Why I’m Bullish on Sophiris Bio

January 9, 2017
Posted in Stocks
January 9, 2017 Jay Nisbett

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  1. About Sophiris Bio
  2. The Chart
    1. Updated Chart Analysis: 1-19-17
  3. The Run Down
  4. Fundamental Analysis

About Sophiris Bio:

Sophiris Bio Inc. is a biopharmaceutical company developing PRX302, a clinical-stage, targeted therapy for the treatment of urological diseases. PRX302 is in Phase 3 clinical development for the treatment of the symptoms of BPH and is designed to be as efficacious as pharmaceuticals, less invasive than the surgical interventions, and without the sexual side effects seen with existing treatments. Sophiris has initiated a Phase 2a proof of concept study of PRX302 for the treatment of localized low to intermediate risk prostate cancer during the 2nd quarter of 2015.

The Chart:
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Is Sophiris Bio (SPHS) finally turning around? by JayNisbett on TradingView.com

  1. Ichimoku Cloud Bullish Crossover
  2. Week leading up to the election, stock price dropped due to uncertainty. An unexpected Trump victory lead to a reversal to normal levels – the market supports Trump as president.
  3. After run to $8.55 following postive P2A results, the secondary offering diluted shares, but accumulation has since gradually risen showing bullish interest from more/larger investors.
  4. Above 250 day moving average.
  5. RSI has been around 50 since secondary offering, but with accumulation on the rise suggesting a higher move is to come.
  6. Know Sure Thing indicator looks like it will bounce off 0 for a bullish cross over.
  7. On 1-month chart: Lower Bollinger band is below zero.


The Run Down:

Fundamental Analysis:

As of today, January 9th, $SPHS is trading at $2.69 with a market cap of $80.69M. While its earnings are negative, they have been increasing and its important to note that it is a clinical stage drug, yet to be approved by the FDA. I think the company is vastly undervalued due to the drugs potential in the growing market of prostate cancer, a market where 1 out of 7 men will be diagnosed with the disease which makes it second most common only to skin cancer. There will be an estimated 160,000 new cases of prostate cancer this year and about 26,730 deaths resulting from it. Current treatment options range from watchful waiting to radiation therapy and chemotherapy. Because of the ease of application, its possible to given this treatment and go golfing later that day, as stated by Sophiris’ CEO Randall Woods at the Piper Jaffray . So, the drug is easy to apply, cheaper than current treatment options and a big pharmaceutical company has the resources to purchase it now before it passes another clinical trial. By raising the $30M with Piper Jaffray, Sophiris is in a good negotiating position to chase approval on their own using their own resources, but it looks very enticing to a company such as Takeda who has set aside $15B for U.S. acquisitions of oncology therapy.

 

Sophiris is trading at a low market cap, so why would any potential buyer pay a premium for their product? First off, because we are in a cash-rich drug-poor market right now. Biopharmaceutical deals are roaring right now under the bullish momentum of the unexpected Trump rally. When big pharmaceutical companies are cash-rich and need more drugs to stay competitive, they are willing to pay a premium on early clinical trial drugs because if they refuse: they will pay down the line. In this particular instance, we have Randall Woods running Sophiris Bio with 40 years experience in the Biotech sector. He knows that he is holding the most exciting drug for prostate cancer many have ever seen due to clinical data supporting tumor ablation prior to the phase 2b (where drug dosage and new delivery methods are yet to be tested.)  He also has enough money to start this phase 2b right now, so what is stopping him from doing so? Is he deal making with a big pharmaceutical company like Takeda? If not, what other events would lead to the prolonged start of the second phase 2 that is happening now.

 

If Sophiris Bio receives interest from a big pharmaceutical company and lands a deal, the premium should favor shareholders greatly. If not, positive phase 2b data would optimistically have a higher number of tumor ablations/reductions with honed in drug dosage and delivery methods, solidifying its position in the world of cancer therapy. Either way, this company’s stock has proven it can make huge moves, as its 52-week spread is .80-8.55 and I am staying long, as I have been since January 23rd, 2016, with a few swing trades here and there with the P2a data readout.

Sabby Management’s Influence in Acquisitions:

Sabby management is a well known company, with a portfolio valued at over $1.7B. During my research of Sophiris Bio and other biotech stocks, I found out a few patterns. Sabby management often enters a position in a developmental bio company (with Sophiris Bio, that occurred during their secondary offering of warrants.) They have a short term approach, only holding for a few months and then exiting prior to the acquisition of the company.

 

They reentered a position in CPXX in 1Q16 at around 1.75 a share and were completely out of the company by their acquisition, which was priced at over $30.

CPXX:

Sabby Management in CPXX, via Fintel.io.

Chart of CPXX, via barchart.com

In TBRA:

 

And Finally, I see a similar pattern forming in SPHS. With rumors of buy out floating around, there are a ton of signs that help back this theory up and Sabby, who is notorious for getting in on the action, appearing to be exiting their position supports the theory.

Needham and Company Meeting:

On April 19th 2017, Sophiris Bio met with Needham, according to thefly.com (https://thefly.com/landingPageNews.php?id=2535639&headline=SPHS-Sophiris-Bio-management-to-meet-with-Needham). Sophiris CEO, Randall Woods, is known as a serial entrepreneur – with multiple successful exits. In a previous company with a successful exit, Mr. Woods led Corvas Pharmaceuticals to be acquired by Dendreon. In an SEC filing which is shown below, it explains how Needham was the buying-side advisor for the transaction. While this is a speculative theory, it wouldn’t be unreasonable to assume that we could be in a similar position, given the other aforementioned occurrences that I have come across in my research.

Note: Approximately 6 days prior to meeting with Needham, Sophiris Bio filed its annual report. One highlight of the report is the Omnibus incentive plan. This plan would grant 3,000,000 options for some of the Sophiris Management and Directors. This plan provides a HUGE amount of incentive for them to make a deal go through, given the vesting of these options upon “Change of Control”. Although it has not been approved yet (the vote ends near the end of May), the stars seem to be aligning – management has incentive, big pharmaceutical companies are in the market for similarly-staged drugs, delayed phase 2b for prostate cancer, Kissei taking down PRX-302 from their pipeline, silence from management aside from minuscule press releases for months on end, the tight trading channel of the company stock (perhaps by the shorting of stock by Sabby Management, who owns warrants from the secondary offering around $4 as a safeguard – they are exiting the position according to their 13F filings but still own beneficial ownership.) All of these events seem to be pointing at one thing in my eyes. My advice is solely to help start your own due dilligence, I do not support blindly putting money into a stock based on something you read on the internet. I have put alot of time researching this – in part because I own shares in the company. Do your own research before investing.


WARNING: DO NOT TAKE MY OPINIONS, RESEARCH, AND DUE DILIGENCE AS INVESTMENT ADVICE. THIS POINT OF VIEW HAS BEEN FORMED THROUGH SPECULATION AND I CURRENTLY OWN SHARES IN THE COMPANY (I HAVE AN INCENTIVE FOR THIS TO RISE). THIS IS A PERSONAL BLOG FOR MYSELF AND OTHERS WHO TRUST MY OPINION TO MAKE THEIR OWN FINANCIAL DECISIONS. I AM NOT RESPONSIBLE IF YOU MAKE THE CHOICE TO INVEST IN A COMPANY I WRITE ABOUT.

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Jay Nisbett

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