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BCRX Contagion: Viruses, Disease, Momentum & Russell
June 30, 2014
There is some Russell in here.
The question comes from TCR subscriber Steve Noyes in the city of South Milwaukee, Wisconsin.
Hello Thom:
Last week you indicated you had bought call options on BCRX.
The little I know on call options tells me you are pretty confident BCRX will be going up in the next month.
That being said, did you find the unusual trading of BCRX on Friday, 10x the normal volume with the price barely moving by end of day? (11.5 million shares on NASDAQ)
Your gut feelings seem to work very well for my pocket book.
Well, Steve, thanks for weighing in on BioCryst Pharmaceuticals (NASDAQ:BCRX, Stock Forum). Personal subject for me, this company and my coverage.
I would like to answer you publicly in TCR. The takeaway if you don't have time is yes, I believe the shares will climb rapidly in the next two weeks.
First, on the added volume we saw Friday, I wonder if this is related to possible inclusion in the Russell 3000? We had talked about this a few weeks ago in TCR.
At the close of June, Russell Investments shifts indexes based solely on market caps.
The reconstituted indexes as of Friday are listed on Russell Investments: https://www.russell.com/indexes/americas/tools-resources/reconstitution/additions-deletions.page#indexes.
BCRX is back in the Russell 3000. [As an aside, see * below.]
BCRX now is closing in on $1 billion market worth.
Perhaps one fund is transferring to another one?
And/or an ETF that has BCRX in it needed more shares as a biomedical component? This would be based on component percentages. BioCryst Pharma's market cap is growing thanks to price appreciation and the sale (issuance) of 11.5 million shares earlier in the month.
BCRX is a holding in at last 5 ETFs.
Maybe some ETF needed more of it to balance its weightings.
In the Friday trading, it looks like the big bunch came at close of day.
https://www.marketwatch.com/investing/stock/bcrx/charts?symb=BCRX&countrycode=US&time=1&startdate=1%2F4%2F1999&enddate=6%2F29%2F2014&freq=6&compidx=none&compind=none&comptemptext=Enter+Symbol%28s%29&comp=none&uf=7168&ma=1&maval=50&lf=1&lf2=4&lf3=0&type=2&size=2&style=1013
Perhaps 4 million shares between 12.52 and $12.60? It was $12.70 or so 10 minutes prior. I bet the momentum traders were getting excited there.
On a one-hour breakdown, we see 8 million shares in the final hour of the day Friday.
https://www.marketwatch.com/investing/stock/bcrx/charts?symb=BCRX&countrycode=US&time=1&startdate=1%2F4%2F1999&enddate=6%2F29%2F2014&freq=8&compidx=none&compind=none&comptemptext=Enter+Symbol%28s%29&comp=none&uf=7168&ma=1&maval=50&lf=1&lf2=4&lf3=0&type=2&size=2&style=1013
Nasdaq.com shows 10.85 million for the day, including after market.
https://www.nasdaq.com/symbol/bcrx/interactive-chart
(You have to click the after market on the one-day interactive.)
That one chart shows one 4 million-share trade at the closing price, $12.52. Another 4 million shares in three or four trades occurred at same price a little after 4 p.m.
I think I have been researching BCRX, with little cooperation from the company or its aloof CEO, former Merck executive Jon P. Waterhouse, for nine years.
Influenza was the reason why I bought the stock, and the reason I read books on influenza and pandemics when the threat of avian flu, H5N1, sent BCRX to share heights unseen to this day. That was early 2006; the shares went to $22 or so, and Mr. Stonehouse had yet to join the company.
This was a few years before the Steven Soderbergh film Contagion came out.
My gut feeling, Steve, since you mention that, was that back then when the stock was roaring and could do no wrong, I thought the shares would keep parabolizing -- and stay above $20. They did not.
I must have owned 75,000 or more shares -- and my articles were well distributed -- Stockhouse, Ticker Trax, ThomWatch and other venues.
I sold zero shares on the high, and watched as the stock went below $10, then toward $5 and lower. By 2009, BCRX had started rising again as swine flu, H1N1, threatened.
That stock gain evaporated, too.
I think over the years -- except for just once -- I have sold BCRX for steep losses. The same mindset that governs my natural resource holdings -- a long-term outlook that destroys capital -- can be as painful as a near-fatal case of swine flu, with or without peramivir treatment.
