Wednesday, October 1, 2014

* Tekmira (TKMR) - The Things We Should Know... But May Not.


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The financial measure visualizations in this post are provided by Capital Market Laboratories (free trial)

TKMR is trading $25.25, up 19.4% with IV30™ up 2.8%. The Symbol Summary is included below.

Provided by Livevol

This is a follow up to my post on August, 18th:
What's Really Going On in this Ebola Epidemic and This Stock

Lots going on here... like:



And...



Here's a quick visualization to whet the appetite. We compare TKMR to all other North American Biotechs with market caps > $100M and smaller than $10B.


Conclusion
The stock has whipsawed and is in play for one reason (one major reason), the Ebola epidemic is scaring people and this company may have the only treatment.  The risk as reflected by the option market is not as high as it has been but the stock is ripping (again) all while the first US case of Ebola has been announced (and Donald Trump yelled at everyone on Twitter -- that's really the key).

The epidemic craze started with this:
---
The outbreak of the Ebola virus in West Africa is an "extraordinary event" and a public health risk to other countries, the World Health Organisation (WHO) has warned.

All of the countries where there has been a breakout of the disease – currently: Guinea, Liberia, Sierra Leone, and Nigeria – should declare a national emergency, WHO recommended. This is already the longest and most deadly outbreak of Ebola recorded, since the virus was first identified in 1976. WHO said 932 people have already died as a result of the epidemic.

Source: CNBC via Yahoo! Finance Ebola outbreak now international emergency: WHO, written by Catherine Boyle
---

There's also some silliness... Like this:



And there is the CDC trying to calm everyone down, like this:


But, in all the articles that discuss TKMR (the stock, not the company), I haven't really seen a substantive discussion of where the firm is right now.  The market cap stands at ~$550 million.

We'll look at financial measures via visual data, the risk from the option market and the "implied" stock price range for the next few months and some of the biggest open questions right now.



Here are some of the headlines that drove the frenzy...

  1. FDA allows limited use of Ebola drug. Stock spikes
  2. Ebola Drug Firm Shares Go Bonkers After FDA Announcement
  3. Tekmira Ebola drug gets regulator change for possible human use

And this tweet:


Let's start with the stock return chart (two-years).
Provided by Livevol

We can see the remarkable swings which started with the Ebola scare in West Africa (it's more than a scare, it's an epidemic at this point), then the drop in the stock price after the "Atlanta Incident," where two US doctors came back to Atlanta with Ebola to be treated.  Much to no one's surprise the world didn't end (OK, Donald trump was surprised).

But what did not end was the huge unknowns in this firm and this "thing."





Questions to be answered
  1. What if the drug doesn't work at all?
  2. What if the drug does work and the epidemic ends?
  3. What if the drug doesn't work and the epidemic ends?
  4. How big is the market for Ebola treatment after this ends?
  5. Will the Pentagon just purchase $XXX billion worth of it because that's what they do? (as of right now I understand it's a $140 million contract)
  6. Is there an ongoing income stream from this cure (even if it does work)

You see, all of those questions are actually risk in the context of a stock price.  So let's look at the risk, explicitly. The IV30™ chart in isolation, below.

Provided by Livevol

The implied volatility is the forward looking risk in the equity price as reflected by the option market (IV30™ looks forward exactly 30 calendar days).

In English, the red curve is the risk in future stock price movement. We can see that the risk elevated to peak levels twice: The huge downswing (after the pop) and then earnings.

Today we are at the 57th percentile over the last 52 weeks, or in English, right about in the middle of the risk range.

Let's turn to the financial measures before we look at option pricing explicitly. Of course, none of this stock action has to do with the past (or present), but rather the promise of the future. But, we really should know what this company has in pocket right now given the huge unknowns moving forward.


Total Revenue (TTM)
The chart is basically flat -- the firm has generated about $17M in the last year in revenue.



Gross Margin %
So, yeah, that's pretty ugly.



Book Value
This is an interesting one -- book value has popped...


Earnings from Continuing Operations %
The firm has shown a $30 million loss in the trailing-twelve-months... now, again, this stock is all about the future, but remember those questions above?... What future are we betting on that makes the firm worth $550M today?.. And is that too low?... is that too high?...



Time for explicit risk pricing. Finally, the Options Tab is included below.

Provided by Livevol

Using the at-the-money (ATM) straddle we can see that the option market reflects a price range of [$20.50, $29.50] by the end of trading on October 17th.

Using the November options, that range is [$16.50, $33.50].

  • If you believe the stock will be outside that range on expiry or any date before then, then you think the volatility is too low.
  • If you believe that range is too wide, and that the stock will definitively be in that range on expiration, then you think volatility is too high.
  • If you're not sure, and can make an argument for either case, then you think volatility is priced just about right.

This is trade analysis, not a recommendation.






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