Trading Allon Therapeutics: Risks And Rewards

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 |  About: Allon Therapeutics Inc. (NPCUF)
by: BlackbirdAnalytics

I introduced Allon Therapeutics through two articles titled, "A Little Known Biotech With A Big 2012 Event: Introducing Allon Therapeutics" and "Straight Talk From Allon Therapeutics CEO, Mr. Gordon McCauley," in late September, 2012.

The stock (OTC:NPCUF) was trading at $0.235 and volume of ~183,000, when the first article was published and now on Friday November 9, 2012 it traded at $0.50 with volume of ~750,000. That's 100%+ increase in price and 400%+ increase in volume.

In the articles, I laid out 3 scenarios of possible data results:

  • 5% chance for outright success
  • 65% chance for clinically meaningful data
  • 30% chance of outright failure

Lets face it, unless the company hits outright success, it will be deemed a failure. Also, in case of outright failure, the price will be $0.10 or lower.

When I first wrote the article the Expected Value (EV) of the bet based on share price of $0.235 was positive even with a 5% chance of outright success for Davunetide. Making a bet with positive EV was the right move for me.

Since the price has gone up 100%+, the EV is now negative, if the market considers anything but statistical significance, a failure. Its time to scale out of the trade and based on risk appetite, perhaps risk a very small percentage of gains into the data release.

There are still few catalysts that can move the stock significantly. This might get us close to the $0.98 target laid out in my earlier articles.

  • Pre-data partnership potential.
  • Precise timeline for data release.
  • Potential Analyst upgrades, a la Canaccord raising PT to $1.0
  • Press coverage on tau pathway for neurodegenerative disease, such as Page 1 article in WSJ on Tau Pathway, on November 10, 2012, "An outcast among peers gain traction on Alzheimer's Cure."

I don't like to gamble with almost 100%+ gains, I am actively booking profits and keeping a very small percentage of my profits into the data release. As positive data will move the stock significantly. Since I expect the data to be mined significantly by the company as they look for clinically meaningful signals, I will write another article post data to share my views whether Allon Therapeutics is worth buying again.

Congratulations to all those who were able to correctly decipher my hard labor, the opportunity and the balanced article. I also want to thank Seeking Alpha Editors for making a prudent choice of recognizing the quality of the work and publishing the CEO interview.

Disclosure: I am long OTC:NPCUF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. I am not a certified financial adviser and you should consult with your personal financial adviser before making any investment decisions. All investments carry risks, including total loss of capital. Trade based on your own risk tolerance.