One of the main keys to maximizing returns from your capital is not just about riding a stock for its entire rally, it’s also about not committing capital during those periods when a stock is consolidating, resting or undergoing a lengthy consolidation. Look at virtually any stock and for at least 50% of the time there is actually no appreciation. Its typically two steps forward one step back – and that’s in the case of a share price in an actual long-term uptrend.
During these consolidations which can last years, maximizing returns is about exiting such trades and moving capital to those opportunities which are performing. As I always say you can come back to a previous investment anytime.
One stock that has been a favourite of ours for many years, but the share price has experienced wild swings is Starpharma Holdings (SPL). This is a company that I have maintained for years will be the next major Australian biotech to mirror Sirtex (another stock I have loved for many years) and Mesoblast.
As the chart below shows the path for SPL has been a wild one with a great period of appreciation from 2009 to 2012. Now if you still held the stock with simply an eye on the long-term potential then over the past 6 years you unfortunately have barely made any money. Maximizing profits would be to take profits here and redeploy your capital elsewhere, even in cash. Cash is always better than a position losing value, but unfortunately too many traders fail to grasp that concept.
SPL is now returning back to its former uptrend as major inroads and partnerships have been made for its revolutionary products. The attractive part to SPL is that they have products that are generating income today. And in the short-term this will be added to with new approvals helping to reduce the cash burn of its longer-term cancer drugs.
Let’s quickly run through their product portfolio before assessing the major improvements and developments in its share price performance.
The first major product is Vivagel which is used for the treatment of bacterial vaginosis and also as a microbicide to help prevent the transfer of sexually transmitted diseases. The company has a license deal with Ansell and Okamoto Industries (in Japan) for Vivagel coated condoms and are on sale now. The Vivagel ointment has received marketing approval in the EU and is in two phase 3 clinical trials for FDA approval in the US.
The second major proprietary product is their Dendrimer drug delivery technology (DEP). The aim of DEP is to improve the benefits of existing drugs while removing the side effects and dangers. In a very simple way a dendrimer is like a tree with the existing FDA approved cancer drug being the trunk. Through the synthesizing process other atoms and elements are added to the trunk and these have the benefit of either enhancing the power of the drug or removing some of side effects like loss of hair, sickness, effects on other vital organs or rejection by the body.
The most advanced of the current cancer development drugs is Taxotere (docetaxel) which is used to fight a variety of cancers including breast, prostate, ovarian and lung. The DEP enhanced version of this drug has shown in patients to be a major improvement over the basic drug with a substantial decrease in side effects.
The huge benefits that the DEP technology brings has resulted in SPL signing a deal with global Pharmaceutical giant AstrZeneca where SPL is entitled to US$126 million in milestone payments plus royalties in net sales of the product. Furthermore AstraZeneca will fund all development and commercialisation costs plus bear clinical trial fees as well. That is just for one drug. Further development of additional drugs for use of the DEP technology will earn SPL up to US $93 million for each and every other drug plus royalties. Importantly SPL this is not an exclusive license.
Thirdly, SPL is also using its DEP technology in agricultural products to help improve pesticide application which reflects the diversity of SPL’s dendrimer technology.
In line with the above developments and news flow, SPL’s share has finally begun to reverse its declines of 2012-2014. In fact there are several similarities to the positive turnaround seen in 2010. We have long been advocates of the importance of the 10,21 and 30 period moving averages and have shown in this column previously, these averages are useful in assessing the overall strength and direction of a market.
The key developments here for SPL is its ability to not only break back up through all three moving averages, but the moving averages are now also moving higher. Lows each week on SPL are respecting the moving averages and finding support right on the 30 week average. Respecting these averages shows a clear mode of “buy on dips’ that has returned to SPL. This combined with the underlying fundamental developments is significant and very bullish – just like in 2009 and 2010 which sent the share price from 40c to almost $2.00.
Considering the clarity in the opportunities now present for SPL compared with 2012, we see enormous potential beyond $2.00. Consider Sirtex is now a $2.2 billion company and MSB at its peak was circa $2 billion dollars as well (on the back of it’s partnership with Teva Pharmaceuticals) – SPL with a $300 million market cap has a lot of ground to make-up.
After several years of a declining share price, SL has now formed and completed a large base formation that is entering the early stages of its next major uptrend. Now is the time to begin returning back to SPL and enjoying what is likely to be the next great Australian biotech.
