Pandemic Roulette

To combat the economic impacts of covid, the United States government is doling out an extra $600 per week in addition to typical unemployment insurance benefits for anybody who has been laid off. For fuckers like me, that translates to receiving $1100/week for sitting on my ass. Unfortunately, this extra $600/week welfare program concludes at the end of July, so I’ve decided to gamble invest my unemployment checks on risky biotech stocks to try to make a living as nobody is hiring architects now.

Prone to massive gains or losses, for better or worse, my portfolio is exclusively comprised of biotech and completely volatile in nature. biotech investing is like riding a rollercoaster. One minute you're going down in flames, your stock is tanking 50% down on news of a FDA regulatory approval snafu, another minute you're riding sky high as your stock is rocketing up 100% for curing alzheimers. 30 years from now, my kids will either say I was a reckless speculator who gambled his life savings away or I was the most amazing investor who was able to retire young from architecture. Only time will tell.

For those readers who are unaware of the biotech investing game, for regulatory approval a drug has to pass 3 clinical phases. In phase 1 the drug is administered to about 100 healthy patients. Doctors determine whether the drug is safe and not killing people. In phase 2, the drug is administered to 300 sick people and compared to placebo effects. If a drug is deemed to have a therapeutic effect, it continues onto phase 3 in which efficacy and safety data is collected for 3000 patients. historically 70% of drugs pass phase 1, 33% pass phase 2 and 25% pass phase 3.... so mathematically, biotech is hard -- a novel drug in development has about 5% chance of approval.

Currently, I’m making the largest investment wager of my life on Novaxax (NVAX), a biotech company that has endured several phase 3 failures over the course of its 30 year life with no approved drug to its name. I lost $5000 on one of those NVAX phase 3 failures for a flu vaccine many years ago, so I was hesitant to invest in NVAX again. kind of like how a victim of domestic abuse is hesitant to return to the trailer park. But as I kept watching the stock, it kept rising. From $4 all the way up to $120 in the past 6 months. i hesitated buying a shitload of cheap options when the stock was $50, and lost out on thousands of profits, so i've decided to go all in now at the biotech poker table. 

With American millennials partying sans mask and spreading corona, the covid situation is basically raging like a dumpster fire in America. the trump administration is pouring money into biotech for salvation and hopes of re-election. The more desperate America and trump gets, the more money it spends on corona vaccine development. A couple weeks ago, the US pledged a whopping $1.6 billion on NVAX for its corona virus vaccine development.... this came after Bill Gates’ CEPI foundation (Coalition for Epidemic Preparedness) pledged $400 million and RA Capital hedge fund headed by Harvard trained virologist peter kolchinsky invested $200 million (earning $240 million in the past month on NVAX’s rise). Based on a hunch that these 3 players have seen preliminary data to warrant these large pledges of cash, I decided to stray from my disciplined investment system and actually research and read about what the company does, and allocate my life savings on NVAX stock before their phase 1 readout is publicized at the end of July. 

A corona virus has a spike protein which it uses like a syringe to inject its RNA into a host cell to replicate. NVAX’s approach to attacking the corona virus is to introduce copies of the spike protein to the human body. This presentation of benign corona protein fragments induces an immune response by prompting the body to create antibodies for the spike protein that will bind actual invading corona spike proteins, and induce killer T cells to kill corona infected cells.

corona spike protein 3d structure

To accomplish this strategy, NVAX took the portion of the sequence of the corona virus that codes for its spike protein and inserted it into baculovirus to infect moths. The infected moths are like biological warehouses and create the recombinant protein spike in their bodies. infecting insect cells to produce proteins is a lot easier than growing protein producing cells in thermally regulated bioreactors. NVAX ‘harvests’ these spike proteins from moths and mixes it with an adjuvant. An adjuvant is a chemical substance that enhances a vaccine by presenting the antigen to the body for optimum recognition. Typical vaccines use alum as adjuvants. In NVAX’s case, they found using saponin (soap like substance) derived from the Quillaja Chilean soapbark tree is extremely effective. So far, in baboons, the moth produced spike protein in conjunction with the tree saponin adjuvant has resulted in antibody titers in the 10,000 range. In contrast, their nearest competitors’ (Moderna and AstraZeneca) antibody titers resulted in antibody counts around a paltry 100-150. In analyzing plasma from recovered corona patients, researchers have found the antibody count for spike proteins range up to 10,000 titer, so if NVAX is able to induce a 10,000 titer response in humans, one would assume they would have a potential working vaccine.

