All-
KM1973 & Rizz posted today’s news on FMI. Medicare and Medicaid have approved FMI testing for reimbursement. FMI stock was up 5.2% on the news from the conference during normal trading hours and up an additional 11.5% after hours following the medicare/medicaid announcement.
Congratulations to people who purchased Calls. I’d estimate that my Jan 47.5 Calls will be in the neighborhood of an 100% gain in a month. I would really encourage people to consider the effects of binary events for a small amount of your portfolios. In this case I invested 0.6%, but the effects over the next month could add a nice pop to my portfolio.
From here on out, I expect two things to happen. First, I think that FMI will eventually move up 50% over the next month. The reimbursement should be HUGE for their business. Second, probably sooner than later, I think that Roche buys the rest of FMI jacking the price even further. It’s not inconceivable that FMI is at 100 by January. If that were to happen, 47.5 calls will have gone up about 7 times in value. That’s a 600% gain in two months. That is the value of options combined with binary events. They don’t come along very often, but when they do, they certainly spice up returns.
Best,
bulwnkl
PS Who is doing the 2 calls out 2 happy dance for 2017 (Calls were the best way to invest in KITE too). I hope some of others have joined in the fun.
PPS If options are not your thing, I think it is a great time to pick up some stock too.
First off, I want to thank you for this recommendation. I never would have known about this opportunity had it not been for your post. I appreciate your generosity.
I went with a ladder of strikes ($47.50, $50.00, $52.50) since the premium of the $47.50 had increased more than I wanted to pay for it by the time I was able to act on your recommendation; each of them is up approximately 25% of my purchase price.
If your predictions about the price movement do not work out and more time is needed, would you roll out your calls or exercise them and take ownership? Is this worth holding beyond January 2018?
Thanks a ton for the recommendation. I bought Jan $50 calls and see they are just over 50% as of market close today (11/30). I just freed up some cash today after my portfolio’s plummet yesterday. Hadn’t quite decided what to do with it, but I’ll now probably put it all in FMI stock (or maybe some more options?).
Anyway, there’s no way I would have known about this opportunity had you not posted here on Saul’s board. I’m grateful. I rarely trade options, but this just seemed too good a gamble to pass up. Looks like it paid off.
Hi MDIRADS,
Congratulations, I think you will find much, much better returns by January.
To answer your question, I plan to hold my calls until close to expiration,1/19/18. I will probably convert the proceeds to stock at that time. The TAM for these tests as well as expansion of tests in FMI pipeline are enormous. I would love to hold FMI for the long term. However, Roche’s, who I believe owns 59% of FMI, MO is to purchase the balance of companies in these situations. I would be surprised if FMI survives the coming year.
I tend to shy away from options when there is not a definitive time catalyst in site. For the option I recommended, I knew the reimubursement decision was due during the fourth quarter so the odds of failure due to misjudging time were low. The other thing I worry about is the general market. If there were a broad correction, plummeting stock prices could completely destroy a call so I tend to avoid continuing to roll calls so I don’t get wiped out in a downdraft.
I feel a lot better after I lock in a substantial profit then remove the time pressure. Then I can let the stock go as long as needed to capture the rest of the value. My goal with this process is to generate a exceedingly low cost basis for a quality stock, and hold my investments as long as possible.
So you plan to convert your calls to stock ownership in January–exercise all of your contracts? If so, you anticipate further price appreciation beyond January…
If you don’t mind me asking, from where do you get biotech investment ideas such as this?
I’m curious why you think FMI will bump up another 50% within a month?
The stock has tripled over the last year, and is currently valued as such because:
-they’ve grown >40% YOY for the past 4-5 quarters, but were not really on that pace prior.
-the market is on a tear
-management tends to be conservative with their projections and is bumping them up quarterly (ie, they were projecting something like 50-54,000 tests in 2017 during Q1, now they estimate 64-66,000).
