Before you read on, please be aware that the analysis below is my opinion only and may include flawed assumptions and inaccuracy of logic; therefore, caveat emptor applies here. Furthermore, all emphasis (color-coded, boldness, and underlined) on the excerpts are my own.
The SP500 gapped lower on Monday, bounced back on Tuesday, settled up a bit on Wednesday, dropped horribly on Thursday, and then bounced a bit on Friday.
The daily bar below reflected how I changed from a market was going to crash this week to market may bounce next week. See how the Thursday red bar ended with a long tail (aka shadow) below the red body? The fact that Thursday close was hovering at the 89 XMA told me the support held. Friday bounce keeping the price at the 89 XMA also led me to believe the probability of a bounce next week is also good.
However, from a weekly perspective, the market still needs to prove that the bull is in charge by bouncing off next week. This week red spinning candlestick bar is leaning a bit on the bearish side. But the good news is that Friday bar range is inside the Thursday bar range. So, there is a possibility that the daily 89 XMA support may hold and the market may bounce next week. Hence, I closed my $SPXU as well as my $SPY put options to back off from shorting the broad market.
This week I engaged in quite a few internal debates over the execution of some trades. I like to share one so that if readers were experiencing the same phenomenon themselves know that they are not alone. I believe it’s a common phenomenon that determines the final answer to the ultimate question, “buy (sell) or not to buy (sell)?”
In my case, the debates usually happened between my “instinct” and “analytical mind.”
Below is an example of my debate over $LRAD starting around mid-trading-day on Thursday. At the time, I saw a huge volume spike after the fact with the price traded at $3.03 at the close of a red candlestick on the 5-minute bar chart. The volume under the red candlestick bar reflected 50,000 shares traded. Despite a red bar, the fact somebody bought with only a 3 pennies difference between the high and the low of the 5-minute bar meant a whale picked up the 50K share block without a collapse in price. This belied a keen interest from someone. Typically, on $LRAD average low trading volume, a 50K block sell could crater the price below $3 in a heartbeat, the tiny 3 pennies change on the 5-minute bar chart despite a 50K block trade piqued my instinct.
Instinct: “Whoa! Huge block buy! Better jump back in, price is still below your exit points on the shares you sold the week before!”
Analytical mind: “Nah, the SP500 might drop a big one tomorrow morning. After all, tomorrow is a Friday!”
Instinct: “Come on! Get back in! Buy back the shares you sold! What are you waiting for?!?”
Analytical mind: “Let’s wait to see how the market open tomorrow. If no big drop, then we revisit.”
Instinct: “I still think you make a big mistake by not buying now. Sigh…”
On Friday morning, the broad market opened higher.
I was watching and trading the $SPXU for about two hours before I even glanced at $LRAD.
Instinct: “Holy Mackerel! What were you thinking! Price is already trading over your exit price! What’s a waste of time at $SPXU! Whoa! Look at the volume in $LRAD! What are you waiting for!”
Analytical mind: “Sh*t! You’re right! Something is going on. I noticed some stocks are stable all week without any big hiccup from yesterday big down day. The SP500 is also holding its ground staying green so far.”
Instinct: “What are you waiting for? Buy $LRAD now!”
And so, on a Friday morning about two hours after the open, my instinct and my analytical mind finally were on the same page, and I bought back $LRAD with a “premium” of about 15 cents higher than I exited for. Yeah, I consider the premium as an insurance cost at the time when I thought a broad market crash was about to happen. Considering that $LRAD continued to head higher with more volume after I bought back my shares, I expect some news to show up next week. If not, I think I’ll just stick around this time due to above average trading volume on Thursday and Friday. This could mean that whales are watching this one.
LRAD – I’m starting with LRAD to allow a continuous thought process on $LRAD. Per an excerpt on the company Q1 2019 earnings conference call update below,
it will be fabulous if the bookings and revenue growth this fiscal year included a few more country-wide mass-notification sales, so I do not want to miss any news announcement if there is one.
While there is no guarantee of such news to be had next week, the market action on Thursday and Friday provided a possibility that something might happen next week. Thus, as a faithful investor of $LRAD, I’ll surely kick myself if I miss the news without my full position size.
