Speculative/Small Cap Stocks

[crackspread]

Hi everyone,

 

I've been lurking for a few months and am glad to finally be posting here. I wanted to start a thread about a very spec stock of mine that has potential to yield one 30x their money. I did not want to "pollute" the investment ideas thread with a speculative company that may fail.

 

The company in question is a biotech firm called Oncolytics Biotech - based in the not so sexy bio hub city of Calgary, Alberta. Essentially, the company can potentially extend your life if you have cancer. They have 7 current ongoing phase 2 trials and one ongoing phase 3 trial for head and neck cancer with expected results out by the end of Q3. The plan is to gain approval into Europe first and then move into the north american markets.

 

The good points:

-over 360 patents

-enough cash to keep the company going till 2015

-very good results in every p1 and 2 trial. the p3 head and neck is the real kicker, however. 50% of biotechs fail in p3 trials.

-the 'reovirus' is a naturally occuring compound and extremely cheap to produce; the manufacturing process is apparently already underway

-pfizer was going to partner with Oncolytics Biotech in 2000 and use reolysin for teh animal care market, but the deal fell through when pfizer decided to make a huge acquisition (name escapes me) and disbanded the animal care market

-institutitional ownership (concentrated within a few investment firms - agf mgmt and dundee)

-experienced mgmt team

 

the bad points:

-management seems very,very, very cautious and take their time on everything. there have been a few delays throughout the 15 years they have been around. This has NOT been condusive to shareholder's at all.

-massive short positions on the stock currently; the stock seems to be heavily manipulated

-high salaries for execs...ceo makes 700,000/yr in addition to option based compensation

 

Has anyone heard of this company? Are there any other companies out there that you have small investments in but are essentially spec only?

[DTEJD1997]

I would caution against ANY biotech company.  Most of them flame out.

 

Not to say that is necessarily the case here...

 

I would also suggest that these are very, very hard to evaluate unless you are medical doctor, chemical engineer, etc.

 

The biotechs also seem to go through cycles.  At certain times everybody is making money in them, and at times, there is nothing going on nobody is making money.

 

I prefer to stick with things that are easier to evaluate and where the penalty of being wrong is not a 98% or 100% loss.

 

I would also suggest that a 30X return is rare, exceedingly rare.  I've never had one myself, but I've seen them.  The 30X returns take years or even decades to happen.  I don't think I've ever seen one that happened in 1 or 2 years.

 

Good luck, but be aware the risks are tremendous.

[crackspread]

I agree and more than anything, I was hoping if I could get an opinion from someone on here regarding the company. I've definitely put in my DD, and I have a tiny investment in the company (only a few grand) because if the company works out, the results could be fairly spectacular. I don't see much wrong with putting a tiny portion of one's portfolio towards speculative ventures to keep things interesting.

[Guest deepValue]

I've definitely put in my DD, and I have a tiny investment in the company

 

My guess is you either didn't do your due diligence or you have a much larger portion of your portfolio invested than you're letting on. Why do the work on a 1% position?

 

Everyone is hawking an oncology drug these days. There are hedge funds with FDA-connected oncologists on their payroll digging around in these things. Speculative biotech requires knowledge of science and government bureaucracy to do well; it has nothing to do with 'investing.'

 

If you want to own something that could be a 10-bagger, lever Buffett-style investments with LEAPs.

[Kraven]

Why do the work on a 1% position?

 

I would draw your attention to Ben Graham and Walter Schloss. Perhaps you've heard of them?

[Guest deepValue]

Why do the work on a 1% position?

 

I would draw your attention to Ben Graham and Walter Schloss. Perhaps you've heard of them?

 

A 1% position was not small compared to their average position size. I suppose I should have said, "Why do the work on a tiny investment relative to your other positions?"

 

But, if I was presumptuous and he actually did a deep dive into the science and only made it a tiny position, he wouldn't be the only one to do so. Mario Gabelli seems to do it a lot. I've just never understood the point. Especially for a lottery ticket.

[mcliu]

If your upside is large, like 20x, a 1% position can generate significant returns.

[crackspread]

I've definitely put in my DD, and I have a tiny investment in the company

 

My guess is you either didn't do your due diligence or you have a much larger portion of your portfolio invested than you're letting on. Why do the work on a 1% position?

