Stock commentary by a retail investor for retail investors. Over 20 years experience, including time working in the financial sector. Email the author at avoidthebag@gmail.com
Someone employing this strategy with Resverlogix would have gotten as much as $1.68 or as little as $1.12 CDN for their shares of RVX.TO in May of 2018. For the sake of simplicity I'm only going cover RVX's Canadian trading, not the US OTCBB.
RVX.TO closed out May at that low end price of $1.12 which means that in June the PPS climbed 119.6% based on Friday June 29th's closing price of $2.46
Three PRs in June and nothing Earth shattering that I can see. Certainly not anything that would warrant a 120% jump in the PPS over just 22 days of actual trading in my opinion.
The idea behind the "Sell in May" strategy is that stocks often under preform in the summer months, so the move to cash is made with a return to the equity markets sometime around October when interest picks up again. Obviously though, at least thus far, employing such a strategy with RVX would have meant leaving a lot of money on the table.
On top of that the company has had 6 recommendations from the independent Data and Safety Monitoring Board (DSMB) for its Phase III BETonMACE trial and based on the roughly 4 month intervals between these reports another is due any time now. The last came out on February 26th.
We shall see what July brings.
Do note though that Canadian markets will be closed on Monday July 2nd due to the July 1st Canada holiday falling on a Sunday. Any fireworks on Monday will have to come from the US side where Resverlogix trades on the OTCBB under the symbol RVXCF where volumes are typically much lighter.
Before I chime in on what's ahead for Resverlogix I think its worth noting what's already happened, both last week and in the recent past. Its that old saw about: "If you want to know where you're going it helps to know where you've been".
My last write up on Resverlogix was a week ago, on June 16th 2018.
After closing at $1.91 CDN Friday June 15th on the TSX, and at $1.47 USD in OTCBB trading, shares closed at $2.17 and $1.64 respectively on Friday the 22nd of June. That put gains at over 11% on both exchanges for the 5 days, and at over 13.6% just on the TSX where trading is much more robust.
The Naked Short Selling and subsequent forced covering through the "TSX Buy-In" facility seems to have petered out a bit. Although there were two trades totaling 12,000 shares on Friday at $2.39 CDN by house # 100 which is used to clear trades where the seller has failed to deliver the shares they've sold.
Here's a cut and paste of those trades along with the trades just before and after from the site for the Toronto Exchange.
That's not the whole story of the week that was, Wednesday June 19th saw the PPS spike as high as $2.75 CDN with volume of over 1.2 million across all Canadian trading platforms. On the US side the PPS went to $2.03 that day with volume of over 165,000.
Increased trading volume
Volumes have jumped significantly higher in the past couple of months, especially on the Canadian side. The catalyst seems to have been the April 17th proposed share offering and subsequent cancellation on June 8th.
From April 17th to present there hasn't been a day with less than 40,000 trading on the Canadian side, while before April 17th it wasn't unusual to see days with less than 10,000 trading across all Canadian trading platforms. In fact from May 9th to present RVX has not seen a single day of trading with overall volume of less than 100K.
Okay that's what was. So what lies ahead?
The next DSMB update
Shareholders are likely looking forward to another DSMB update on the BETonMACE Phase III trial of Apabetalone. This would be the 7th such update with the previous six all recommending that the trial continue as planned without any modifications while noting no safety of efficacy concerns. You can read the last one from Feb 26th 2018 here:
That last update is coming up on being four months old now. The fifth update came out on November 1st, meaning the interval between updates number five and six was just under 4 months, putting us "in the window" so to speak for update number seven.
DSMB stands for Data and Safety Monitoring Board. This is an independent body that reviews all available study data, Resverlogix and the Clinical Steering Committee are blinded.
More exposure for Resverlogix
Last week Seeking Alpha publisher Avisol Capital Partners did a write up on Resverlogix. This group has over 7,000 followers on that site and manages an investment group called The Total Pharma Tracker.
For the week ahead Resverlogix might be getting some play from readers of The Motley Fool with the publishing of an article listing 3 Biotech stocks that can electrify a TFSA, that's a Tax Free Savings Account for my non Canadian readers, both of them.
Resverlogix might be third on that list of three, but as PT Barnum famously noted, there's no such thing as bad advertising. Summer is now upon us, which can mean vacations, trips to the cottage or trailer, and sometimes reduced trading volumes.
Here's hoping the trading of Resverlogix keeps heating up as the temperatures get warmer.
