Friday, June 30, 2017

Initial Look At Bio5C Performance

I was saving this analysis for June, but since a few of you guys have asked me for metrics on Bio5C performance, I'll share what I have as of today. I started to score biopharma companies for Bio5C in February 2017. The service has come a long way since then. Back in February, all I had was one tab in excel with the 5C score. Now, subscribers get an excel file updated daily that has 6 tabs and research reports on two dozen names. Luckily, I saved the Bio5 score for all the names in the model on March 1st. I've added a handful of stocks since March 1st, and those are now included in the model as well.

The results are excellent - better than I expected actually! I graphed the Bio5C score on the X-axis vs. the 3-month stock return on the Y-axis and got a pretty decent R-squared score of 0.55. However, importantly, the trend line looks fantastic and the stratified data look outstanding!

The Concept

The 5C Score is the sum of the 5 individual components of the Bio5C Model: Cash, Catalyst, Charisma, Capital Structure, and Credibility. Each of these attributes is scored on a scale of 1 ("F") to 5 ("A"). Thus, the lowest score possible is 5 points (essentially 1 ). The highest score possible is 25 points (essentially 5 ).

You want to stay at 5 hotels and eat at 5restaurants, right? Likewise, you probably want to avoid eating at a 1restaurant! It's analogous to shopping on Amazon.com. Would you buy a vacuum cleaner with a 5 or 1rating? Most would agree that's a rhetorical question, but it's amazing how many people do not apply the same type of logic to their stock portfolio. The premise of Bio5C is pretty simple: Buy the highest rated names and avoid the lowest rated names.

Does It Work?

I'm happy to say, after roughly three months in business, YES, Bio5C does work. The graph below is the Bio5C score on March 1st (note: many 5C scores have changed since then) vs. the stock price performance over the past 3 months.


Voila! 

I'll be honest, I was just hoping for a positive sloping line while I was putting this graph together, but the (initial) results are better than expected. The R-squared is 0.55 and there is a clear correlation between score and performance.

Digging In

I've scored 96 names for Bio5C. The range is from 6 (lowest) to 22 (highest). The average score is 13.3 points, which equates to 2.7 ★s. This is vastly lower than the average product rating of 3.9 for the approximate 1.2 million ratings on Amazon.com (link), but let's be honest here, most vacuum cleaners are going to outlast your average micro-cap biopharma company! So, I'm happy with that number of 13.3 points.

The average return for all 96 names in the model is -8% (the XBI is actually up 5% over the same period, signifying that small-caps have been hit a bit harder than the broader average). Now for the good stuff...

On March 1, 2017, I rated 14 stocks (roughly the top 15%) with a score of 18 points or higher. The average return of these "highest scoring" names was +36%, crushing the overall average and XBI handily. More importantly, almost all companies rated 18 points or higher were up three months later. The green box on the graph above shows the best Bio5C ideas back on March 1, 2017. That's a very nice basket return with low risk of a blow-up. It's early, but these data suggest that Bio5C subscribers can "long" the top ideas in the model and feel confident they will make money. Big winners include PIRS, SGMO, AUPH, IMGN, and MTNB.

On March 1, 2017, I rated 15 stocks with a score of 9 points or lower. These are the names with too many red flags that should be avoided. If you have one of these names in your portfolio, get it out of there right now. It's a vacuum cleaner that is about to blow up or destroy your very expensive Oriental handmade rug.  The average return of these "lowest scoring" names was -34%, far worse than the overall universe and the XBI. More importantly, no stock rated at 11 points or lower was up more than 10%. Again, it's early, but these data suggest that Bio5C subscribers should sell the lowest scoring ideas in the model and feel confident they are saving themselves money, or can even making money by shorting these names. Big losers include NWBO, AMRS, ANTB, and ATOS.

Some interesting outliers: CTRV scored 16 points on March 1, 2017, and is down 56%. Some pipeline delays and less-than-stellar data on TXL resulted in the big decline. NTRP scored well on March 1st because of the huge pending Catalyst (5 points) and high Charisma (4 points) given the potential of bryostatin to show a clinical benefit in Alzheimer's. The data turned out to be a dud, and the stock declined 34%. NVIV is another name that scored well on March 1st but is down 49% over the past three months. Two patients that previously converted to AIS-B in the INSPIRE trial reverted back to AIS-A and that spooked shareholders.

But generally speaking, there is a good correlation between 5C score and return. I noted above the average score was 13.3 points. The data also show that stocks scored 12 points or less average -23% return over the past three months. Stock that scored 14 points or more average +8% return over the past three months. Again, it's early, but the data suggest that there is good a correlation between 5C score and return over a short period of time. I'm confident that through the use of Bio5C, combined with my research found in the Bio5C Notes (average 3-5 pages per name), investors will pay for their subscription quickly. 

In Conclusion

Bio5C provides idea validation, generation, due diligence, and helps you avoid potential big losses. The Bio5C model gives investors the following tabs:

1 - The 5C Model (with individual component scores),
2 - The historic model (showing how scores have changed since inception),
3 - The total 5C score ranked from high to low,
4 - The Cash tab, which shows a company's current cash position and projected burn rate,
5 - The Cap. Structure tab, which shows the basic shares plus potential dilutive instruments and institutional holders,
6 - The Catalyst tab, which shows important upcoming events.


Subscribers also get my Bio5C Notes, which are 3-5 page reports on the most interesting long and short ideas currently in the model. I have 25 Notes written to date, with a goal to produce another 10-15 in the next month. An example of a Note on AXSM is available for free.

Bio5C is $50 per month / $500 per year. Please visit Bio5C.com to learn more about my service. More importantly, check the 5C score for the names you own and find out what is at the top (or bottom) of my list right now!

Thank you!

BioNap 

Bio5C is completely independent equity research and I disclose my positions in real-time. Additional information about Bio5C can be found in the Bio5C disclaimer. For information about this website, please see the BioNap disclaimer. The 5 C's of Biotech Investing™ is a trademark of BioNap, Inc.