Timing Is Everything…Or Is It?

The market’s rally, especially in small-cap, continued this past week and Tailwinds’ stocks participated along with the broader indexes. In particular, performance of our portfolio was led by Anixa (ANIX) on the back of their long-awaited news of an IND filing.

Anixa’s novel breast cancer vaccine is being developed in partnership with a global leader in cancer research, The Cleveland Clinic. Pre-clinical data has been outstanding and the product, while it will take years to develop, has blockbuster potential.

Looking out 4-5 months from now, Anixa should be sitting pretty. They expect to have filed and received approval on two INDs. Sometime in Q1, first patients should be dosed in their cancer vaccine program and Moffitt will be gearing up to start solid tumor CAR-T treatments.

Both programs have multi-billion dollar potential, yet Anixa languishes at a rather minuscule $65M market cap. This major divergence in current versus potential valuation is likely the result of delays in programs (in many cases Covid related, which is obviously beyond the Company’s control) over the last two years along with the cancelation of the diagnostic product development.

Over the last 12 months, it’s been obvious to me in my communication with investors that they have grown increasingly weary (or is it wary?) of Anixa. Either way, the stock has not moved higher into major catalysts like one would expect. And, this lack of price movement while the Company has made substantial progress with two potentially blockbuster programs has made the current risk/reward on Anixa about as favorable as one can look for in biotech.

Drug development can take years and tens of millions of dollars to complete. Vaccines can be far worse. I believe many investors are looking at Anixa and questioning the balance sheet and timeline to approval of the products. This is not the right way to evaluate this company.

I look at Anixa from the viewpoint that both programs are novel and potentially high-value; enough so that phase 1 success will attract partners while creating value worth multiples of the current stock price. Meanwhile, both programs’ phase 1 trials are already paid for. The US Government is sponsoring two phase 1 trials for the vaccine and the CAR-T’s first trial is easily covered by the Company’s current balance sheet.

With phase 1 paid for and results from both trials next year, the dual concerns of time and expense are greatly diminished. The expected results will be meaningful enough that, if successful, potential partners will be contacting Anixa with a goal towards making an investment in the programs. Recall that signs of this interest started last year in CAR-T…

“I look forward to working with Anixa’s broad portfolio of technologies, given its potential to improve the life of many cancer patients, and in particular its CAR-T approach for treating solid tumors,” said Dr. Emanuele Ostuni. Dr. Ostuni is Head of Europe for Cell and Gene Therapies at Novartis Oncology, where he oversees all commercialization aspects of the division’s portfolio in Europe, including Kymriah, the first FDA-approved CAR-T cell therapy.

It’s easy to get stuck in the weeds on an investment, especially when it’s been delayed the better part of a year. But, when one steps back and looks at the big picture, it becomes quite clear that Anixa has made progress and is ready to explode. Success in either phase 1 program should give Anixa a market valuation in the hundreds of millions of dollars.

Dr. Kumar’s model of using outside partners’ facilities and resources is very unique. Admittedly, timelines can be beyond the Company’s control, but the benefit of having access to world class facilities and researchers, on someone else’s dime, is invaluable for investors.

At this time, betting on either The Cleveland Clinic and/or Moffitt Cancer Center being able to get a phase 1 program approved and successfully through trials makes a lot of sense to me. It’s taken longer than expected, but things are starting to really pick up for Anixa.

Welcome to the world of micro-caps.

One would think that a stock would be strong when it hits the most important milestone in Company history, right? You’d be wrong in the case of Anixa as it closed lower on the day of their IND filing and continued down the next day. Eventually, Anixa (ANIX) did turn around and ended up gaining 25% this week, but one could have bought it cheaper after the news than beforehand. Makes no sense, right?

The micro-cap universe is suffering from what I believe is the Robin Hood effect. The volume created by short-term traders in the market seems to greatly exceed that of real investors on any given day. This is particularly true of stocks with major catalysts. In many cases, people are positioning in front of PRs and looking to exit shortly thereafter. “Buy on Rumor, Sell on News.”

In the past, sell the news meant that the stock would be dead after an event…but at a higher level. The amount of traders relative to investors is now making stocks cheaper after news than prior to the event. Trading around events has become very challenging indeed.

On the positive side of all this, investors are getting lower risk buying opportunities in micro-cap names post news if they are willing to use a longer-term time horizon. Companies like Anixa are being de-risked, yet are cheaper than beforehand. Here are several other examples…

• INmune (INMB) is down 10% post their financing (that overhang is gone) despite getting their IND approved for CV19 and dosing their first patient.
• Provention (PRVB) has made continual progress towards product approval and the stock sits about where it was a year ago.
• Mustang Bio (MBIO) has made numerous strides lately and the CEO purchased $500K worth of stock, yet it’s down over the last year.

From my perspective, the Robin Hood effect is creating opportunities for investors with this longer-term perspective. I don’t mind holding companies that are executing even if the stocks aren’t acting great. Don’t let a lagging share price shake you out…eventually fundamentals take over and you need to be ahead of the curve or you’ll miss the trade altogether.

I’m enjoying watching Bitcoin as more and more investors whom I consider to be very smart seem to be getting on board the bandwagon. I just can’t go there myself, but it’s certainly done well lately.

Gold is lagging its digital cousin and it’s interesting listening to the debate as to whether or not gold is losing its luster. Will digital coins eventually replace gold as a store of wealth? Or, will the thousands of years of history as a valuable asset prove to be impossible to supplant?

I’ve never grown 100% comfortable with bitcoin as the ability of governments to regulate it, should they so desire, makes it seem risky for anything beyond a trade. Yet, the utility of digital currencies makes a lot of sense.

Personally, I see so many exciting opportunities in my portfolio of micro-caps, I’m looking for ways to put more money into this space. But, I do find it interesting to watch and people playing bitcoin have done well…kudos if you’re one of them.

Speaking of gold, I’ve dropped coverage of Cabral Gold.