cabbage looper moth bioreactor

Quillaja Chilean soapbark tree adjuvant

titer comparison. NVAX on top

When asked about all their failures over the past 3 decades, and their failure to bring any vaccines to fruition, the CEO of NVAX replied they learned a lot from their setbacks with RSV, flu, Ebola, MERS to optimally design their covid vaccine and adjuvant.

NVAX already developed a second generation flu vaccine which utilizes the tree saponin and has been administered to elderly people safely and has met its goals in phase 3 studies. It is currently awaiting FDA approval. They believe their adjuvant will be similarly efficacious and safe with corona patients. To contrast safety profiles, in moderna’s recently completed phase 1 study, healthy patients suffered 103.8 degree fevers and assorted severe adverse effects from their vaccine. Additionally, no old people (>59 years old) were tested in Moderna’s phase 1.

With their work in MERS they knew it was important to target the spike protein as it is the least probable to mutate because it is needed evolutionarily for the virus to survive. From their Ebola work, they made partnerships with baboon labs in Oklahoma to test their vaccines on non-human primates. Through their RSV work they learned what assays to run to test antibody binding to recombinant proteins.

Since I graduated in biochemistry in 1996 (prior to embarking on architecture) much has changed in terms of biotechnology. Reading about biotech efforts today is like reading science fiction. who would’ve thought making recombinant spike proteins in moths and delivering them with Chilean tree bark saponins to immunize people from corona caused by bat eating chinese? one can imagine what Edward Jenner (father of immunology) would’ve thought about the advances in biotechnology. In his 18th century era, small pox had a death rate of 20% and would inflict unsightly blisters on victims. 30% of survivors had to deal with blindness.

Jenner noticed milkmaids were not susceptible to small pox. He postulated the pus in the blisters that milkmaids received from cowpox (a disease similar to smallpox, but much less virulent) protected them from smallpox.

On May 14, 1796 Jenner began his phase one trial. He scraped pus from cowpox blisters from the hands of Sarah Nelmes, a milkmaid who had caught cowpox from a cow called Blossom, whose hide now hangs on the wall of the St. George's Medical School library. He then inoculated James Phipps, an eight-year-old boy who was the son of Jenner's gardener. Phipps a fever and some uneasiness, but no full-blown infection. 

cow pox on udder

small pox vaccinated boy on right

Relieved he didn’t harm his trial participant, in phase 2, he injected Phipps with small pox material. No disease followed. The boy was later challenged with small pox material and again showed no sign of infection.

In phase 3, Jenner successfully tested his hypothesis on 23 additional subjects. Jenner continued his research and reported it to the Royal Society, which did not publish the initial paper. In his papers, Jenner named vaccine after vaccus, or the Latin word for cow to honor the source of the cure. After revisions and further investigations, he published his findings on the 23 cases, including his 11 months old son Robert. The medical establishment in England deliberated at length over his findings before accepting them. Eventually, vaccination was accepted, and in 1840 England started providing vaccination using cowpox free of charge.

Jenner’s success was soon adopted all over the world. Napoleon, who at the time was at war with Britain, had all his French troops vaccinated, awarded Jenner a medal, and at the request of Jenner, he released two English prisoners of war and permitted their return home. Napoleon remarked he could not "refuse anything to one of the greatest benefactors of mankind". It is estimated that with his vaccine, Jenner saved 300 million lives.

Like NVAX recent pledges of capital, he was granted money by the government to further his research. £10,000 in 1802 for his work on vaccination. In 1807, he was given another £20,000 after the Royal College of Physicians confirmed the widespread efficacy of vaccination.

How to Invest Like a f@&%er”

The city suspended all DDC municipal construction projects at the end of march. The small business bridge forgiveness loan program is set to expire by next month. We filed all our department of buildings drawings with the city and now wait to see when our projects resume. I came to my latest job thinking government work is more stable, as DDC libraries take 10 years to build, only to have my world turned upside down. So now I’m resorting to gambling investing in stocks in my free time to make some income. 

