Jumping Beans

Last week the average TW stock was down 2.8%, roughly in line with (or slightly better than) the overall market. As a group, the performance was rather muted versus the indexes. However, the individual stock performance reflected anything but average performance.

Of the 10 stocks in the TW coverage universe, 7 had moves in of 10% or more for the week and only one, Anixa (ANIX) closed within 6% from where it started. In a down market with volume being sporadic and volatility spiking, the TW universe is moving around like a Mexican Jumping Bean. All’s quiet, then suddenly it’s not.

Last week I wrote about Meaningful Catalysts and when we can hope to see them. Meanwhile, as we wait for these to come to fruition, I expect that the combined lack of volume and increasing volatility in the market will lead to more movements like we have been seeing.

The scientific thesis behind Mexican Jumping Beans is that they move around in a search of shade from the hot sun. They jump more frequently on hot days and erratic movements are the best way to look blindly for relief; if they remain in the bright glare, survival is tougher.

The stocks in our universe are acting in a similar fashion, trying to avoid notice and hopeful that their shareholders will hold on until conditions improve. I’m sure many of them wish they were private right now, keeping their heads down and going about their business. Worrying about daily volatility is not a constructive thing for management teams.

It’s also not the best course of action for investors. Traders can watch every tick but, if you’re in this for the long haul, watching every trade is the worst possible thing you can do for your psyche.

As long as rates remain elevated with a strong chance of going even higher, the market is going to be a tough place to make money. This is doubly true of micro-cap growth stocks. As Aaron Fletcher of BIOS Partners told our premium readers in a call on Friday, rates are the only thing that matters for biotech and micro-cap in general right now.

Longer term, however, rates do not determine the success of growth companies. No, what drives them is their ability to…grow! If the companies in our universe can achieve the goals set out before them, the current rate environment will simply be a blip on the radar screen.

I sat down with one investor this week to discuss INmune Bio (INMB). It’s always refreshing to step back and look at the big picture. As I said to him, when Biogen (BGEN) declared success i their phase 2 study on Aducanumab, the stock went up $20B in one day. And that drug stinks!

The upside scenario, if they can achieve it, makes the current share price for all our companies a screaming buy. The key is following them closely and filtering out those that can make it from the majority that won’t.

That leads me to a slide from Aaron Fletcher’s presentation.

I find this very interesting in two ways. First, the odds of a drug in phase 1 making it to approval are tiny. They double in phase 2, but still, at 15%, are small. If you’re investing in phase 1 or 2 assets, beware that your money is at risk.

Secondly, if a drug makes it into phase 3, approval happens more than half the time. This is why success in phase 2 is such a key point for a biotech and where the biggest returns come for investors.

I’d highlight that two of our companies are now in phase 2 programs. INmune Bio (INMB) and TFF Pharma (TFFP) both expect to complete phase 2 trials next year.

TFF in particular is trading deep in the hole and is expected to have interim results from at least one (if not two) phase 2 trials in Q4. If you’re concerned about their balance sheet, I would suggest that putting up good phase 2 numbers is far more important to the future of the company and would very likely lead to financing at meaningfully higher prices than where we sit now.

Bucking the trend of the market, and the seemingly never-ending selloff in its shares, IN8bio (INAB) was up 33% last week. It seems like this little jumping bean found the shade…at least for a week.

Forest through the trees, INAB’s programs continue to keep patients alive long past their expected survival. Overall Survival (OS) is the most important data that an oncology company can report to the FDA and INAB’s is outstanding.

The volatility in the shares of INAB is insane. However, as discussed earlier, it all will be meaningless once success (or failure) is determined. INAB shares will likely bounce around and remain highly volatile. But, with the company presenting data at some important conferences in Q4, the upside dwarfs the downside here and I expect that they will continue to open more eyes with strong Overall Survival results being presented.

Honestly, at these valuations, the upside opportunity is large for a big part of our universe. That’s because we are at historically low levels for micros. Check out this chart.

Also up on the week was Atomera (ATOM) on the back of Lou Basenese plugging the stock on MSNBC. Still my favorite FOMO stock, I continue to believe the success of the product is inevitable…and the timeline to knowing success undeterminable.

As I told one investor earlier this week, don’t let the stock price determine your enthusiasm for the prospects of the company. The fundamental story behind Atomera didn’t get 10% worse early in the week nor did it get 20% better later on. It actually didn’t change (at least not for those of us without inside information).

Early in the week Atomera got down almost to the same price it was trading prior to their STM announcement. I would suggest that the company is much less risky now than prior to that event. Seems like a good time to be adding.

TFF Pharma (TFFP) was the weakest stock in TW’s universe, closing down 20%. The primary reason for its dramatic underperformance was the announcement that Aaron Fletcher (his name again!) not standing for reelection to the board in November.

The reason Aaron is leaving the board is not TFF specific. He is giving up all public board positions (he is leaving CUE as well) at the insistence of the seed investor for a new fund he is raising.

I am not worried about his departure and feel just as confident in the drugs in their pipeline, along with upcoming data releases, as ever.

Down 14% on the week, INmune Bio (INMB) was the second weakest TW stock. I believe that the late day selling, on big volume, that occurred on Tuesday and Wednesday was likely a margin call for some investor.

When a stock suddenly, at 2pm, sees a large, aggressive seller appear, that is often the cause. When it happens on back to back days, it’s highly likely a margin call drove the action. No sleep lost on this one, still my top pick for the latter part of 2023.

I’m not exactly a technical analyst nor a graphic artist. But, it seems to me that the Russell 2000 since May is about the most classic head and shoulders pattern I’ve ever seen.