 

Everyone is hawking an oncology drug these days. There are hedge funds with FDA-connected oncologists on their payroll digging around in these things. Speculative biotech requires knowledge of science and government bureaucracy to do well; it has nothing to do with 'investing.'

 

If you want to own something that could be a 10-bagger, lever Buffett-style investments with LEAPs.

I do my due diligence with any investment, no matter how small it is. I also have a connection in the sense that the research and company that was created is my alma mater. You are correct with the second point, and the company, especially the board is well connected. Acuity Investment Mgmt, an 8BB fund has a significant investment in this company and has brought in a few of their guys. Just to reiterate the significance of Acuity's investment, this small little biotech is their 8th largest position, behind the Suncor's, TD/RBC/BMO/CIBC/Canadian Natural Resource's of the world. That seems significant to ME, maybe not others. And I don't really see the issue with putting a few grand towards a company that could have tremendous upside. If anything, it keeps "investing" interesting, and this is something Graham even recommended.

[crackspread]

Why do the work on a 1% position?

 

I would draw your attention to Ben Graham and Walter Schloss. Perhaps you've heard of them?

 

A 1% position was not small compared to their average position size. I suppose I should have said, "Why do the work on a tiny investment relative to your other positions?"

 

But, if I was presumptuous and he actually did a deep dive into the science and only made it a tiny position, he wouldn't be the only one to do so. Mario Gabelli seems to do it a lot. I've just never understood the point. Especially for a lottery ticket.

 

With regards to the science, the company has created a drug (called reolysin) that targets RAS cancer cells. It's well documented that reovirus is known to be a cancer therapeutic for these RAS activated cancer cells. This is a fact, and I'm hopeful that REOLYSIN actually works. Not only for the upside in the stock price, but for oncology as a whole. It's a big deal if one can extend their life even 3 months.

 

We'll see how the PIII trials go for H&N cancer. If the results are statistically significant, then I have confidence that the 7 other PII trials will do well as well.

 

[DTEJD1997]

Hey all:

 

Most of the really, really big gainers that I've seen (I'm talking 10X or more), just kind of turn into that. 

 

You don't usually know which ones will turn into the really huge gainers, they just sort of happen.  You know that they are good investments, that they are undervalued....but I've never seen one where I think that "this is going to be a 20x return" and then it becomes that.

 

The really big baggers just kind of happen, at least in my experience. 

[oddballstocks]

Hey all:

 

Most of the really, really big gainers that I've seen (I'm talking 10X or more), just kind of turn into that. 

 

You don't usually know which ones will turn into the really huge gainers, they just sort of happen.  You know that they are good investments, that they are undervalued....but I've never seen one where I think that "this is going to be a 20x return" and then it becomes that.

 

The really big baggers just kind of happen, at least in my experience.

 

This is so true in my experience as well.  I've been blessed enough to have two 10-baggers, in both cases at any given point in time I felt they were either undervalued by 50% or fairly valued.  But both were decent companies I wanted to hold, I just continued to hold and the stock price grew. 

 

Biotech's are amazing to me, as a whole they are a money pit, yet they continue to entice investors over and over.  The execs of biotechs sell so much hope, if we just get through Phase II we'll be approved etc.  I was looking into a biotech two years ago and decided to find some approval statistics.  There is a funnel graph out there on the net showing how many drugs enter each stage yearly, and how many exit.  I seem to remember the chance of a drug getting from Phase I through Phase III was 1/1000.  After Phase III there are a number of other tests and certifications before it can actually be sold.

 

So yes, maybe 1 in 1500 drugs will actually make it to approval and will be the blockbuster drug that everyone is expecting.  The reality is that drug was probably researched and pushed by Eli Lilly or another big manufacturer with the experience in the process.  And that 300x drug approval is paying for the other 1499 drugs that the company spent money on to research that failed.

 

I would tread lightly with biotechs.

 

Just a random observation, Kraven mentioned Walter Schloss.  I just watched an interview with him today and he mentioned he almost always sold things after they went up 50%.  Here's a guy who almost never held for a gain beyond 50% and yet had one of the best long term track records ever. 