I won big several years ago by investing in Ariad. I noticed that hedge funds had major holdings of Ariad at $20, but for some reason the stock price was only $2. Seeing what a bargain it was, I bought 15,000 thousands of shares. The next day, when I read more about my investment, I nearly shat in my pants. They had a death in a clinical trial and that’s why the stock was cheap. There was a possibility that the company may never recover, and might fold because their primary drug candidate failed. I found myself weeks later writing urgent pleas to the FDA as a patient’s rights activist to allow patients access to Ariad’s drug. I wasn’t mother Teresa writing for the patients, I just wanted my stock to recover so I could make bank.

Into this fear, Alex Denner bought $20 million dollars worth of ariad. He was handsomely rewarded when he made $200 million from his investment when the FDA approved Ariad’s drug’s use in 2nd line cancer treatments and the company was promptly bought out. I made several hundred thousand and decided to quit investing while I was ahead.

I thought trump was going to tank the economy to get back into the market so I sat on cash for several years, but the market kept edging higher and higher. Now with the virus threatening economic depression, stocks are low again… a perfect de-risked atmosphere for investing.

In the last downturn I plunked my cash into Berkshire B and was handsomely rewarded for my faith in the whorehouse. During the 1973-1974 crash Warren Buffet said, “I feel like an oversexed man in a whorehouse. Now is the time to invest and get rich.”

During this downturn, I’ve done more of the same… I put some money into BRKB, but also resumed my gambling habit, biotech investing. Back in 2016 I made 4 times my yearly salary in one day off of Ariad stock. I’ve been nervous to invest in biotechs ever since because I’ve also lost my yearly salary in one day on Geron. I started a system of analysis right before I quit stocks. To my surprise, the stocks i’ve been doing rather well despite the corona recession.

I looked at what 3 of the most successful biotech hedge funds are doing by looking at their quarterly 13f reports. One fund I've been tracking made $800 million last quarter alone. I see where they overlap in stock picks and look at their actions, (buying holding selling) and follow their lead. I look at how they take profits. It’s a simple system that has yielded enormous gains. In the last quarter, AMRN jumped 17%, AXSM jumped 23%, HARP gained 21%, MYOK gained 102%, ZYME gained 4%, and YMAB gained 21%. My only loser was NXTC which lost 3%. I have no idea what these companies do. It’s only when they’re in the news that I find out MYOK had success with heart conditions and AXSM met Alzheimer’s milestones. Without knowledge of what these companies do, I analyze what the experts (research PhDs, MD’s) at biotech investment hedgefunds are interested in. I couldn’t care less what the companies do, I’m just investing like a “f@&%er”.

My investment philosophy stands in start contrast to venerable Warren Buffet who invests in stocks for 20-30 year spans. “When I buy I don’t care if the outlook changed in the last 24 hours. I dont buy or sell on headlines. I can not time the market. if i knew what the market would do, I’d be even wealthier. i'm buying the stock because I’m making an informed intelligent decision based on price to earnings rations, etc...... blah bah blah”

Disclaimer: If you have a heart condition, it is not advisable to follow my investment strategy. It’s reckless and perhaps unhealthy for you to trade like me. I am not a trader nor an investor… just a simple architect looking to make a quick buck sharing his stock analysis tips. Have fun.

Roller Coasters and Forest Fires

I had enabled buying options in my brokerage account 5 years ago, but never executed any options trades because it seemed complicated, especially to my architecture inclined brain. 2 months into unemployment with no job prospect in sight, i've resorted to gambling trading biotech stocks to make a living. (click here for NVAX backstory) At B’s baseball game, two weeks before NVAX’s Phase 1/2 results were due out, I was considering dabbling in options to test it out. Maybe buy 1 call option for a couple thousand dollars.... When I bounced this idea off of K, she challenged me “if you have a prediction for your stock, and you know the risk, why just buy 1 call option?”

