One bad news after another and people seem to just give
up and throw in the towel now. I get it and it is indeed very depressing if
anyone including myself have money in it. I’m talking about Bristol Myers
Squibb (BMY), a great pharmaceutical
company which is under enormous pressure lately. BMY had been in a bright spot
for a few years since it successfully developed and commercialized the
worldwide first ever immune oncology drug, ipiliumab or Yervoy and then
anti-PD1 or Opdivo. But since then, BMY has been struggling with some missteps
in the development strategies, too aggressive and ambitious apparently but has
fallen short of extremely elevated expectations. But BMY is not a drug company
based only on a few drugs. It is still a very prestigious company with a strong
pipeline focusing on 4 major disease areas: Oncology, Immunoscience, Cardiovascular
and Fibrotic Diseases. It is also a great dividend stock for long term. One
thing I’m particular interested in is the potential for BMY to be a M&A
target. I was thinking Pfizer could be the one to buy BMY in the near future.
Given my long term love of the company with the M&A potential in the
foreseeable future, I got some trading positions with BMY when it was around
$65. I was totally wrong at least for now. Since I got in, BMY has been
trending down to below $60 and then a bomb exploded after it reported good but
disappointed survival results from its Phase 3 combo study called CheckMate-227
on Monday. Actually the treatment with the combination of Opdivo (nivolumab)
and Yervoy (ipilimumab) in first-line advanced non-small cell lung cancer
(NSCLC) significantly increased the progression-free survival rate compared to
chemo (43% vs. 13%) in patients with high tumor mutational burden (TMB).
Unfortunately the BMY study only included the TMB patients but its critical
competitor Merck's data showed a similar survival advantage of KEYTRUDA + chemo
regardless of PD-1 status TMB burden. Commercially obviously BMY will be
challenging in competing with Merck, hence an 10% haircut in its share price.
That’s the trading
risk we all have to deal with as no one can be 100% sure about the future.
That’s why I usually only use hedged strategy or predefined risk strategy for
any trading. Options are a fantastic tool to effectively mitigate risk with
bigger return potentials. So for my BMY position, regardless how much it drops,
my total potential loss is capped at certain point that I can live with. So far
it is still a paper loss for me as I still have a few months time within which
BMY may recover that can either substantially reduce my loss or even still make
me money eventually. In my investment life, I have seen numerous incidences of
this kind volatility including BMY that have eventually turned around to
surprise those too bearish on them. Although I cannot be sure about BMY for the
time period I have, I’m still hopeful. More importantly, I think BMY becomes
even more attractive after this haircut. Although Pfizer CEO recently said they
are not interested to buy BMY at the moment, the sudden market cap reduction of
BMY may make it more attractive for the potential buyers. After all BMY still
holds great assets with a promising pipeline. I think this panic selling is
quite overdone and the MA potential is increasing now. I like the BMY
depressing price at low $50s much more and I’m doubling down for it. I think it
is no brainer for me to buy BMY at this level which can easily make up any
loss, if any, from my earlier positions. That’s another way I’m mitigating my
trading risks. Be clear, nothing is guaranteed but I’m confident with my
doubling down! You may ask why I'm so confident? Well because I'm usually thriving on panic selling and I have gone through too many such times. Remember ULTA that was sold off to below $200 and now $235? How about COST that was sold to $150 and now is around $190 or TGT that was sold to $50 and now is $70? Not enough? OK, let's see one more for WMT: sold to $50s a couple of years ago and now is around $90 after topping above $100. My point is, as long as the company is a great business with good earning power, there is really no need to be panic even if the immediate trend is against you. You can always take others’ panic for your benefit to make more money!
No comments:
Post a Comment