Coronado Biosciences, Inc. (CNDO)

[roast]

CNDO: The Rebound Has Just Begun 0 comments
Dec 15, 2013 4:40 PM | about stocks: CNDO
(Author's Note: To ensure that all CNDO investors (trader/long/short) obtain first-handed, time-sensitive info as well as 100% original idea, this article will first be presented in Instablog format)
First of all, for those of you who saw my original post here http://seekingalpha.com/user/9109871/instablog and made the move on CNDO during its early stage of recovery, you should have secured over 40% gain (or at the very least 20%) in less than THREE WEEKS. However, I feel it is way too early to congratulate you at this point since the stock has just got out of the "absurd price area" and begun to rebound with A LOT MORE potential to gain within next few weeks. As I commented before, "No matter how, CNDO is still way over-sold and undervalued and I personally wouldn't call it a rebound until it reaches $2. Once again, any price below $2 is absurd."
As I pointed out earlier, in the healthcare sector, playing the misprice is a lot safer than betting on the clinical trial results, which can be very risky (IMUC is the most recent example for those of you who still doubt that). As a matter of fact, the trial results are a double-edged sword in the sense that they not only create 1) the majority of risks for this particular sector; but also 2) the misprice as a result of over-sale following the negative results. If we know how to use this natural dichotomy to our best advantage, we would have been in a much better position to begin in the first place. In essence, the very reason for the misprice is investor's unawareness of the intrinsic value of a certain stock.
Interpretation of Current Misprice

To maximize our gain (or to minimize our risk), we want to find those few stocks with solid evidence of its being mispriced. Trading below (net) cash value like CNDO here (more often than not) is a perfect sign, as it somehow indicates that the underlying business creates negative value to the company; or in other words, the company would be better off just sitting on those cash and doing nothing than doing whatever business it engages in. How absurd this statement is in the CNDO example as it is not only tremendously mispriced at current price, but also has a healthy and diversified pipeline with several imminent catalysts due by the end of this month or the beginning of next year.
Any price below its cash, i.e. $3/share, basically indicates that Mr. Market assign NO value to any of its drug on the pipeline or the company as a whole. Last Thursday's announcement of the interim data from autism study is a solid proof otherwise.
CNDO Is Tradable, But Not Shortable

While traders might find it a good candidate for short-term trading (as a matter of fact, last Friday's huge volume and price fluctuation most likely is a result of traders' involvement); at current price, it is shortable in no way, unless you want to get severely burned of course. While occasionally I am a trader myself, I feel it would be very risky to trade on this particular stock as it appears to begin to fill the huge price gap between the current price and its most recent $7/share a few months ago. As far as I am concerned, to trade for a relatively small percent of gain at the expense of losing the most potential of profit is definitely not desirable. My personal observation in the past reveals that a quite number of traders, while enjoying their short-term gain, seemed to forget their ultimate position on the stock, and that is the very big picture we do not want to lose in order to secure the maximum profit. Simply put, it is ok to trade here if you are capable of real-time monitoring; but at the end of the day, do not forget to cover as the upward trend is so obvious here.
Drivers of Stock Price Underneath

For almost all stocks in the healthcare sector, the two most important determinants of stock price are the trial data and cash. Since we are in no position to predict the data to be announced, it is the anticipation of data or the health condition of its pipeline plus cash that drive the stock price. Fortunately, CNDO seems to have both right now. It cash position, once again, is far superior to even some large-cap biopharmas, let alone its peers of similar size. The pipeline also looks healthy and diversified. Aside from autism study, there are several other imminent catalysts due at any time from now. (http://www.coronadobiosciences.com/research-development/pipeline.cfm)
Insider Transaction

The importance of insider transaction cannot be overestimated, especially in the high risky healthcare sector. This is based on the premise (I personally take it as a fact) that, under normal circumstance, no one (no matter how great an analyst you are) knows better about a company than the top management itself does. As investment in the healthcare sector is already quite risky compared to other sectors, monitoring insider transaction become those few extremely informative tools that we can have. Investing without paying close attention to this factor could cause us a fortune. Let's take IMUC again as an example just for illustration purposes. This stock used to be quite popular and had aroused a lot of interest among investors given its huge blockbuster potential of its flagship vaccine candidate ICT-107 in treating glioblastoma. Honestly speaking, I used to be a big fan of it and assigned a large portion of my portfolio to IMUC until 1) I came across CNDO a few weeks back which I saw as much potential, if not more, as IMUC; but most importantly, far less risky than the latter; and 2) I saw a significant amount of insider sales including those done by its founder and Chief Medical Officer (http://www.openinsider.com/search?q=imuc). The result is, I managed to transfer ALL my IMUC holding to CNDO a few days prior to the catastrophic phase 2 data readout and I call myself lucky.
On the other hand, while occasional insider sales by a limited number of insiders convey no meaningful information to the company and its prospect, large and consistent insider buying by the top management is definitely a positive sign that should be taken into serious consideration in one's investment decision. Scrutiny of the insider transaction of CNDO reveals that there have been consistent purchases without any sale since as early as 2011 by the top management including both its CEO and CFO with the purchase price way above current price, mostly in the 5-6 range (http://openinsider.com/search?q=cndo). This is significant given company just went public late last year.
Risk and Short-Term Price Target

In view of above, the only noticeable risk I can think of here, aside from always unpredictable trial results of course, is that CNDO might be subject to relatively bigger swing in share price due to the increasing volume (involvement of traders) and public awareness. Nevertheless, it should not be a concern at current price if you are just like me and stay out of trading unless you are one of those capable of timing the market.
Finally, I know some of you might not like the company or its product at all; but I hope you, as a professional as opposed to an amateur, do not let your personal preference affect your investment decision. After all, the stock moves over time towards its true value, whether we like it or not. As I commented earlier, "Bottom has already been found; upward trend has been established and confirmed; volume is up with growing momentum, coupled with much favorable insider transactions with average purchase price in the $5-$6 range, what are you guys afraid of here??" (http://www.zacks.com/stock/news/116596/can-the-uptrend-continue-for-coronado-biosciences-inc-cndo), CNDO is ready to break out and take back the majority of its previous loss in the very short term. I personally believe the true value of the stock at the very least lies in the $5--$6 range, in line with insider buying. Obviously, CNDO is a strong buy at current level and the opportunity cost for missing here could be huge.
Disclosure: I am long CNDO.
Stocks: CNDO
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