The Weekly Rundown: Some Unexpected Events and Some Profitable Trades

The story of the week at PropThink was BioCryst Pharmaceuticals (BCRX), a short that rapidly went in the wrong direction as a series of unpredictable and bullish events unfolded almost immediately following our full report. On Monday morning, PropThink informed its Premium Subscribers of our short position, as we expected a confluence of negative events to weigh on the stock price in the near-term. On Tuesday after the close, BioCryst announced a public offering of common stock, in-line with our short thesis, and at Wednesday’s open the stock continued the decline that began Monday. Wednesday morning we issued publicly our full report on BioCryst. During that trading session, BCRX made an impressive recovery from a low of $3.67 (a 20% return on our position) to close the day at $4.40, +10.5% on the day.

BioCryst subsequently priced the sale of 4 million shares of common stock at $4.40. Despite numerous risks to its business, BCRX was able to pull of a capital raise with no discount to market. We were, frankly, caught off-guard by the support in BCRX following the announcement of a public offering. For a company with a track record of failure and what we believe to be an equally dismal future, pricing a secondary offering at the market is a rare event. Furthermore, on Thursday morning, Halozyme Therapeutics (HALO) and ViroPharma (VPHM) revealed that they would be discontinuing the Phase II trial of SC Cinryze — SC Cinryze would have been the key and leading competitor to BioCryst’s BCX4161. While we continue to believe that BioCryst is a fundamentally poor investment that will, eventually, be revealed as such, we closed our short position early in light of this unpredictable series of events.

Pain Therapeutics (PTIE) by Monday morning had climbed 17% from our July 5th recommendation to buy the stock in advance of Pfizer’s (PFE) July 30 earnings call. We wrote to PropThink’s Premium subscribers:

Pain Therapeutics has not participated in the [same rally that DRRX has]. Nevertheless, the stock does tend to run into these events, and for those who did not pick up DRRX in tandem with our last update on June 21, PTIE is the way to play. Traders chomping at the bit after a long weekend on Monday, in combination with strong jobs data today, should invigorate the market early next week. Thin trading on this post-holiday Friday makes for a quality entrance point in PTIE, particularly as the stock has bounced from a low of $2.15 and appears to be starting a new up-trend. . .  We don’t plan to hold either of our positions through July 30.

Pfizer, unsurprisingly, offered nothing in the way of Remoxy commentary on its earnings call, and the stock closed the week at $2.32. For some background on the Remoxy-Pfizer-Durect-Pain Therapeutics story, see Mr. Napodano’s May update. Along the same lines, Jason reiterated his interest in Durect on June 21 following the FDA’s acceptance of the Posidur NDA. Buying then has returned 33%, despite the silence on Remoxy.

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Since PropThink’s initial report on RNAi-focused Tekmira (TKMR), investors have increasingly adopted long positions as Tekmira transitiona from early-stage clinical development into proof-of-concept studies. Mr. King noted that the company’s remarkably low enterprise value in consideration of its robust pipeline, and agreements with larger drug companies, hinted at significant undervaluation. Tekmira’s recent run-up was driven in-part by the Spectrum Pharmaceuticals (SPPI) acquisition of acquisition of Talon Therapeutics. The buyout served as an indirect validation of Tekmira’s pipeline, as Talon was the exclusive licensor of three products originally developed by Tekmira. PropThink readers who bought shares of TKMR with our report have netted just over 23%, and we continue to believe that this cheap RNAi play will see more interest this year.

After almost two months of consolidation, Biodel (BIOD) started a new uptrend this week as investors anticipate the upcoming release of data for BIOD-123. While PropThink has not published publicly on this name given that the trade already holds the collective attention of the biotech trading community, our Premium subscribers have been behind the trade since Biodel ran a public offering early in June — we suggested buying the dip then, which has been good for almost 40%, and we expect continued upside before the Phase II data release this quarter.

We suggested to PropThink’s Premium Subscribers on July 16th that Alcobra (ADHD) was worth a look as the stock pulled back: “Recent-IPO Alcobra Ltd. (ADHD) has been on a tear over the last 10 days, and while the stock has gotten away from us since we began our diligence process, we’re looking to establish an initial position when the stock pulls back. . . we suspect that as Alcobra ramps its investor outreach program (the company has only been public since May) and gains visibility/validation with an IND filing/acceptance later this year, investors will get increasingly interested. At an enterprise value of $90M, we’re willing to take a bet on ADHD and are looking for a continued pull-back in which to make an entrance, at least for the short-haul.” Alcobra closed this week at $14.00. An entrance at $10.00 in tandem with our note has netted 40% in the last three weeks.

Onconova Therapeutics (ONTX), which Mr. King spotlighted last week, didn’t perform as well as anticipated in its first week as a publicly traded entity. We remain bullish, however, as catalysts later in the year should bring the spotlight back on the oncology drug developer. And, the stock remains cheap when compared to competitors with even less data on their lead candidates. At $23.50, ONTX has almost regained its $25.00 IPO price.

In connection with, ONTX, ADHD, and BIOD, PropThink has taken a long position.