[crackspread]

Off the top of my head, I can name a few 10 baggers if you got in at the right price point. Teck Resource back in 07, Altius Minerals from inception, AIG, etc. In fact, I rode Teck up from $4 - $30 when I was a wee young 20 year old. The elusive 10 baggers DO happen. With respect to biotechs, thats why it may be smarter to buy a biotech ETF. They all fail, but that 1 biotech that actually makes it will more than make up for the crap.

 

Also, a quick note - I've noticed I've been bashed a little bit. I have no problem with this, this forum is based on value investing. But at least take a look at the company.

[DTEJD1997]

Crackspread:

 

Please don't take any criticism of Biotech stocks personally. 

 

These just aren't traditional "value" stocks.  Sometimes they are, but not usually.  The thing is, their drugs/compounds are going to work OR they are not going to work.  It is very, very hard to gauge the efficacy of these tests and drugs.

 

You very well might be right, it is an interesting situation, but how do you model sales? cash flow? earnings? dividends?  you can't...thus most of us "value" investors are going to take a pass.

 

I've seen many, many ten baggers, I've even seen 100+ baggers, but they all take time, sometimes even decades to play out.  The point I was trying to make was that it typically takes more than a year or two, and I've never bought or worked with a stock that I thought in advance would be a 10+ bagger.  When I research or buy, I might know that it is undervalued, but it is so hard to put a target price on something, is it worth 2x the money?  Very well could be!  Is it worth 3x or 4x, maybe, possibly....but anything beyond this, there are so many variables, too large a time frame, it is just too hard for me to model.

 

If you do well with this biotech, you might have a skill for evaluating them.  It is just a hard thing for most of us to do.

 

Good luck.  Keep posting, and let us know how it works out.

[anders]

I think the hardest part in biotech is to figure out how they are going to sell their finalized product?!? There is always a lot of focus on R&D, phase-studies, FDA approval etc but the key always comes down to - in my experience - how they are going to get the doctors to promote their product..

 

In general I believe that biotech has a bright future and the large medical comps are certainly looking into the industry... Some large houses have said that they are in process of moving from in-house r&d to outhouse so it will probably be many candidates for aquisition..

 

For me biotech is just too difficult because I dont have the time to put in the dd, nor the needed knowledge to invest, but I think it could work well as a basket, ie much like building a venture portfolio. I know those who have become billionaires on biotech, and then later lost it all on other biotech projects.. so I think its a bit like using levereage - addictive!

 

Another interesting parallell to this is a friend of mine that is only looking at small oil comps with solid ownership and well known operators.. Most of the time he is wrong but the ones that is in sweet spot gives back so much more.. though he has the ability to surfe on the wave! If you ever decide to do the same within the biotech space, please dont hesitate to tell me how it went,

 

Best Regards,

 

 

 

[Kraven]

Off the top of my head, I can name a few 10 baggers if you got in at the right price point. Teck Resource back in 07, Altius Minerals from inception, AIG, etc. In fact, I rode Teck up from $4 - $30 when I was a wee young 20 year old. The elusive 10 baggers DO happen. With respect to biotechs, thats why it may be smarter to buy a biotech ETF. They all fail, but that 1 biotech that actually makes it will more than make up for the crap.

 

Also, a quick note - I've noticed I've been bashed a little bit. I have no problem with this, this forum is based on value investing. But at least take a look at the company.

 

I've read this thread and I am struggling to see where you have been bashed.  Perhaps I am not the sensitive guy I thought I was.

[oddballstocks]

Off the top of my head, I can name a few 10 baggers if you got in at the right price point. Teck Resource back in 07, Altius Minerals from inception, AIG, etc. In fact, I rode Teck up from $4 - $30 when I was a wee young 20 year old. The elusive 10 baggers DO happen. With respect to biotechs, thats why it may be smarter to buy a biotech ETF. They all fail, but that 1 biotech that actually makes it will more than make up for the crap.

 

Also, a quick note - I've noticed I've been bashed a little bit. I have no problem with this, this forum is based on value investing. But at least take a look at the company.

 

I've read this thread and I am struggling to see where you have been bashed.  Perhaps I am not the sensitive guy I thought I was.