FWIW, I believe in FMI as I believe cancer diagnostics will continue to push more towards molecular footprint (ie, BRCA+, etc). However I’m hesitant at this price and want to see them produce for the next 2-3 quarters. They are on a tear and rightfully so- based on performance to date. I think of FMI more of a RB or NPI stock rather than a Saul stock, and have been meaning to write it up. It has great potential in the onco-diagnostic business.
HOWEVER… My primary concern is what happens next. The last 3-4 quarters, its been all about FoundationOne CDX, while pursuing additional reimbursement from other carriers for their other diagnostics also mentioned. This gets them buy for a few more quarters of growth as sales ramp up; they will eventually flatten out though unless they have other irons in the fire.
ILMN has reproductive health, research, population sequencing, infectious disease, agriculture, forensics, etc… They expanded and continue to look towards the future as evidenced by GRAIL. I want to see that from FMI (not necessarily expansion, but some further semblance of forward thinking & a vision) before committing to a long term buy and hold.
Congrats on your wins, though I’d be cautious about this being a long term buy & hold until they show further vision.
Hi MDIRADS,
Yes. I will probably sell the contracts to generate cash to purchase stock, and yes, I anticipate a lot more appreciation after January.
I get my ideas from a number of places. I first got interested in this technology after I heard a Ted Talk on the possible end of cancer as we know it. Then there was an industry focus podcast on FMI genetic tests for cancer and the upcoming Medicare/Medicaid approval. That got my antennas up, and I dug into the business and options possibilities.
One other point on FMI, insurance support of FMI testing has been spotty. With the reimbursement decision, it is believed that most of the insurance companies will be obligated to provide this testing. This is likely to be a LANDSLIDE of new business.
To answer your question, “How do I get biotech investment ideas?” I tend to follow various drug companies and their competitors on the web, TMF recommendations, TED talks. A good company that has investments in a wide variety of drugs is CELG. Just by following CELG, you can pick up a lot of information on a wide variety of drugs. IONS is another. I am long both.
Fuma102,
I think two key catalysts are in place. Besides Medicare/Medicaid reimbursement, other insurance companies will likely have to join in. Private insurance reimbursement to date, has been spotty so that 40% growth should expand, a lot. Also, Roche is likely to buy FMI.
Check out FMI development of cancer testing. No one else is close. They have a large, large database of genetic information that puts them in the lead of everyone. ILMN is a great company, but take a look at the FMI comparative advantage with cancer. That business alone makes me very bullish.
Seeing the big share price drop today, when most of the stocks I watch were up, any update on Foundation Medicine and possible buy-out by Roche (especially from bulwnkl)?
Was there any discernible reason that the share price dropped today, other than the simple fact that FMI is quite volatile? I think I saw a few headlines about some insider sales, but not sure if that was enough to warrant today’s decline.
I nibbled on some additional speculative $70 Jan 19 2018 calls today with the drop right as the market closed, but I may want to look into some further dated expirations as well (August 2018 is the furthest out that I see available) to have a better chance of capturing the bump if Roche buys them out.
I will note that Roche has a market cap in excess of $200 billion, while FMI sits at just under $2.3 billion after today’s price decline ($2.27B).
Totally speculative numbers
A hypothetical purchase price of an even $3 billion would be a premium of about a 32% premium over today’s closing price and would present a per-share price of about $82.70. I don’t recall what the premium was when KITE was purchased, but the total price Gilead paid for KITE was $11.9 billion per the headlines of a quick, dirty Googling.
Hi volfan84-
I didn’t see any news other than a director selling about 8% of their shares. FMI is very volatile so this does not rattle me. I am planning on holding until close to the expiration date of my calls (1/19). I still expect Roche to purchase the FMI shares that they don’t own (~40%) in the near future.
Thanks, bulwnkl. That answer from you is about what I expected (no real/legitimate reason for the drop). My simple exercise of comparing the 2 relative market caps shows pretty clearly that a buyout of FMI would be a pretty small drop in the bucket for Roche.