Thursday, 30 July 2020

Arbutus Could Be The Next Big Mover Like Kodak

Arbutus Biopharma Corporation (ABUS)
Current Price: $4.30
Target Price: $50.00
Upside Potential: 1,062%
Market Cap: $296 million
Shares Outstanding: 69 million
Float: 38 million

Arbutus Biopharma Corporation (ABUS) has been in focus after a court ruling went in favor of ABUS and against Moderna, Inc. (MRNA) for a patent owned by ABUS relating to technology that MRNA uses in its vaccines, including its COVID-19 candidate. The stock initially spiked last week but pulled back significantly after MRNA denied that its COVID vaccine used Arbutus technology. However, the stock price has started turning back up after several articles in the financial media are pointing out the holes in MRNA's claim. After seeing the move made by Eastman Kodak Company (KODK) since it received government funding for generic drug production, we believe that anything is possible. MRNA has gotten nearly a billion dollars from BARDA for its COVID vaccine and ABUS may end up being able to make a play for a piece of it, or pursue its own COVID vaccine. We are up to 907 followers despite not giving out a lot of alerts, a fact that we think is indicative of a successful, diligent and prudent stock picking history. If you like our picks you can follow our blog by clicking the follow button on the top of the left hand panel as well as follow our Small Caps, Big Gains blog where we put up our Canadian picks. You can also follow us on Twitter @StockTradePicks which has over 4,500 followers.

ABUS has announced its Q2 earnings report and call for August 7th. Investors are speculating that there will be an update on the MRNA legal victory or any other COVID possibility on that day. We see from the chart below that the significant pullback after the initial spike has reversed course and ABUS looks ready to break out to new highs. 
 

We expect a settlement or an outright buyout of ABUS by MRNA. Moderna has stated that the patent ruling did not impact its COVID-19 vaccine development, but the market is clearly skeptical about this claim given the price performance since. This would actually give MRNA more incentive to buy out ABUS and make this problem go away. If MRNA went ahead with its vaccine development as if it thought this was true, ABUS could fight it in court and prove otherwise. This would show that MRNA filed a false news release and the SEC might get involved for manipulation.

In a Forbes article, this week titled "Moderna’s Mysterious Coronavirus Vaccine Delivery System", the author was clearly skeptical of MRNA's claims, stating:

Even though Moderna took the trouble to try to invalidate the patent owned by Arbutus, a small Canadian biotechnology company, Moderna said after it lost its patent challenge that its LNP technology had advanced well beyond the technology described in the Arbutus patent. Moderna claimed the LNP used to make mRNA-1273, its Covid-19 vaccine candidate, is not covered by the Arbutus patent. “Moderna is not aware of any significant intellectual property impediments for any products we intend to commercialize, including mRNA-1273,” the company said.

In June, researchers from the NIH and Moderna made a manuscript preprint of preclinical data for mRNA-1273 available on bioRxiv, an open-access preprint repository. The preprint described Moderna’s coronavirus vaccine candidate as using delivery technology that appears to be covered in the Arbutus patent that was upheld last week. The preprint of the study that tested the vaccine in mice described the mRNA for mRNA-1273 as being encapsulated into LNP “at molar ratio of 50:10:38.5:1.5 (ionizable lipid:DSPC:cholesterol:PEG-lipid).”

The first claim of the upheld Arbutus patent describes “a cationic lipid comprising from 50 mol % to 65 mol % of the total lipid present in the particle;” a non-cationic lipid comprising a mixture of phospholipid and cholesterol, where the “phospholipid comprises from 4 mol % to 10 mol %” and the cholesterol comprises “30 mol % to 40 mol %;” and a conjugated lipid “comprising from 0.5 mol % to 2 mol %.”  

In a statement to Forbes, Ray Jordan, Moderna’s chief corporate affairs officer, said the June preprint describes data generated using a preclinical research formulation of a SARS-CoV-2 vaccine that is not the same as the vaccine itself.

“While the authors of the preprint used the term ‘mRNA-1273’ for convenience of the reader, the preprint does not describe the cGMP process by which we make our messenger RNA and LNP or the final drug product composition in our commercial candidate (mRNA-1273),” Jordan wrote in a statement.

When asked if Moderna would provide the molar ratios at which mRNA-1273 encapsulates its LNP, Jordan said, “Nope, we are not disclosing our proprietary ratios at this time.”
 
This is evasive behaviour that could easily be put to rest by disclosing  molar ratios. The fact that MRNA is not willing to should raise questions. 

A blog titled "Strong Presumption Moderna Covid Vaccine Infringes on Arbutus IP" from Dirk Haussecker, an expert in the RNAi field and shareholder of ABUS also raises similar concerns. 

In the race for the COVID-19 vaccine, MRNA can ill-afford stalling development or commercialization of the vaccine due to a patent issue. This must go away as quickly as possible and the best case scenario is a buyout or a settlement. 

ABUS has 69 million shares with a 38 million float. Over 300 million shares traded between Thursday and Friday. So it's very likely that the float would be in new hands that would be interested in seeing a positive outcome ASAP in order to make a return. They would vote yes to any hostile takeover bid attempt by MRNA. The bigger challenge would be the remaining 31 million shares in the hands of management, funds or other investors very close to the company. That means there is an interest in buying up as many shares as possible in the open market to secure a yes vote. Day traders and new Robinhood investors need to be able to stomach the minute-to-minute volatility and hold through it for a big payoff that should not be too long in coming. If nobody sells their shares low, an interested buyer will have to move up their bids on the open market.

ABUS filed a confidential treatment order with the SEC which we find to be very curious timing given the circumstances. CTOs are enacted to try to keep something secret to keep a company's competitive advantage or in talks during M&A deals.

We see arguments in social media between ABUS and MRNA shareholders, trying to trash each other's stock. This makes no sense to us since it's clear based on market reaction that both companies will do better to work together. ABUS and MRNA shareholders should push for a deal so they can BOTH win, like what happens under so many merger scenario. We are long ABUS but may consider going long MRNA too if signs are there that it's willing to make a deal. 

KODK has proven that the sky's the limit in this trading environment. While $50 is definitely within the realm of possibility if things go right for ABUS, it's always wise to take a bit of profits off a part of your position when it is significantly green. But save some for the big move that we believe is about to come.

Disclosure: We are long ABUS

What's next for microcap stocks? TradeMiner identifies seasonal trends and market cycles, the Penny Stock Prophet and Microcap Millionaires finds the next big small cap plays in various industries while Addicted to Profits makes trades from a Canadian perspective.

There are also some good books available on microcap stocks and day trading such as:

Mastering Microcaps: Strategies, Trends, and Stock Selection (Bloomberg Professional Library)

The Little Black Book of Microcap Investing: Beat the Market with NASDAQ/AMEX Microcap Stocks, OTCBB Penny Stocks, and Pink Sheet Stocks

Microcap Magic: Why The Biggest Returns Are In Stocks You've Never Heard Of

How to Day Trade for a Living: A Beginner’s Guide to Trading Tools and Tactics, Money Management, Discipline and Trading Psychology

How to Day Trade: A Detailed Guide to Day Trading Strategies, Risk Management, and Trader Psychology

A Beginner's Guide to Day Trading Online (2nd edition)

Stock Investing for Beginners: Marijuana Stocks


Here are some other good stock market resources. This includes technical analysis and day trading, dividend stock investing, gold and commodities, sector rotation, options trading and microcap trading strategies:

The dividend stock report from dividendstocksonline.com

at

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)