FPRX Short, BIIB Long

             On Wednesday, FPRX opened up 380% at $24.02 after significant after hours and premarket trading Tuesday based on positive-phase two pre-clinical trial data for their experimental gastric cancer treatment, Bemarituzumab. Five Prime Pharmaceutical's CEO Thomas Civik recently announced the offering of 7.2 million shares at $18.00  to fund phase three trials as the company remains net income negative, and consequently suffers from low cash-on-hand. This will ultimately result in a total share dilution of approximately 24% or 7.2 / 30 million excluding the 30-day warrants granted to underwriters. Cowen and SVB Leerink, the managers of this proposed offering will presumably also receive warrants as an incentive for their services. If the  warrants provided to underwiters and the warrants paid to offering manager firms, Cowen and SVB Leerink are exercised by their expiration date, then further dilution will inevitably ensue. Five Prime's gastric cancer treatment is only in pre-clinical trials and the phase two data is somewhat ambiguous, though certainly not positive. Retail investors, market makers, and the institutions that own 78% of the stock will likely grow inpatient with its dismal range-bound performance, liquidate their position, and book their profit. Irrespective of the treatment's success or future approval, a reversion is imminent as investors frequently refuse to forgo present opportunities and will likely lose patience preceding the drug's approval.

         Conversely, Biogen's aducanumab passed phase three of clinical trials and is likely to receive approval by the FDA despite the protest of its third-party counsel. Nonetheless, the patience of investors and traders is waning; consequently, it currently trades at a significant discount. A compounded ROE valuation of the company indicates an intrinsic value of $298.00 per share while the average analyst estimate is $291.40 according to Yahoo Finance. Unlike other biotech and pharmaceutical companies, Biogen is blue chip and financially very healthy with strong operating margins and high F-score; hence, an implied lack of margin of safety. Whether you concur with its compounded ROE valuation and average analyst estimate or believe that a DCF approach may provide a more accurate price range, it is certainly undervalued and worthy of consideration as an addition to your portfolio.