You will probably never see anything like this again. Twitter has gone nuts:
Massive Additional Gains in Aquinox Driven by Large Shareholder Stake
It is day two of the massive rally of Aquinox Pharmaceuticals Inc. (NASDAQ: AQXP), and the stock is continuing to push higher. On Friday, over 62 million shares moved on the day and shares closed up 582% at $10.42. At this point, many would consider this is a day trader’s or active trader’s dream stock.
What prompted the initial move Friday was that the company announced results from its Phase 2 Leadership trial with AQX-1125 in patients with bladder pain syndrome/interstitial cystitis. Aquinox also provided a general business update and reported financial results for the second quarter, ending June 30, 2015.
The company had cash, cash equivalents and investments totaling $29.0 million at the end of the second quarter, compared to $41.1 million at the end of December 2014. At the same time, the net loss was $4.8 million, compared to a net loss of $5.4 million for the second quarter of 2014. This decline in net loss reflected the decrease in research and development expenses.
Aquinox reported top line results from its Leadership trial on June 25, 2015, that did not reach statistical significance in its primary endpoint. However, the results demonstrated an encouraging trend in pain reduction for patients treated with AQX-1125 as compared to the placebo.
Separately the company now anticipates top line data for AQX-1125 in the Kinship trial earlier than previously guided, now expected in the fourth quarter 2015.
However, in a recent SEC filing, a firm has stepped forth and announced nearly a 40% stake in Aquinox. Baker Bros. Advisors announced ownership of about 4.27 million shares, which totals an impressive 39.8% ownership. Aquinox had a total of roughly 10.73 million shares of common stock outstanding as of August 5, 2015. At current prices this stake would be valued at $178 million.
Baker Brothers described the purpose of the transaction as:
The Funds hold securities of the Issuer for passive investment purposes. The Reporting Persons or their affiliates have had and may continue to have discussions with management of the Issuer regarding financing. The Reporting Persons may acquire additional securities of the Issuer, including shares of common stock, in such financings or by means of open market purchases, privately negotiated purchases, or otherwise. The Reporting Persons or their affiliates may purchase additional securities or dispose of securities in varying amounts and at varying times depending upon the Reporting Persons’ continuing assessments of pertinent factors, including the availability of shares of common stock or other securities for purchase at particular price levels, the business prospects of the Issuer, other business investment opportunities, economic conditions, stock market conditions, money market conditions, the attitudes and actions of the board of directors and management of the Issuer, the availability and nature of opportunities to dispose of shares in the Issuer and other plans and requirements of the particular entities. Depending upon their assessments of the above factors, the Reporting Persons or their affiliates may change their present intentions as stated above.
Shares of Aquinox were up about 287% at $40.38 on Monday morning. The stock has a consensus analyst price target of $5.00 and a 52-week trading range of $1.38 to $55.75. Some 10.9 million shares had moved as of 11:20 a.m. Eastern. Below shows the actual transactions made by Baker, and those prices will be VWA (volume-weighted average price) transactions.
Source: SEC.GOV
Boom.
A complete F-6 Twister to shorts. I have never seen anything like this before. Usually when a stock reports positive phase 2 trial results, it doesn't mean anything. The stock goes up because people have overconfidence in what the stock is going to do, then it goes back down because its not making any money in it yet, and it may never even get approved. Stage 2 results are nothing. I play it all the time.
This time however there was Baker Brothers. They decided that this was a great time for a momentum coup: they stepped foward and lit a gasoline fire and announced that they had 40% ownership and started buying like Akroyd and Murphy at the end of the movie Trading Places.
I admit that this is the biggest fuckup I have ever seen/been in the middle of/unwittingly participated in. This was not how it was supposed to go down. I reached in the hat to pull out a rabbit, and pulled out a crocodile.
Will I do shorts again in the future? Sure. Because I will likely never see this again. One time I was hanging out with a friend and we were playing basketball on a playground in a park in his neighborhood. We were shooting baskets, playing one on one, then playing horse, just being 15-16 and having a good time. Someone shot the ball and the ball bounced hard off the rim and then went flying across the playground all the way to the left and rolled off the edge onto a field and kept rolling. I ran all the way out there and picked up the ball. At this point I was way out there. Like WAY out there. My friend was standing under the basket looking at me to see what I was gonna do. On a whim I held out the ball in front of me and did a bionic punt. The ball flew way up high on an arc towards my friend. I watched his eyes follow the ball as it went sky high. The ball then rocketed down, did a bounce, then went right in the basket: A perfect swish. No rim at all. My friends shoulders slumped. He couldn't believe he just saw that. I couldn't believe I just did that. What were the chances? I could stand there and punt balls all day and that wouldn't happen again.
The equivalent of that happening just happened to this stock today. You probably wont see this again. However, this just goes to show the dangers of shorting. Depending on your broker, one may have to cover their short today via margin call or scrambling to buy the stock. I personally am going to hold this short because I am curious to see what will happen. But I do know this: Pharm stocks are subject to mania and I will probably only stick to options with them. At least with a put option, I can only lose 100% of the option, not infinite losses like a short. With shorting, you can lose your car, your house, anything. Such as if you shorted Microsoft in 1988 and then the stock went up several thousand percent.
So I am going to look at the market today and try and figure out a direction, and from there decide what stocks to look at. I am reminded that this is also a time where having 15-20 different investing piles is a good idea. Never invest 100% of your money in one pick. That one time will come when your lose everything. In order for the machine to crank on and take hits, only have 1 or 2 piles in at a time. If you have an 80% success rate with your picks, you will make money in the long run.
Tradinginsider
Postscript
Its been a few hours and I have been thinking more about this. I have decided to focus on the reason that the stock was up 400-500% on Friday. That should have signaled that there was some behind the scenes manipulation happening because a stock that reports stage 2 results does not jump 500% due to the fact that its just stage 2 results: There are a few more stages to go through before the FDA gives approval and at any time the FDA could reject the stock coming to market. Also, it was looking to be 1-2 years before they would even make any money off this. At most, pharm stocks that report stage 2 positive results might jump 10-35%. Not 400-500%. What was driving it up was Baker Bros coming in and basically purchasing almost half of all the shares to the stock, causing a price frenzy. Look at the chart above and all the purchasing they did with the amount of shares on 8/7. Insane.
So as a learning lesson, I can now spot an insider's footprint.
Thus:
1. Sudden 300-500% jumps? Insiders. Watch it
2. Use options whenever possible
Tradinginsider
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