This is a question relating to Geron (GERN) that was begging to be answered since November 7, 2013. After all, the volume recorded on that day was more than 10-fold the average volume of shares, with almost half of that the next day.
We have discussed in previous articles the history of the company and the unique potential of Imetelstat, Geron's "only" remaining product. We have further covered in a separate article a very conservative valuation model of the company, which indicated that, if Imetelstat is approved, the company is truly undervalued. This was somewhat proven by the successful and mind-boggling launch of a secondary offering, where the company effectively grew its market capitalization by 50% in one day, and yet the market "loved" this most-feared small company act of dilution.
Answering the question of how Geron's ownership changed since that first hint of a tangible success completes this series of articles on the company.
As is evident from the chart below, all in all, there were at least 6 volume-spikes in the last six months, for which the then average daily volume was a minute fraction.
It was my suspicion, despite the funny behavior of the money flow and the on-balance volume indicators in the charts above, that most of the exchange was one-way from the unsuspecting individual investors to institutional traders, save the notable size of day-trading.
There may have been a sense of urgency to deliver the message, as I was watching the short interest steadily rise. It currently stands at 11,601,316. After all, what a shame it would be if the non-institutional component of this short interest is due to individual investors who are oblivious to the fact that they are "borrowing" to feed the institutions.
Yet, it is a question that could not have been reliably answered till February 15, 2014. This is due to rules and regulations governing reporting of institutional holdings. As it happens, SEC regulations require institutional investors with more than $100 million in assets under discretion to report holdings within 45 days of the close of the quarter. Guess what, the larger they are, the longer they wait. As such, the most up-to-date data you see on news services and financial websites can be as much as 4 1/2 months late.
To investigate this theory, you will need access to institutional holdings. I resort to this site for information, which is a better source for institutional holdings and other issue-related data. Note that the data on the site is continually updated with current SEC filings. As such, you can expect it to be static - if that - only around the second half of the quarter. I have taken the following snapshot image (taken 1/29/2014) of the first page of the old data (Q3-2013), which I shall use that as a reference for comparing what happened in Q4 2013.
To complement the data published on the above site, I did make the effort to search the SEC filings using their text search facility - looking for the word "Geron" - and to tabulate the results. I then compared the results with the newly published numbers in the above mentioned website. There are three things that I was looking due to this effort: discrepancies, non-stock data and the non Form 13-F filings.
You see, the institutional filings have stock-options data that the listing above does not include. Further the listing above includes only 13-F data, while other forms and reports are not included. In particular the investment company holdings reporting Form N-Q are not reflected in the above - these are not due till 60 days of the end of the year. Technically, the 13-F data should somewhat encompass all, but that reporting does not shed the same light looking at other filing does.
I thought it is worth the effort to know, and to share with you, the result of my investigation into "where the shares did go!"
To start with, the latest (February 15, 2014) snapshot of the Q4 2013 data is as follows - courtesy of the NASDAQ website mentioned above.
A casual glance and comparison reveals that the number of holders increased to 156 from 119. The number of shares held jumped from about 45 million to ~59 million. Note also that, on the new listing, there were 48 new positions for around 18 million shares, while the totally disposed of positions were only 18 for 4.3 million shares. Similarly the institutions adding to holdings numbered 84 for 26 million additional shares. The ones reducing were 53 for 9 million shares.
By comparing the website with what I gathered from searching the SEC site, I see the three different significant discrepancies. For instance, some holders like BlackRock and FMR are listed as "reducers!"
You see, in addition to the above, I noted that under the name of BlackRock, six different legal entities filed 13-F/HR forms for a total of 11,426,491 shares. On the other hand Form 13-G that hit the news on 1/29/2014 was listing 11,299,430 shares for only one of the six legal entities, which is BlackRock, Inc. Note that the above 13F total is for 12/31/2013. Hence, it is most likely that the 13G only represents the filing legal entity. That is, holdings increased for BlackRock Inc. jumped from 3,321 shares to 11,299,430 in addition to the holdings of the remaining 5 entities, which on 12/31 totaled 11,275,945. The remaining entities are: BlackRock Advisors, LLC, BlackRock Investment Management, LLC, BlackRock Fund Advisors, BlackRock Group LTD and BlackRock Institutional Trust Company NA. Further, all mentioned BlackRock filings preceded the secondary PO. As such, it is safe to assume that the difference between what is listed on the form 13-F and 13-G is a new position acquired in the early weeks of January, and hence the six BlackRock entities would have (today) a total in excess of 22.5 million shares!
