Mr. Deryugin took a look at BIND Therapeutics (BIND) and suggested that while the stock was a little pricey for the company’s lack of clinical data, BIND’s targeted oncology approach was an intriguing prospect. The stock has hardly moved since the column, despite four Wall Street firms initiating research coverage. Cowen, Stifel, JMP, and Credit Suisse all supported the company’s September IPO and initiated coverage with positive ratings and targets between $20 and $30. BIND closed the week at $15. The fact that these initiations did little to put momentum in the equity suggests that this one’s a story to revisit next year, closer to developmental milestones.

In connection with TKMR, ENTA, KERX, IMUC, and ASTM PropThink has taken a long position.