If there is one thing that governs any decision I make to sell, (that is, in the past 10 years and aside from, say, our having to send the boy to college or the girl to piano lessons), it is the prospect of a contagion: a currency contagion, a gold contagion, an influenza contagion.
Other than that, I am a vessel of good cheer. Everyone in my family sees me as a comedian, a regular cargo container of laughs.
So Steve, my gut gave me the wrong instinct -- which probably was to hold based on simple(ton) greed and my sighting of TC -- The Contagion -- just over there on the horizon.
My editor cuts me slack. She reminds me that as a middle-aged investor and long-time financial journalist, I was coached or brain washed in the benefits of buy-and-hold through the 1980s and 1990s.
Maybe. Probably this is not an excuse for blind faith.
Nowadays, I own about 20,000 shares of BioCryst. Luckily this time, I was buying when the stock was getting into the $3 and $2 range.
Five years ago, that 2009 rise mostly evaporated as swine flu, or the threat of it, waned.
The difference now -- and this might be coming from that same buy-hold mindset that is skinning alive our natural resource holdings -- is that BioCryst Pharmaceuticals is a well rounded drug developer with offices and labs in two southern states: Alabama and one of the Carolinas.
In defense of buy and hold on this one, I note the big investors were willing to buy 11.5 million new shares a few weeks ago at $10 with no apparent discount that I could see.
Momentum traders are moving the stock to that magic $13.33 level that might signal another parabola to $15, $18, $22.
The fundamentals are stronger than the stock chart: molecular compounds for influenza, other terror-viruses, angio-edema, leukemia and so on.
The headlines on any day can be the BCX4430 viral RNA-dependent RNA inhibitor, or the news can be influenza, or T-cell leukemias, or hereditary angio-edema. Or BCX4208 for gout.
I have little chemistry background, even with a nephew having received his doctorate this year at age 28 from Yale for organic chem. But I have covered as a writer -- and invested in -- a dozen or more biomedicals, stretching back to my newspaper, wire service and MarketWatch days.
The way I understand it, BioCryst designs compounds that seek out nasty proteins, then try to block harmful enzymes from spreading. This is TCR simpleton style.
I think these are all small-molecule drugs.
In the case of the influenza treatment, peramivir, we likely will see regulators approve the drug in the USA for intravenous application. A couple of other countries already have approved peramivir, which delivers plasma to patients at risk of dying from the effects of influenza.
The use of call options in my case is simply a hunch, and some TCR fact gathering that might not hold water in a published report but does hold water in my notebook and in my porfolio.
My strategy -- purchasing way out-of-money call options ($16 and $18 strike prices) that expire within 3 or 4 weeks -- is a cheap way to top up my holdings. If they expire worthless, I'm out $500 USD.
In the meantime, I have been purchasing more shares at levels from $9 to $12. I know BCRX are a recent favorite of the mo-mo crowd, swing traders and such.
I hope that helps. I don't see a takeover of BioCryst Pharma in the offing -- not before formal FDA approval of at least one of its compounds, anyway.
After the shares get into the mid-teens, the share trading likely will be less dramatic than it has been the past two years. By then, hopefully sometime this northern hemisphere summer, BioCryst will be a suitable candidate for long-term, health-care investors who are less reckless than I am.
On a personal note, it was good to see the company's forodesine compound for T-cell leukemias get FDA fast-tracked. The Food & Drug Administration in the USA calls these situations orphan status for the drug. We had a leukemia patient at home, my son, and he orphaned us. I can laugh now -- that was 1984, living in the southwestern USA.
Finally, a few banks here and there are starting to raise their price targets for BioCryst shares. Some are as high as $24. That would make this a $2 billion company.
I hope that helps, Steve. Thanks for being a longtime TCR family member.
I hope the company sticks around long enough as an independent entity to see some of its new drug applications reach Phase 3 human success and worldwide approvals.
Some of us as investors also would like to see the shares go 30 percent above fair value in a stock market contagion -- maybe to make up for our not orphaning the stock during its two influenza runs.
-- Thom Calandra
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* On the index reconstitutions -- SYRX Sysorex Global made it into the MicroCap Index. Paramount Gold & Silver and Revett Minerals were removed from the Russell 3000. See:
https://www.russell.com/indexes/americas/tools-resources/reconstitution/additions-deletions.page#indexes
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