As for Fidelity, FMR filed a 13-G form for 19,848,193 shares (dated 2/10/2014), which is more than tripling the 9/30/2013 amount and 5 times the amount listed for Q4-2013 per the websites above. Unfortunately, this huge increase cannot be dissected into pre- and post-PO as the filing was dated 2/10 but it refers to the number of Geron shares that does not include the over-allotment shares.
Similarly, CalPERS (California Public Employee Retirement System) lists on the 13F a total of 47,000 shares. Yet the schedule suggests that they have 1,639,027 shares under "shared voting!" What I would expect in a filing is that shares listed under the three voting classifications: Sole, Shared or None, will add to the total reported. For CalPERS, we are missing about 1.6 million shares.
One last note relating to numbers, if you are to do this homework yourself, the secondary public offering on 1/30/2014 added 22,500,000 shares of common stock, as well as 3,375,000 in over-allocation. As such, the percentages of the holdings are distorted and may be difficult to compare the pre 1/30 numbers with the after PO numbers. As such, it is the number of shares and the number of shareholders you need to look for. After all, the company had about 129 million shares before the offering and now has about 153 million - the website above still incorrectly lists 151 million though.
To address the fate for the secondary public offering shares, I am convinced that they went to institutional investors. The Fidelity filings above are a stark indication of that. My "mathematical" reasoning, since there are no other similar filings to date, is that the average volume for Geron during that period was around the "astronomical" 6 million shares/day.
- on Thursday 1/30/2014, 33,878,900 shares changed hands
- on Friday 1/31/2014, 6,763,500 changed hands
- On Monday 2/3/2014, 4.118,900 changed hands
- On Tuesday 2/4/2014, when closing was announced, 2,590,700 shares changed hands
Further, the volume was steadily dropping since.
That is, the four-day total was around 47 million shares, when in fact the average volume would have accounted for up-to 24 million of that. That is, the shares, with high confidence, did not circulate.
Who specifically bought these PO shares? We will not know till after May 15, 2014. Assuming, of course, that institutions still own them and did not "flip" the shares during the quarter.
In effect, I can mentally visualize a picture of a "great sucking sound" that seems to have moved shares from the general public into the institutions - one that I have heard and saw in the daily trading patterns, but could not trace, till the filings were completed.
It is my belief, based on the above, that institutional ownership in Geron has already exceeded the 50% and is no longer the 33% reported at the end of Q4-2013.
To add insult to injury, the latest short position data suggests that the shorts have increased their bets from around 6 million shares short on 9/30/2013 to more than 11 million on 1/31/2014. That is, not only was the public selling to the institutions individually and through the secondary offering, but also some seem to have borrowed an extra 5 million shares of these scarcer shares to hand over to said institutions over a silver plate.
In effect, the individual investors, like you and I, seem to have handed over their shares, on the first hint of appreciation, to the institutional investors, who will wait forever, if necessary, to see their investment come to fruition.
If anything, Dr. Tefferi's presentation at the 34th Annual Scripps Conference on Sunday 2/16/2014, seems to validate that the institutions were right. After all, my reading of the slides is that the doctor and his colleagues are boldly claiming that:
- They know how to "accurately" diagnose Myeloproliferative diseases with the new discovery of CALR mutations completing the missing pieces in the JAK2 mutations puzzle (slides 6-7)
- They believe that if you have a certain CALR and JAK2 risk then the Investigational drug therapy treatment is the way to go (slide 28), otherwise you - more or less - take one or two Aspirins (slides 24 and 27) and go home under observation
- They believe that of these investigational drugs, Imetelstat is the one that works (slides 32, 33 and 34) and much better so than any of the others (slide 29).
How much further can institutional buying go on? A case in point, look at Incyte (INCY). The snapshot image below (taken on 2/15/2014) is from same source website, and it clearly states that 98.6% of the free float is owned by institutions.
In conclusion, it seems that most of the buying in Geron during the last few months has been by institutions. As such, and yes despite the fact that institutions are not always right, individuals have to be aware of this fact as they are contemplating adjusting their respective positions in the equity.
Finally, one needs to take into consideration all the risk factors that the company itself lists, including their statement in their SEC filing that "any delay or abandonment of our development of imetelstat in hematologic myeloid malignancies would have a material adverse effect on, and likely result in the failure of, our business." Further, I want to repeat yet another time my stated position that "biotech investing is highly speculative and will only pay off with diversification and over a very long time horizon."