Disclosure
I wrote this blog posting myself and received nothing in compensation for the expression of my views and opinions. I do however hold a significant position in both shares and share purchase warrants for RVX so I am obviously biased.
Investment in Resverlogix comports significant risk, please read the full disclaimer at the bottom of this blog.
For those reading because they saw the word "naked" and thought, 'ooh, this looks exciting', you're going to be disappointed. The naked story I'm referring to is about naked short selling. If the thought of Munchkins or Oompa Loompas running around a trading floor in their birthday suits excites you, then stop reading right now and get help.
Before I go on though full disclosure up front, I am a BIG BULL on Resverlogix and hold what for me represents a significant position, both in shares and share purchase warrants. So please read this with that in mind.
I genuinely believe that if the ongoing BETonMACE Phase III Trial for patients with Diabetes Mellitus succeeds in achieving its primary end point that the sky could literally be the limit.
This event based trial is projected to be ending later this year with top line data expected sometime around December. If Apabetalone is able to show 30% or better Relative Risk Reduction (RRR) in the incidence of Major Adverse Cardiac Events (MACE) I don't think a share price of $10 CDN is unrealistic at all, in fact it may very well be incredibly conservative.
News just came out on Thursday indicating that the FDA is on board with the trial and has indicated that Apabetalone has a pathway to an NDA filing and ultimate approval if BETonMACE succeeds.
And that could be just the start in this writer's, not always so very, humble opinion.
How much could a drug like Apabetalone end up being worth?
I see massive potential, literally in at least the tens of billions of dollars (US Dollars not Loonies) for annual revenue, and possibly even more than $100 billion USD.
It is my opinion that manipulative Naked Short Selling resulting in significant delivery failures has had a substantial and negative impact on the company's PPS. And I can back that up with proof.
But before I get to the actual trading data and other documentation about the Naked Short Selling of RVX.TO I want to explain how it works and how damaging it can be.
Short selling is a legitimate and perfectly legal practice of borrowing shares from shareholders and selling them back into the market in the hopes of buying them back later at a lower price and thus realizing a profit on the difference. Its the inverse of buying low and selling high. Instead shorts first sell high and then hope to buy back lower, that's called the cover. Short selling is actually beneficial, it improves liquidity and helps moderate volatility.
Naked short selling on the other hand can be incredibly manipulative because it involves selling short but not actually borrowing the shares and delivering them to buyers. The ultimate result of a Naked Short Sale is a 'Failure to Deliver'. In effect Naked Short Sellers are taking money for selling something that doesn't exist.
In the United States there is a Locate Requirement for going short. Those wishing to sell shares they don't own are supposed to first make a reasonable effort to ensure that the shares they are selling, that they are in fact available to be borrowed. As far as I am aware no such regulation exists in Canada.
On Canada's big board TSX there is another facility for settling delivery failures, and it is here that we find the proof that RVX.TO has been the subject of repeated, substantial and on-going delivery failures for some time now.
"TSX Buy-Ins" transacts sales through trading house number 100 at a 10% premium to the market price each day around 3PM. You can read about it by clicking on the link in the over sized words TSX Buy-Ins above.
When TSX listed stocks have been subject to delivery failures a trade that locates alternative sellers capable of delivering the security in question takes place, thus allowing the CDS to clear the failed position.
The premium is 10% over the last price before the 3PM time.
NOW THE PROOF
Here is a cut and paste of all the TSX Buy-Ins done through this broker #100 to satisfy delivery failures over the past month, I can only generate one month's trading at a time.
Broker Positions for C:RVX Broker #100 from 20180515 to 20180615
Obviously it is with more recent trading that these trades to satisfy delivery failures have been taking place, for the past 15 days in a row inclusive to this past Fridays trading of June 15th 2018.
Notice that this Broker #100 only buys and never sells. That's because the sole purpose of these trades is to satisfy delivery failures, where sellers have sold shares that did not exist. Its is to rectify Naked Short Selling in other words.
I must at this point give credit to a message board poster at Agoracom who's user name is GolfYeti. It was this individual's sharp eye that noticed these trades taking place at a 10% premium and brought it to the hub's and my attention. I have since expended my OCD energy in researching it.
If you go to the following link you can click to see an Excel Spread sheet which lists stocks trading on Canada's Venture and TSX exchanges that are on the buy in report. The quantity for the report dated June 15th 2018 is 673,600 while yesterday it was at 1,100,900 That's a lot of Naked Short selling obviously.
