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Biotechs to Follow in 2015 off Fresh Insider Moves

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Biotechs to Follow in 2015 off Fresh Insider Moves

Insider moves are always interesting to equity traders no matter where they occur, but more than any other sector, insider buys tend to inspire the most chatter around biotech. This is mostly due to the esoteric science and trial statistics that often determine the fate of a firm, which company and other biotech insiders tend to know more about than even premium hedge fund operators.

Over December, several significant moves have been made at different biotech firms that warrant at least a raised eyebrow. In some cases, the moves themselves have caused significant increases in either share prices or trading volume, and in other cases not. Whatever the situation, these stocks should be watched carefully for developments in 2015 in light of these transactions.

Cocrystal Pharma (OTCBB:COCP)

In chronological order, we begin with Cocrystal Pharma, an early-stage biotech specializing in antivirals with sporadic press but an all-star board and staff. On December 5, a Form 13D was filed indicating a 14.3% holding by Dr. Phillip Frost, a Cocrystal board member, as well as Chairman of both Opko Health (NYSE:OPK) and Israeli generics giant Teva (NYSE:TEVA). Opko has been on a 1500% tear since market bottom in March 2009, going up from 61 cents to now just under $10 a share. Opko was at $2 when Frost was first named Chairman. Teva has had a good year as well, up 43% in 2014, outpacing the larger Nasdaq biotechnology index ETF (NASDAQ:IBB).

Opko itself has a 7.8% holding in Cocrystal, which brings Frost’s total interest in the company to over 22%.

If that weren’t enough, the November 25th merger between Cocrystal and private firm RFS Pharma saw RFS owner Dr. Raymond Schinazi take a 38.9% stake in the company. Schinazi has his own impressive record in biotech, founding Pharmasset, which was acquired by Gilead (NASDAQ:GILD) for $11.4B in 2012; Idenix, acquired by Merck (NASDAQ:MRK); and Triangle Pharmaceuticals, also acquired by Giliad in 2003. The scientific wing of the company is headed by Dr. Roger Kornberg, the 2006 Nobel Prize winner in chemistry, also a Cocrystal cofounder with a 2.2% stake. In total, insiders account for just under 72% of total shares outstanding.

Cocrystal’s share price was not directly effected by the December 5th filing, but trading volume was over twice the average that day.

Seattle Genetics (NASDAQ:SGEN)

Four days later on December 9th, Felix Baker, a director at Seattle Genetics brought his ownership of the company up to 20.3%. This move came after a flurry of data were released by the company on its ongoing clinical trials for various drugs. First, phase 1 results were announced for an antibody-drug conjugate for acute myeloid leukemia, a type of blood cancer. Those results showed 44% of 52 patients showing either complete response to the drug or otherwise being disease free. Phase 1 results do not usually inspire intensive buying since it is only the beginning of the clinical trial process, so this type of insider move at this stage is significant.

Included in that flurry were the 4-year survival data for Seattle Genetics’ ADCETRIS, an antibody-drug conjugate for a form of lymphoma, came in at 64%, while the median overall survival for the disease is only 5.5 months. While ADCETRIS is already approved, these results could get it into first-line therapy, significantly increasing the drug’s market. It is currently approved only as a second- and third-line therapy. Baker has since bought even more shares, upping his ownership to 22.7% of the company.

Agios Pharmaceuticals (NASDAQ:AGIO)

One week later Agios Pharmaceuticals saw a major insider move. Agios is a development stage biotech valued at close to $4B, with major investment by Celgene (NASDAQ:CELG). Agios targets the way cancer cells metabolize sugars, attempting to starve them from within. On December 16th, Celgene bought over 5.24M shares, bringing its total ownership to a 27.2% stake. Celgene is investing heavily here in part because it has commercial rights to Agios’ lead candidate.

Agios showed positive preliminary results in its phase 1 trial for both efficacy and safety, with 6 complete remissions out of 14 patients, though this was in November. The catalyst for Celgene’s most recent stock purchase is unclear, but may be connected to Agios’ recent public offering. Agios stock has been on a steep uptrend all year at over 34% gains for 2014. Given Celgene’s experience with clinical trials, its commitment to Agios and latest investment could point to a good year ahead for the company.