I expected NVAX’s antibody and immunity results in baboons would translate to humans and predicted the share price would go to $200 from $130. K thought I was delusional. Prodded to make some mental calculations of potential profit led me to the final analysis that buying options for NVAX would be 3.5 more times more profitable than buying stock. Seeing dollar signs, i called the brokerage account and asked a few stupid greedy questions. "how do i enable margin trading?" "just apply online" “If my stock exceeds my strike price by the cost of the premium, how do I exit a call contract?” “You sell to close” “you sell it by the close of the market?” Flabbergasted by my confusion she said, “No. Sir, before you do options trading, we highly recommend you take our online options course.”

NVAX's results were expected at the end of July. I needed to learn options fast if I wanted to take advantage of them. Each day I spent hours reviewing the online courses. Theoretically, options are simple. Options are bought and sold in 100 share lots. They allow traders to buy and sell stock at certain strike prices within certain time frames. Easy. Like former redsox pitcher Joe Kelly striking out correa and saying 'this shit's easy at the 1:59 mark.' A long term buyer in stocks predicts which stock will go up and buys them. A trader in options predicts how a stock behaves much like sports bettors bet how a game will unfold. However, because of my general financial retardation, it took me a long time to absorb this new information. If you're not retarded like me, skip the next 4 paragraphs. For all the other artistic and unemployed cultural types, read on.

Buying calls. Say you think a stock price is going to go higher. You can either buy the stock, or you can pay a small premium to get the right to buy the stock at a certain strike price. That’s called buying a ‘call’. For example, stock ABC is priced at $100, but you think it will increase to at least $120 by the end of the month. you pay a premium of $5 for the option to buy ABC if the stock hits the strike price of $120. If the stock never hits $120, you lose $5. If ABC runs up to $200, you collect $80 profit minus the $5 premium. For the previous example, in a successful trade, buying an option for $500 to control 100 shares of ABC costs much less than buying 100 shares of ABC for $10,000. That is, you can make $8,000 in profit by spending $500 to buy options versus making $10,000 in gains by spending $10,000 to buy stock. The danger is if the ABC stock never rises above $120, you lose $500.

Selling calls. Conversely, say you think the stock price won’t go that high, you can sell the right to buy a stock at a strike price, that is called ‘selling a call’. Stock ABC is priced at $100. You charge $5 to someone who buys your option for the right to buy your stock if it hits $120. If the stock never goes to $120 you pocket the $5 premium. If the stock goes to $200, you’re obligated to sell your stock to the option buyer at $120 so you make $20 plus the premium but lose out on the extra $80 gain.

Buying puts. Say you think the stock is going to tank, you can buy the right to sell the stock at a certain price. That is called buying a put. You own stock ABC and it’s trading at $100. For $5 you buy the option to sell the stock at $90. If the stock drops to $20, you only lose $10 plus the cost of the put from the stock because you have the right to sell at $90.

Selling puts. Alternatively, you can sell an option to sell a stock at a certain price, that’s called selling a put. Say stock ABC is trading for $100. You collect $5 in exchange for giving the buyer the right to sell the stock to you at $90. If the stock declines below $90, at the time of the put expiration, you have to buy the shares at $90. In plain English, buying a put is like buying insurance... you pay a premium so if the stock goes down in flames you have the right to sell it at a certain price Selling a put is like selling insurance. It means you have an obligation to buy the stock at a predetermined price from the option buyer if they exercise the option.

Once comfortable with buying and selling puts and calls, one can then proceed to execute simultaneous call and put options on the same stock to invoke a variety of different strategies with exotic sex position names like short straddles, long straddles, collars, iron butterflies, iron condors, etc... At this point in the online course, my brain retired from further learning and I decided to start trading options. I learn better in hands-on situations anyways.

On Monday, July 20th, i made my first purchase for 5 calls for July 31st. K told me it was risky to buy calls for the week of the data announcement because biotech companies regularly postpone announcements. I told her, don’t worry, the CEO of the company assured his audience at a virology conference that data would be provided last week of July. On July 24th, I then proceeded to buy 50 more call contracts for August 7th.

typical options chain

After the flurry of my activity and the market close on July 24th, NVAX came out with a press report saying they would postpone reporting clinical data till first week of August and that they had engaged with Fuji films to manufacture raw materials for the vaccine, and president Trump would be making a tour of the facility on Monday, July 27th. Companies bury bad news by coupling it with positive announcements. Fuckers.  