Technically speaking, the long-term monthly $LRAD chart is now showing an almost complete handle of the five years Cup and Handle breakout pattern (C&H). As you can see, the rim of the Cup started in mid-2014 and ended with another rim at the end of the 3rd quarter of 2018. Now, inside the blue highlighted box on the chart is the almost completion of the handle. IF (a big IF) there is news on some significant sales announcement of their mass notification system, it is conceivable that price will then make a massive breakout of a C&H pattern that took five years to form. From my years of observation, the longer it takes to form a C&H pattern, the more sustainable is the long-term trend of the stock in the direction of the breakout. Hence, my desire to buy back all my shares I sold last week on Friday just so I don’t miss the boat if the news does come.
While the signing of the CC-Pharming in Beijing is old news, the update served to remind us that “CMO’s are on FIRE.” Since the article, “Build Biologics Not Barriers” is attached to the update, I would like to pull an excerpt to highlight some crucial points.
Let’s begin with this:
I’m going to break down the above into outline form below:
- Rituxan (rituximab) was first approved by the U.S. FDA in 1997
- Its clinical uses expanded from Non-Hodgkin’s Lymphoma (NHL) to a range of autoimmune diseases including types of rheumatoid arthritis.
- The drug came off patent in Europe in 2013, and in the U.S. in 2016.
- Despite the approval of biosimilar versions of rituximab, treatments are still too expensive for many patients.
- There is a severe lack of access to needed therapies such as rituximab in China.
- Demand for biosimilars such as rituximab is going to go up over the next few years.
- Current capacity cannot adequately serve the rising demands of China’s population in terms of biologics.
- China bioprocessing capacity remains a challenge.
The above can be summarised in one sentence from me,
“iBio’s plant-based technology is a godsend to China with its huge populations since plant-based technology’s best feature is its low-cost production.”
Now, let’s talk about how a biosimilar get approved from the FDA. Believe it or not, I found the article, “How does a biosimilar get approved? What happens after that?”
Below are two excerpts from the article that explained the process:
Outlines of the above excerpts:
- FDA approval process (drug must meet two criteria)
- It must be highly similar to the reference biologic
- It cannot have any clinically meaningful differences in terms of safety or efficacy from the reference biologic
- The biosimilar approval process is referred to by the FDA as an “abbreviated licensure pathway.”
- For biosimilars, because the bulk of the data are analytical studies supporting the similarity of the drug to the reference biologic, the clinical trial phase starts at Phase III.
In essence, for a biosimilar to get FDA approval, there is only ONE clinical trial phase (phase III) that is needed. So, the timeline should be much quicker than a full-blown drug trial of a brand new biologic drug.
The bottom line is that because the approved biologic drug had already gone through the third-degree approval process, the biosimilar process only needs to prove similarity and no clinically meaningful differences in terms of safety or efficacy from the reference biologic.
Logically speaking, if a biosimilar uses identical biologic characteristics of the off-patent biologic drugs, what is the odd that it won’t pass the Phase III trial that the off-patent biologic drug already passed? I’ll give it a better than 50% passing. My thinking is that there is a profit opportunity to enter the biosimilar market if you have the proper facility and technology that can give you low cost and super-efficiency.
I brought up all the above to support my thesis that the iBio’s plant-based technology allows any potential buyers of the IBIO CDMO the mean to capture a chunk of the biosimilar market with lucrative profit opportunity. In my opinion, even the Phase III trial may be considered as a low-risk trial.
Back to my above assessment, iBio’s plant-based technology is a godsend to China’s huge populations. Furthermore, the highly automated large facility in Bryan-College, Texas, in my opinion, is also a godsend to the BP who has the foresight to buy the iBIO CDMO subsidiary to advance their own biosimilars to compete in the market place that will soon to be flushed with biosimilars of off-patent biologic drugs.
Given what I explained above, I believe Thomas Isett has an excellent chance to score a win for iBio.
Despite my having to take some losses on my whipsawed trades on $SPXU and a few other swing-trades I bungled, my port gained back a bit thanks to $IBIO and $LRAD closing positive for the week.
Current positions (in alphabet order):
Stocks = IBIO LRAD
Options = TRXC (call);
Up 23.9% YTD
My 2 cents
From my camera: