Seeking Alpha

PSalerno's  Instablog

PSalerno
Send Message
Private full time investor since 1994, graduated in medicine, with interests in art and philosophy coming from Italy and living in Hungary, dealer in old masters painting until 1996. Overcame 2 big market crashes in 2002 and 2008. The strategy is to divide the assets in 2 categories: the first... More
  • Contrarian Trade: 1 Short 1 Long 0 comments
    Jun 21, 2013 10:25 AM | about stocks: MYGN, ILMN

    Recently the Supreme Court's decision about the DNA's patentability sent Myriad (NASDAQ:MYGN) stock down as I predicted in my last article www.seekingalpha.com/article/1436291.

    I considered a probable down move as a another buying opportunity and in my comments suggested an entry point in the mid 20s.

    Myriad diagnostic tests have little to fear from the new technology called NGS or Whole Genomic Sequencing.

    These new methods, including HiSeq 1000 and 2000, are wonderful for research purposes and great at identifying new interesting leads, but less useful for clinical purposes.

    The doctors using this new technology every day I have spoken with (unfortunately, I have no link here) told they are unwilling to decide a drug treatment based on this new technology, unless it is confirmed by another methods, because of the high rate of errors.

    In other words, this new technology cannot replace a quality controlled diagnostic test with known level of certainty.

    Also, no regulatory body would approve reimbursement of genomic sequencing for clinical purposes as it would lead to great uncertainty.

    I have no link, for this, but there is an article on Science written by Daniel McArthur about the false positive in Whole Genome Sequencing.

    Also there is another positive today for MYGN: a note from Genescript www.genscript.com/press_realease/synthetic-dna-deemed-patentable-by-us-supreme-court, confirming the importance of synthetic DNA.

    Additionally, Ambry removed from his website the offer about BRCA test.

    All these considerations make me think that the future is not compromised for MYGN.

    ILLUMINA (NASDAQ:ILMN). This company is the leader in Whole Genome Sequencing, but the leadership is jeopardized by Life Technology which was recently acquired by Thermofisher.

    This threat is not reflected in the stock price trading at 90PE.

    The stock price has surged to $70, well above the hostile take over bid from Roche at $51.

    Illumina, differently from MYGN, is weak in the interpretation of the data, so other companies like Knome (knome.com) are offering the analysis.

    In the end, the new technology sold by Illumina for $5000 (equipment and reagents) is not all inclusive and not yet competitive.

    It is a broader market compared to BRCA testing, but, as equipment's provider leader and stand alone company, ILMN will not be the first for long time.

    The move o buy Solexa was smart, but Clive Brown is now at Nanopore, not at Illumina.

    CONCLUSION :To take profit from this situation and from the ongoing market correction my trading idea is to short ILMN at 70 with a target of 60 and to buy MYGN in the 24-26 range with a target of 29-31.Also shorting the IBB biotech index at $175 is good as the sector is generally overvalued.

    The risk profile is good for both trades with little upside for ILMN (90PE) and little downside for MYGN trading at 17PE

    Disclosure: I am long MYGN. 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.

    Additional disclosure: I am also short ILMN and IBB

    Stocks: MYGN, ILMN
Back To PSalerno's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

  • Why I Bought Guangshen Railway $GSH http://seekingalpha.com/a/1c1gn
    May 28, 2014
  • $SPX: look at 1922 as 38.2% Elliot extension number from the low.
    May 27, 2014
  • $SPX look at 1922 as 38.2% Elliot extension number from the low.
    May 27, 2014
More »

Latest Comments


Most Commented
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.