 

You've been given a lot of good advice on this thread, I don't think it's bashing, maybe lowering expectations, but not bashing.  Realize what you've done as well, you have essentially popped into a Ford forum and started asking for advice on buying a Toyota.

[value-is-what-you-get]

Earlier in my investing career I went through the biotech wringer with LOR.  What I took away from it all was it's too difficult for me, often too difficult for the very people involved, and when the 1 in 1000 does come along, I don't have to own it to benefit from it as there is now one more drug that may save/improve my life someday.

 

Similar to Lululemon.  Have never owned it but do receive daily dividends from their products.  ;D

[Guest wellmont]

if you are going to get into biotech (do so at your own risk), at least coattail (via sec filings) on some people who know what they are doing.

[Palantir]

What percentage of patients meet primary response objectives? Is there evidence this is more efficaceous than monoclonal antibody therapies?

[CONeal]

Hi everyone,

 

I've been lurking for a few months and am glad to finally be posting here. I wanted to start a thread about a very spec stock of mine that has potential to yield one 30x their money. I did not want to "pollute" the investment ideas thread with a speculative company that may fail.

 

The company in question is a biotech firm called Oncolytics Biotech - based in the not so sexy bio hub city of Calgary, Alberta. Essentially, the company can potentially extend your life if you have cancer. They have 7 current ongoing phase 2 trials and one ongoing phase 3 trial for head and neck cancer with expected results out by the end of Q3. The plan is to gain approval into Europe first and then move into the north american markets.

 

The good points:

-over 360 patents

-enough cash to keep the company going till 2015

-very good results in every p1 and 2 trial. the p3 head and neck is the real kicker, however. 50% of biotechs fail in p3 trials.

-the 'reovirus' is a naturally occuring compound and extremely cheap to produce; the manufacturing process is apparently already underway

-pfizer was going to partner with Oncolytics Biotech in 2000 and use reolysin for teh animal care market, but the deal fell through when pfizer decided to make a huge acquisition (name escapes me) and disbanded the animal care market

-institutitional ownership (concentrated within a few investment firms - agf mgmt and dundee)

-experienced mgmt team

 

the bad points:

-management seems very,very, very cautious and take their time on everything. there have been a few delays throughout the 15 years they have been around. This has NOT been condusive to shareholder's at all.

-massive short positions on the stock currently; the stock seems to be heavily manipulated

-high salaries for execs...ceo makes 700,000/yr in addition to option based compensation

 

Has anyone heard of this company? Are there any other companies out there that you have small investments in but are essentially spec only?

 

did a quick glance and nothing really blew my skirt tail off about the company.  Head and neck is a small market so if the drug was so effective why would they not put a priority on a dug that would provide better cash flow?  By the end of this year they will need to have financing lined up.  They may have cash through 2015 but they dont have that long to tap the equity market.  You may think it looks great now but is it just as attractive with twice as many shares outstanding?  there will be delays and CRL's before this comany will be able to turn any cash (hope your ready for that ride).  Under perfect conditions your 3 years away from having a product to market.  Who is going to sell the drug in Europe?  If they plan to do it on their own, expect a long ramp up b/c development and production is two completely different worlds. 

 

Most of your good points listed above have no effect in why you should invest in a particular biotech.  The first question you need to ask yourself is... why is this drug better then anything currently on the market? 

[crackspread]

Hi everyone,

 

I've been lurking for a few months and am glad to finally be posting here. I wanted to start a thread about a very spec stock of mine that has potential to yield one 30x their money. I did not want to "pollute" the investment ideas thread with a speculative company that may fail.

 

The company in question is a biotech firm called Oncolytics Biotech - based in the not so sexy bio hub city of Calgary, Alberta. Essentially, the company can potentially extend your life if you have cancer. They have 7 current ongoing phase 2 trials and one ongoing phase 3 trial for head and neck cancer with expected results out by the end of Q3. The plan is to gain approval into Europe first and then move into the north american markets.

 

The good points:

-over 360 patents

-enough cash to keep the company going till 2015

-very good results in every p1 and 2 trial. the p3 head and neck is the real kicker, however. 50% of biotechs fail in p3 trials.