The following day on July 25th, I received my first margin call. I had used other stocks in my account as collateral to get a loan to purchase options... as the value of my stocks dived, I got a series of alarming messages threatening liquidation of positions to cover my margin. People buying NVAX expecting news the following week were exiting their positions, sending the share price down precipitously. I had developed a trading strategy assuming data would be published at the end of July, and now had to adjust to the change in schedule. 

a typical margin call warning

To avert disaster I transferred my kids’ stocks into my account as additional collateral. I was experiencing first hand what it was like to engage in a Ponzi scheme. By covering losses with new lines of collateral I was able to avoid selling stock. Online courses don’t teach you how to do this. Within the first week, I learned several other hard lessons about the intricacies and hazards of options trading. If a biotech company promises results by a certain date, save yourself sleepless nights and a heart attack and buy call contracts which expire a couple weeks after the expected readout in case the data is delayed. Second, if buying biotech stocks is like riding a roller coaster, buying biotech options is completely volatile like lighting a cigarette in a dry forest with leaking barrels of gasoline. A small change in stock price leads to a large percentage change in the option's price. Third, don’t max out your margin capabilities because the volatility of stocks will potentially invoke margin calls. Fourth, if you click on the ask price in an options chain, it overrides initial instructions to buy a call and tells the online brokerage to sell a call instead (I spent a couple phone conversations with technical support of the brokerage house complaining about the graphic design of their website and their confusing user interface).

In my second week of options trading, I walked a tightrope of risk. Any further losses and I faced the danger of falling into liquidating margin calls. By Monday July 27th, my July 31st calls were half worthless. I normally couldn’t care less for Trump, but all of a sudden I was rooting for him to make sensational lies like “NVAX will cure corona... just like taking Hydroxychloroquine or drinking bleach. Or the government will give accelerated approval for NVAX and pump in another billion dollars of funding.” I made a pact with the devil and pledged my vote for the fat orange haired fuck if he got me out of my options mess.

Trump didn't say anything sensational, but he didn't hurt the stock either. Over the next week, the stock traded up and down... confused as if traders were trying to process the company's valuation given a presidential visit, a Fuji film alliance, and data delays. when the market dipped I bought cheap August 21st calls and sold out of half my August 7th calls when the market rose. I was riding the roller coaster of NVAX stock fluctuations trying to derisk my situation, fearing another delay in data announcement would lead to my complete and devastating financial ruin.

trump at Fuji facilities

I like buying biotech stock like I like riding roller coasters but not when my money is flying into space. I like buying biotech options as much as i like fire in the winter but not when I burn my house down. During this period of fear and uncertainty I kept joking to myself, hopefully none of the baboons in NVAX's clinical trials come down with a cough and die... otherwise my stock options would expire worthless and I would soon be looking to the streets for a place to sleep.

novavax roller coaster

After the markets closed today, NVAX finally released their data. Fake news about 8 hospitalizations during clinical trials sent the stock plummeting down to $111 from $157. I was carefully scouting out various cardboard boxes to sleep in my neighborhood and about to eat crow for dinner. Once the misreporting was cleared up, however, and the antibody titers were presented (showing much more robust numbers for neutralizing antibodies and T-cell responses than any competitors like AZN, PFE, MRNA), the stock started taking off after hours with analysts praising the future of the stock. 

NVAX antibody titers compared to convalescent serum

JPMorgan analyst Eric Joseph upgraded Novavax to Overweight from Neutral with a price target of $275, up from $105. The stock in premarket trading is up 17%, or $26.83, to $184.00. The analyst is "pleasantly impressed" by last night's initial immunogenicity/safety profile for NVX-CoV2373 in the Phase 1 COVID-19 vaccine results. It is "not too far a stretch" to conclude the activity of NVX-CoV2373 "looks best-in-class," particularly when anchored to one of the more "stringent" human convalescent sera cohorts reported to date, Joseph tells investors in a research note. On safety, the analyst views the tolerability profile of both doses "as comfortably within the bounds of licensure-eligible candidate." He believes "relative valuations" favor Novavax over the near-term ahead of the first of the competitor Phase 3 COVID-19 vaccine efficacy readouts.

I was just happy to survive to ride the rollercoaster another day.