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Reasons For Being Bearish On ZIOP - Just The Facts

|Includes: ZIOPHARM Oncology, Inc. (ZIOP)

My opinion that ZIOP shares have bubbled and are due for a serious correction in the not too distant future has caused quite a bit of consternation as witnessed by all the comments on my most recent blog post.

seekingalpha.com/instablog/15663412-joe_retail/3802236-ziopharm-oncology-a-speculative-bubble-poised-to-collapse

Be it the comment field here, or on stocktwits where I post as growacet, the posters are legion in telling me that my opinion is not based on fact and hence is completely without merit.

Okay.

I find it interesting and somewhat naive to think that there could be one simple factually based method for determining whether a stock will go up or down. The market just isn't that easy. By definition a market requires both buyers and sellers, and its a zero sum game.

The question is...Are those who've been selling the millions of shares lately for 10$, 12$, 13$...Are they the smart ones. Or are the buyers taking advantage of the sellers? Sure the sellers are likely up big, by as much as 500% or so. But are sellers leaving money on the table and should they be holding tighter?

Let's look at some facts.

First the number of outstanding shares, there's the usual difference between sites like WSJ at 102.7 million and Yahoo at 104.3 million. A look at their most rent 10K filing however sets the record straight.

"As of February 10, 2015, there were 114,694,324 shares of the registrant's common stock, $.001 par value per share, outstanding".

That's as of Feb. 10th and subsequent to that the company announced that the underwriters of their most recent share offering had opted to purchase an additional 1.5 million shares at 8.75 per.

Not surprisingly, having bought the shares for $8.75 and wanting to sell them at a higher price, one of the underwriters (NYSE:BMO) has put out a bullish recommendation talking up possible deals. BMO is reportedly saying Ziopharm is in contact with large drug companies, which I imagine they are in the normal course of their activities regardless.

Now let's talk about the news. The most recent bit and what caused the share price to spike and volumes to soar was the announced agreement with MD Anderson, a renowned cancer clinic engaged in important work in both the treatment of, (and in finding a cure for) various forms of cancer.

As is so often the case, the devil is in the details. Garnering this license did not come cheap. It cost $100 million, to be shared equally with partner Intrexon. Some are championing the fact that Anderson took shares instead of cash, but a look at ZIOP's balance sheet shows that their cash situation would have made a cash payment problematic. Another snippet from the most recent 10K filing bears that out.

"As of December 31, 2014, we have approximately $42.8 million of cash and cash equivalents".

There's more to this of course. In addition to the $100 million there was another $15 million paid in stock (shared with Intrexon) to Anderson in order to speed up the announcement of the deal so they could make a splash at a recent J.P. Morgan conference. Here's the link for a story in the NY Times which referred to this payment as an expensive, and successful, public relations ploy. Very successful, the stock price soared.

www.nytimes.com/2015/01/19/technology/riding-high-biotech-firms-remain-wary.html

Okay....so we have a lot of facts in front of us right now. Roughly 115 million outstanding shares, which gives ZIOP a market cap of a little more than 1.5 billion.

Does it go up from here, settle, fall? Let's look at some more facts first.

How much money is ZIOP losing? Another snippet from their most recent filing:

We have not generated significant revenue and have incurred significant net losses in each year since our inception. For the year ended December 31, 2014, we had a net loss of $31.8 million, and, as of December 31, 2014, we have incurred approximately $372.6 million of cumulative net losses since our inception in 2003.

Of course those losses are now in the past. What does the future hold? More from the filing:

We expect to continue to incur significant operating expenditures and net losses. Further development of our product candidates, including product candidates that we may develop under our Channel Agreement with Intrexon, will likely require substantial increases in our expenses as we......

I know, I know....I can already hear the ZIOP bulls screaming... "they're going to cure cancer, when that happens a 1.5 billion market cap will be peanuts.

That's if they cure or find a treatment for various forms of cancer. Read the risk factors in the same (most recent) filing.

Here's the link to the section of the filing titled Risk Factors:

secfilings.nasdaq.com/filingFrameset.asp

It starts out like this:

An investment in our common stock is very risky. In addition to the other information in this annual report on Form 10-K, you should consider carefully the following risk factors in evaluating us and our business. If any of the events described in the following risk factors were to occur, our business, financial condition, results of operation and future growth prospects would likely be materially and adversely affected. In that event, the trading price of our common stock could decline and you could lose all or a part of your investment in our common stock.

Okay, but enough with the fundamental company data from corporate SEC filings. What about the trading.

As I noted in my last blog piece ZIOP has been on a tear, from under $2 back in May of 2013, and under $3 as recently as a few months ago (Oct 2014) to over $13 now. That's simply fact. People have been excited about the deal with Anderson, about BMO recommending the stock, about the potential that this company could possibly find a successful treatment or cure for cancer.

And its not just in the price movement that one can see this excitement, its in the volume. On January 14th over 38 million shares were bought and sold, before the most recent dilution brought the share count up around 115 million. That's a huge % of the outstanding shares trading in one single day.

If you check back in 2014 you'll see that volumes were much tamer than what they are now. Periods of one or two weeks without a single day of 1 million trading were the norm. Big volume days before all the excitement were 1 or 2 million.

That's simply a fact.

Now is where opinion, based on those facts, comes in.

I have very clear and defined opinions about how the stock market operates. These opinions are informed by the likes of Joe Granville and Richard Wyckoff.

Everyone knows that the name of the game is to buy low and sell high, simple stuff. But if one entity is selling high there must be others willing to buy high...and typically that entity is the general public, me...Joe Retail.

When I see news/hype/promo on a speculative stock, 500% gains with the entire outstanding share count turning over in a matter of weeks, my opinion is that the tide is due to change. I'm not saying ZIOP can't go up from here, merely that the smart money is selling and that come May today's prices will be long gone.

That is my opinion. If you still don't comprehend my view I'll suggest this article:

www.businessinsider.com/the-richard-wyckoff-stock-trading-method-2013-2

Same disclaimer as last time boys and girls. This blog entry is not intended as investment advice, but is merely the expression of opinion and should be used for entertainment purposes only. While I have endeavored to ensure the accuracy of the information provided herein I do not warrant its accuracy as it has been gathered from other sources, please verify all info.

Investing in stocks, whether going long, short or buying options, involves serious risks. I strongly advise that anyone considering an investment in any equity or futures contract to consult with a registered investment advisor.

Cheers and happy investing and trading.

Additional disclosure: I own put options