Advaxis (NASDAQ:ADXS)

Three days later on December 19th, another biotech saw a pretty large insider move which also had the effect of putting shares to the races. Advaxis, a firm principally focused on cervical cancer treatment, is generally overlooked because there is already an effective cervical cancer vaccine available that prevents the HPV virus that causes the disease. Nevertheless, for those that already have cervical cancer, primarily patients in Asia, few treatments are available.

ADXS-HPV, Advaxis’ lead candidate, was featured on Fox News on December 10th, which began the recent uptrend. FDA acceptance of an investigational new drug (IND) application for ADXS-HPV on December 15th further propelled the stock, followed by a 4.54M share stake by Adage Capital, totaling almost 19% of the company in one trade, the same day its latest public offering closed. All those events in succession had the effect of pushing the stock up 200% since December 10.

Despite the recent gains, Advaxis is still below $200M market cap. Recent mainstream media interest and institutional investment could mean that Advaxis has entered a new stage as a publicly traded company, no longer relegated to obscurity.

All in all, a very busy month for biotech insiders. It will be interesting to see how these stocks perform in 2015 and beyond.

 

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Where’s the Inflation? It’s in the Capital Goods Sector

By
Rafi Farber
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Gold Miners In Trouble

Prices everywhere are dropping and price inflation is nowhere to be seen. In fact, according to some online indices, the United States is actually experiencing an 11% annual deflation rate as of January 2, 2015. But there are two major sectors of the economy where prices are still levitating high in the sky. Those are the stock market, and mining sector costs.

At first glance these two sectors have nothing to do with each other. But at bottom, they are both essentially the capital goods sector. Mining is the first step in creating capital goods, and stock prices reflect the value of capital goods in general. With consumer prices falling by as much as 11% annually at this point, prices are being bid up almost exclusively within the capital goods sector. What causes that, chiefly, are extremely low interest rates.

Low interest rates allow capitalists and entrepreneurs to borrow money at low cost to finance long term projects. Low interest payments reflect positively on balance sheets and earnings statements, causing the value of capital, and hence stock prices, to increase. But with that increase comes an increase in producers costs as well. If money flows into the capital goods sector as a whole, capital goods costs along with values inexorably rise.

Those most affected on the cost side are the companies at the very top of production – the miners, where capital goods production begins. Since 2009, global all-in costs of gold mining, for example, have risen from $800 to $1500 in 2012.

Gold Mining Costs

They have since backed down slightly to $1200, but this fall is still paltry when compared with the rise in the cost of mining since the gold bull began in 2000. With gold prices still below $1200, the current average cost of production, average-to-marginal miners will go bankrupt. The Big Three in the mining sector by market cap – Barrick (NYSE:ABX), Newmont (NYSE:NEM), and Goldcorp (NYSE:GG), are all bleeding cash profusely. Altogether they lost a combined $16B in 2013, with numbers about to come out for 2014, and they won’t be pretty. Not to mention the other marginal juniors, nearly all of whom are unsustainable given current metals prices, gold silver and copper included.

It’s the same with oil drilling, though the situation is less dire. The cost per barrel for Exxon (NYSE:XOM), in 2013 for example was $15.42, which is still more than 50% higher than it was in 2009 at $10.25. So while the oil industry is in much better shape than the mining industry, the price inflation in production costs even in oil is still glaringly evident here. For oil to reach the dire straits that mining has reached, the price of oil would have to drop to $10 a barrel. As unfathomable as this sounds, $1200 gold for Barrick is the equivalent of $10 oil for Exxon in that sense.

Copper is only skirting its production price of around $2.60 per ounce, currently trading at $2.86, so it’s not only the precious metal miners that are in trouble, but industrial miners as well.

Taking an even broader look, the S&P is currently trading at 9 times the CRB Commodity Index. This is nearly twice as high as it was at the previous market high in October 2007.

The conclusion is simple. Either metals production prices have to come down drastically, or the price of metals has to go up drastically. Price deflation be as it may, the money supply is still increasing week by week according to Federal Reserve data, so it is very unlikely that production prices will drop for any sustained period of time.

