I publicly stated in these message boards that I'm on sidelines with this stock and watching for $100 and $110 price areas carefully to go short or long purely on technical basis.
Although here is my theory behind the recent price action and how the price action starting new year tomorrow will be:
1. Most long side stock holders did not want to sell in the TY 2013 to avoid paying taxes on their gains
- This makes sense because the stock is up 50% even for the new buyers of the stock @$70 on the breakout day in December 2013.
I think these holders will sell some of their position in the new year to diversify.
2. No company specific events/news anticipated over next few weeks.
- After the breakout in early december, PBYI went from $85 to $110 on two company specific news: Phase-2 news conference and analysts upgrades.
All the analysts who cover the stock have already provided their updates. There are no scheduled company specific events/news-conference in the next few weeks. This means there is no positive catalyst for the company to go up.
3. Possibility of dilution.
- The stock is at a historic highs with very high valuations for a single drug pipeline in Phase-2. While I can say many good things about potential of the drug or the credibility of its CEO, it is still very richly valued at this stage.
The company burns around $15M every quarter for operations and they seem to have about 50M in cash as of last quarter. This is a perfect time to announce a secondary offering at this high valuations.
a. Lot of shorts are trapped in this
- As of Dec-13th, there are about 1M shares short with an increase of 50% from previous report on Nov-29th. I assume most of this were short positions created between $70 and $85 . Stock is up more than 25% since those levels. with daily average volume ranging below 200K, any short covering will make this go up.
Any dips could be short lived as a result.
b. CEO has track history and penchant for selling company
- Although Dr. Auerbach mentioned in the conference call that he will do what is right for the shareholders, I think he will be more inclined to sell the company rather than getting the drug into market. He has no experience with getting drug into market, although it can be done, this is more riskier and long way to go than just selling the company.
My guess is that the company is already in talks with potential buyers. I think the below are potential buyers of this company: JNJ, Pfizer, Roche
c. Strong price action in biotech sector in general and in puma stock since its IPO
- A quick look at the price action since IPO and you will notice the only time it had a sharp sell off was in begining Oct and this was because the whole biotech sector sold off that day. Biotech is still expected to continue move up next few weeks with all the biotech leaders not showing any signs of sell off. This bodes well for puma since it has high correlation to price action biotech sector overall and will out perform the sector as it aways does.