-the 'reovirus' is a naturally occuring compound and extremely cheap to produce; the manufacturing process is apparently already underway

-pfizer was going to partner with Oncolytics Biotech in 2000 and use reolysin for teh animal care market, but the deal fell through when pfizer decided to make a huge acquisition (name escapes me) and disbanded the animal care market

-institutitional ownership (concentrated within a few investment firms - agf mgmt and dundee)

-experienced mgmt team

 

the bad points:

-management seems very,very, very cautious and take their time on everything. there have been a few delays throughout the 15 years they have been around. This has NOT been condusive to shareholder's at all.

-massive short positions on the stock currently; the stock seems to be heavily manipulated

-high salaries for execs...ceo makes 700,000/yr in addition to option based compensation

 

Has anyone heard of this company? Are there any other companies out there that you have small investments in but are essentially spec only?

 

did a quick glance and nothing really blew my skirt tail off about the company.  Head and neck is a small market so if the drug was so effective why would they not put a priority on a dug that would provide better cash flow?  By the end of this year they will need to have financing lined up.  They may have cash through 2015 but they dont have that long to tap the equity market.  You may think it looks great now but is it just as attractive with twice as many shares outstanding?  there will be delays and CRL's before this comany will be able to turn any cash (hope your ready for that ride).  Under perfect conditions your 3 years away from having a product to market.  Who is going to sell the drug in Europe?  If they plan to do it on their own, expect a long ramp up b/c development and production is two completely different worlds. 

 

Most of your good points listed above have no effect in why you should invest in a particular biotech.  The first question you need to ask yourself is... why is this drug better then anything currently on the market?

H&N was one of the trials that is co sponsored by the national cancer institute of canada & america and progressed faster then all the others. Agree on the financing, and I know I am a few years away from having a product to market but FDA Approval in Europe may come within the next 6 months. This will help to fasttrack the process and definitely improve the share price.

 

Why is this drug better than anything else? Because all of the results have been stellar, PFS on every single trial has been very very good. They even own patents on the AMGEN T-vec gene modification.

[CONeal]

If I am incorrect please let me know but aren't they still in phase 3?  If they are, give them 3 - 6 months once the trial is complete to get all the paperwork ready for submission.  Since this is the first drug and they don't have another approval to reference in the submission.  I would lean more towards a year before they will get approval in Europe.  I think 6 months is very aggressive.  IMO I would set my expectations more towards 18 months.

[crackspread]

They have been in PIII for 3 years now with expected results coming "sometime in Q3". (exact words coming from the CEO) I agree with your assessment about 6 months being aggressive. I am in long term so that is no problem for me. I'm also looking at potentially trading this company if positive PIII results come out.

 

 

As I mentioned before, this company has had success in every single trial. A few bumps in the road, management mistakes explains why the market doesn't like this stock. The same thing happened with REGN and CELG, and now they are both north of 100 bucks. I also forgot to mention that getting FDA approval does not require two double blinded studies, they only require one. As for their current PIII trial, it is a small market, but currently an unmet need in cancer. If approved, it will certainly serve as a catalyst for future events for this company.

 

Since you guys may be curious, here is a list of the current trials for REOLYSIN:

 

Breast carcinoma (Combined with PTX) PII Recruiting

CRC PI Active not recruiting i.v. Combined with FOLFIRI

        PII (Combined with BVC and FOLFOX) Recruiting 

HNC PII Active not recruiting (Combined with CBP and PTX)

        PIII Active not recruiting (Combined with CBP and PTX)

Lung cancer PII Recruiting (Combined with CBP and PTX & DCX or pemetrexed)

Melanoma PII Active not recruiting (As a single agent)

                PII  Recruiting (Combined with CBP and PTX)

Multiple myeloma PI Recruiting (As single agent)

Pancreatic cancer PII Recruiting (Combined with CBP and PTX)

                                PII Active not recruiting (Combined with gemcitabine)

Pediatric solid tumors PI Recruiting (Combined with cyclophosphamide)

Prostate cancer PII Recruiting (Combined with DCX and prednisone)

Reproductive tract tumors PI Recruiting i.v. + i.p. (As single agent)

                                          PII Recruiting i.v. (Combined with PTX )