A proper oldschool DD that's probably a 2-3 bagger by end of year. $ABVX
I haven't posted on here in a long time, simply haven't had many insanely good ideas pop on my radar until this one.
A couple of weeks ago, I had the chance to have coffee with a hedge fund manager who's big on Biopharma. She was telling me about some challenges big pharma's facing over the next few years and the potential for some massive gains in the space buying labs that own interesting patents.
Essentially, in biotech, you have 2 sides. You have the labs that do the research on medicines and you have Big Pharma that buys the rights to sell medications when when labs find something patent worthy that's worth their time.
Big Pharma doesn't bother doing research as much anymore unless they're certain they'll have a blockbuster drug. It's not worth the risk for their shareholders, so what they do instead is wait for a lab to discover something of note and do all the testing, then either buy out the lab or lease the right to sell the medication with a royalty agreement. They then have their sales teams go out into the world to sell the medication and they use their factories to produce large quantities of these meds for sale.
Big Pharma takes minimal risk on research and instead takes the risk on sales.
Between now and 2030, $400 billion of annual sales worth of products are falling off patent. When that happens, big pharma's set to lose out on MASSIVE revenues as generics will be allowed to compete.
They need to replace those patents with new products that can move the needle.
There's only 2 ways they can realistically save themselves from the patent cliff:
- Do research on their existing products they own the rights to so they can find out whether these medications can be used for new uses and then file a new patent (Think Ozempic. It was patented for diabetes, then they found out it works for weight loss, so a new patent was filed).
- They can find new products to sell. (Which means either M&A with labs or sign royalty deals).
In comes Abivax $ABVX. Abivax is a European lab that has a patent on a medication (Obefazimod) that was initially developped for use to treat HIV as an antiviral.
In their research, they discovered that it had amazing results in treating Ulcerative Colitis.
Current treatments have 15-35% success rates initially (25-50% long-term symptom control).
Obefazimod has over 50% remission rates (40% more than the placebo).
Out of patients who showed zero response to standard initial induction therapy, 37.2% achieved clinical remission after continuing on a 50 mg dose of Obefazimod and patients who had seen a relapse, increasing the dose to 50 mg saw 45% of them to completely regain clinical remission.
Analysts are expecting this medication to be worth between $3.5-4 billion for for Ulcerative Colitis alone.
The lab is currently testing for Crohn's disease as well. If they get approval there, it's another $3-4 billion of annual sales potential.
The medication's a once a day pill, which makes it extremely convenient.
They plan to file with the FDA by end of year.
The expectations are that they'll be bought out before then.
If they don't, that would mean that they'll become a cashflow monster.
Why didn't I post a couple of weeks ago when the stock was at 100$?
The stock sold off a few weeks ago on a report that there were a few patients that had developed various cancers. This cancer risk made the company less likely to be acquired until more testing could be done.
Follow-on data has just come out and it looks like they're in the clear.
70% of the float's owned by institutions, so there's a low float.
This leaves us big opportunity for an early pop.
Both Eli Lilly and AstraZenica are rumored to be looking to acquire them, so this MIGHT end up in a bidding war if one decides to make a move.
TLDR: High likelihood of acquisition. Probably a 2-3 bagger. Buy long-dated calls.
How you should position yourself: Acquisitions take time and are generally surprise announcements in pharma. Being that the FDA approval is aimed for end of year and expectations are that the company is bought out before then, long-dated calls are the play.
I think the stock will slowly rise through end of year which will offset some of the IV crush.
Positions:
100 shares. (Average cost of 94$)
20x Jan 2027 100$ calls. (Average cost of $55)
I'm going to keep buying if there's any weakness in the stock.