Take note, that this is not regular short selling that's being reported here, but Naked Short selling where the market players involved failed to deliver the shares they sold. Regular short selling is reported twice a month on the 15th and last day of each month with the actual numbers coming out three days later. That number up to May 31st 2018 was 1,655,332 according to stockwatch.com
Why did this happen and why is it important?
First the why. The catalyst that coincides with the increase in both regular short selling and naked short selling seems pretty definitively to have been an April 17 News Release that announced a "Proposed Offering of Units". Prior to that news coming out the number of shares reported as being sold short (normal shorting not naked) was a piddly little 176,205 up to April 15th 2018.
When the next update came that included short interest up to April 30th the number of shares that had been borrowed and dumped back into the market had exploded higher to over 1 million, 1,191,433 to be precise according to the numbers I get from stockwatch. When the next update came out the short number was still at 1,147,392 up to May 15th. Which takes us up to the most recently available number of over 1.6 million up to May 30th. The next update should be out next week either Wednesday or Thursday when we'll know how many were short up to this past Friday June 15th.
Why is it important? For a development stage company, especially one in the biotech field trying to develop a drug for the treatment of Cardiovascular disease, having a healthy share price makes accessing much needed capital easier. Some would call taking money for something that is not delivered, they would call it fraud. Apabetalone isn't some flashy but ultimately useless tech gadget.
So why would shorts attack RVX after the Proposed Share Offering?
In my opinion its simple, shorts were thinking they could turn a quick buck. Resverlogix did a share offering last June that resulted in almost the exact same situation. An offering was proposed and then carried out involving the sale of shares and warrants, and short interest spiked. Those participating in that financing, in my opinion they went short and turned a quick buck, selling both the shares from the financing, the warrants and additional shares that were borrowed short and dumped.
RVX tanked and they were able to cover and make bank, bully for them.
I am no boy scout and I don't believe those who have gone short on RVX both with borrowed shares and naked with shares that don't exist, I don't think they're choir boys either. Its all about turning a buck, making bank, kaching kaching.
What's the difference between some Street Players and the guy who holds up a gas station? The guys on Bay and Wall Streets wear suits and ties, either way they're mercenaries in my eyes. That's not a value judgement for me, its simply a recognition of reality.
The public markets are full of companies doing everything they can to get noticed in order to sell shares to the public, prop up their share prices and earn company execs a nice living often 7 figures. Emailing chop shops, stock promoters, writers and analysts, IR firms that specialize in getting the attention of the investing herd, all part of the market machinery.
All is fair in love and war, I'm dollars to donuts certain that Sharks on The Street see Resverlogix as little different from some bogus Cannabis company with a greenhouse somewhere in Podunk Arkansas that's hyping itself as the next big thing in medical Mary Jane.
There are too many public companies out there for the pros to invest the time, effort and money in doing genuine research, scalping is easier and more cost effective.
I think Resverlogix is different, but that's based on countless hours of research and due diligence.
Even still, I know that it could ultimately fail, that the BETonMACE trial might not achieve its primary end point. Its a risk I'm willing to take because if they do succeed I'm of the opinion that my shares could ultimately be worth not just $10s but perhaps $100s of dollars in the years to come.
Were it not for persistent short selling, both regular and naked I think they might have already achieved a MC of perhaps $1 billion CDN. But it is what it is, you can't change the past.
I sincerely hope Apabetalone is a raging success, not just for the sake of my bank account, but because of the good it could do. Diseases like diabetes are insidious, my late great father suffered from it and was on insulin. Diabetics often end up progressing to Kidney Failure, and then to Cardio-Vascular disease. The "gunk" that builds up in our veins, calcification and the like....its like the top of a waterfall cascading downwards into various pools, into all manner of different areas and conditions.
An epigenetic drug like Apabetalone, able to selectively zero in on a specific bromodomain and recruit proteins to turn a diseased gene from the off position to on? WoW!!! I hope it works.
If you've signed up for those emails that promise winning picks, that shamelessly talk about sharing prosperity because its their duty or other similar such fluff, well you're not going to find any of them hyping this small Canadian biotech I don't believe.
I have written too much already here, but its the weekend. If you enjoyed this you're more than welcome to share. I think there's a button somewhere down below that provides that function.
Further Disclosure
I wrote this on my own, and it is an expression of my thoughts, views and opinions, it is not however investment advice, see the full disclaimer at the bottom of this blog. I am not an investment adviser but please realize that speculative stocks comport significant risk. While there is potential for rewards there is also a very real possibility of losses. I received nothing in compensation for the writing of this blog entry, its part of my OCD condition, writing is something I enjoy.