 

 

 

 

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Airline Stocks Set Up For A Great 2015, If They Hedge Wisely

By
Rafi Farber
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Airlines

For a company that filed for bankruptcy only 10 years ago, Delta (NYSE:DAL) sure had one heck of a year. Up 82% this year, Delta had an especially strong boost since October, up 50% since October 13th. Not only are its revenues growing but its cost of business is falling fast thanks, of course, to the falling price of oil which directly impacts its fuel costs. Fuel costs are Delta’s biggest expense.

According to its last 10Q filed October 24, a 20% drop in the cost of fuel would result in a $2.53B gain and an $850M loss in hedging costs, netting a $1.68B gain. Oil has actually fallen 35% since that date. Extrapolating out, that translates to around a $4.5B gain, though with much larger hedging losses on paper. Since Delta’s derivative fuel contracts expire in 2016, paper losses could recover if oil recovers by then. If not, the net gain is still far bigger than the hedging loss.

Delta is by far not the only airline to be celebrating falling fuel costs. Southwest (NYSE:LUV) has been on a continuous parabolic ascent since October 2012, up 376%, with its bottom line just getting better and better. In 2014 alone, its stock rose 125%. Revenues look set to beat annual records while its cost of revenue remains muted.

Even Jetblue (NASDAQ:JBLU), which has been a consistently poor performer since 2006, is now back at its highs with net income doubling since 2012. American Airlines (NASDAQ:AAL) only came out of bankruptcy at the end of last year, with its stock up over 100% since.

Falling oil prices are certainly doing their part for all these airlines, but the key to success in 2015 will be hedging well for a strong oil recovery if it should happen. If oil prices head back up, the airlines now complacent with low fuel costs will be caught with their proverbial pants down.

Watch for the airlines that hedge well now, with oil at multi-year lows. Call contracts on crude oil are especially cheap now, which means the smartest airlines can hedge now for an upside move at bargain basement prices for these derivatives and lock in current jet fuel rates. Whoever decides to make that move will be in a much safer position if and when prices start to rise, not only for jet fuel, but for everything else as well.

Pay close attention to airline filings going into 2015, and keep your eyes peeled for the ones that protect themselves now. The downside from hedging now for airlines in the event that oil stays low is very small compared to the upside if oil makes a rebound.

 

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BP, Chevron and Exxon, Three Great Buys for 2015

By
Rafi Farber
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Chevron, Exxon, and BP

If you’re a bottom picker in oil stocks, then like most commodities and the companies based on them, company valuations tend to lead the underlying commodity. If oil stocks can resist any more down moves in oil and spike strongly on small up moves, this is a strong signal that oil is at or near its bottom.

And this is indeed what is happening now. Looking at a 3-month chart below, British Petroleum (NYSE:BP) Exxon (NYSE:XOM) and Chevron (NYSE:CVX) have all been resisting oil’s hard December selloff, especially since December 15.

Oil Stocks

If we zoom in since December 15, we’ll find that oil stocks have actually risen – Chevron more than 10% – while oil has fallen another 7%. This is either a really nasty head fake, or oil stocks are signaling that the bottom in the oil market has been hit, and that we are now on our way back up.

Adding to this is the fact that supply side, rigs are starting to be shut down. The US has lost 35 rigs in the past 10 days, and Canada 135. The longer oil stays in its current range, the more rigs will continue to be shut down, stabilizing and then pushing price back up.

Rigs

With supply on one side being crimped, half of every oil transaction involves dollars, and the supply of this is going up fast. Money supply just broke through $11.7 trillion last week for the first time, with no signs of let up. The money supply is now growing, looking at the one week average, at a 12% annualized rate. A falling supply of oil with a rising supply of dollars eventually leads to more dollars per barrel of oil.

Given the similarities to what happened to the oil market at the end of 2008, BP, Chevron and Exxon look like good long term buys, as it will take some time for oil to trudge back to the $100 level. After the 2008 crash, to took two years for oil to get back to $100 a barrel for a low near $30. In the meantime the stocks pay decent dividends while patient holders can wait.

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