A little more than a year ago, I wrote my first article on Trovagene (TROV). I penned it in response to an SA article I read that touted its "billion-dollar" potential. This was an outlandish claim considering TROV's $51M market cap, a thimble's worth of revenue and four employees. Could the market be this inefficient? After perusing the company's amateurish website and reading about the Xenomics flame out, I concluded that the bullish author was either a paid promoter, a long trying desperately to create support for his losing position or a connoisseur of psilocybin mushrooms. There was no evidence that the company would be able to monetize its patents on nucleic acid testing in urine. In my opinion, there was no basis to believe that TROV could ramp up its business to any significant degree. The growth landscape looked barren.
My conclusion belied my pessimism, though, because I stated that I believed the next 12 - 24 months would be bullish for TROV considering the sexy story of transrenal nucleic acid testing (TrNA) and its then-recent $10M capital raise. The stock market has been smitten with all things genetic for a couple of years now so the tailwind was there for a ride on its coattails. One to two years is the typical shelf life for this type of story. The subsequent price action kept right to the script, albeit with a bit of volatility. The price closed at $3.25 the day SA published my article. It peaked at $8.96 on January 14 for a tidy 176% gain before correcting. It resumed its uptrend in late April and peaked at $10.27 on August 5.
So where will the price go from here? First, let's look at TROV's recent operating performance. Here are the results for the last 10 quarters:
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Revenues average only ~$88k per quarter. Operating losses have increased at a compound rate of 37% per quarter followed closely by the increase in the cash burn rate of 34% per quarter. The CQGR of R&D is 41% and SG&A 30%.
Revenues have been almost exclusively NPM1 licensing deals. Since TROV in-licensed this biomarker in May, 2006 it has consummated (by my count) eleven out-licensing agreements. Clearly, NPMI has not been a growth driver for the company. It will not be going forward either. I stated in my article that I believed the top line contribution for NPM1 would be, at best, $200k per year. This is still a good number, in my opinion.
The negative trends in expenses and cash burn are not concerning at this point. All it shows, other than it will eventually need more money, is that management has been investing the $10M in the business in order to better position itself to monetize TrNA testing. This is reasonable and customary for a development-stage company.
TROV's market cap is now $125M. This is already in the bullish valuation range considering its small size. Here are a couple of statements from its July 31, 2013 Prospectus Supplement:
We are a small company with 13 full-time employees as of July 30, 2013.
Our net tangible book value at March 31, 2013 was $1,535,667, or $0.10 per share.
TROV's valuation metrics are (as of 8/23): P/B: 82, Rev/Share: .03, P/S: 273. Revenue/employee is ~$42k.
These are nosebleed numbers to be sure. It gets a bit worse, too. The firm's book value actually turned negative (liabilities > assets) in Q2 (this explains why the Q1 value was used in the prospectus instead of the value as of 7/30). At $125M, the market is clearly pricing in rosier prospects for the company. Here is TROV's weekly chart:
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The chart has a few warts, but it is bullish considering the heavy accumulation on the right side of the eight-month base. There is clear institutional support. Buyers appear to like the story of TrNA testing. Also noteworthy is the sharp sell-off from the early August high. This is a superb example of the volatility longs must endure. It has been and will continue to be a rollercoaster.
Since last July, there has been a convergence of certain trends in genetic testing that bolsters TROV's prospects. The landscape is not quite as barren as before. Is it possible that it will reach the "billion dollar" plateau? Not in a billion light years, in my view. From its current valuation, though, there could be some upside in the next 12 - 24 months. How much? I'm not sure because I have no way of predicting the intensity and perseverance of investor sentiment vis á vis "castles in the air". The share price could go nowhere or it could triple. One thing is virtually certain. The price action will be married to how good a case for trans-renal nucleic acid testing management can make. It is going to take a continued emphasis on the well-executed salesmanship that has occurred thus far. It's also going to take first-rate sales and marketing execution for TROV to elbow its way into the oncogene mutation testing market. It will not be a slam dunk. The major cancer centers will not be stampeding to TROV's CLIA lab door. So what will TROV's business look like in a couple of years? Multiple scenarios are possible, of course. Let's look at the situation in more detail.
The Conceptual Nature of TrNA Testing
TROV is a development-stage company. By definition, then, it is a speculative stock for longs. In this case, it is a gamble on the continued rapid growth of personalized medicine, specifically companion diagnostics. To be even more specific, it is a gamble on the clinical realization of quantitative oncogene monitoring. This is the bullseye for TROV. This is the holy grail. This is where the big money will be because this is where the potential advantages of TrNA testing are most pronounced.
Unfortunately, reality rains on the parade. The incorporation of quantitative oncogene monitoring into the treatment paradigm as the generally accepted standard of care is years away. Presently, it is only a concept based on the intuition that a measurable trend of a mutation is clinically relevant. Nothing has been proven scientifically yet. NOTHING. In my research, I failed to find one completed study that scientifically proves a specific clinical utility of quantitative oncogene status. It is too preliminary. It should eventually be proven as some studies are already underway, but it is going to take a while. In my opinion, it will be at least 2 - 3 years before a specific clinical use is validated and incorporated into the generally accepted treatment paradigm. Clinical studies have a certain pace (slow) and the significant ones will be submitted to leading peer-reviewed journals for publication. The lead time for this is typically 9+ months. Nothing will happen quickly.
The principal reason for the slow pace of acceptance of quantitative oncogene monitoring is the significant complexity associated with how to interpret a specific number. In other words, what does the number mean clinically? How does the change in the mutation/wild type ratio relate to the stage and progression of cancer? Is it unique for each patient? Does the ratio change over a 24-hour period? In other words, must a patient pee in a cup at precisely the same time each day in order for the trend to be valid? Is the slope of the trend important? What does a "normal" trend look like? Is there a specific cutoff or sensitivity below which the result is clinically unimportant? Do quantitative results differ from one oncogene to another in a clinically significant way? What is the dose-specific response in oncogene mutation quantity and is there any aspect of this that has a statistically significant prognosticative value re patient survival rate? The unanswered questions are virtually endless. Much patience will be required while researchers clarify these issues.
Dr. Schuh addresses the early stage nature of quantitative oncogene monitoring in his corporate presentation. Here is slide #12:
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The graphic demonstrates the concept of changes in cell-free DNA in response to therapy. It sends the message that this phenomenon could serve as clinically valid feedback to the oncologist that the therapeutic regimen is working. There are two scientific papers listed in the fine print in the bottom left of the slide. These are the proof sources. The first paper, by Dawson et al, is a modest proof-of-concept study published this year. Researchers compared tumor radiographic images to changes in the quantity of cell-free DNA, CA 15-3 (cancer antigen) and circulating tumor cells in response to systemic therapy in 30 metastatic breast cancer patients. They found that the quantity of cell-free DNA in plasma samples responded more readily than the other markers to changes in the tumor burden. This demonstrates the concept in high-risk patients, but it does not demonstrate the utility, especially among low-risk patients, which is where the money is.
The next step, which is a big one, is to determine the clinical relevancy of these changes, especially as it relates to specific oncogene mutations in urine. This will require substantially more work and time because the subsequent studies will have to include much larger samples than 30 patients. There is a substantial degree of complexity pertaining to what changes in the numerical values actually mean. Eventually, quantitative cell-free DNA values will have to be compared to alternative diagnostics in terms of their impact on long-term patient survival rates (typically, five years). This is the ultimate metric of clinical utility in cancer. Many of the answers are years away. One possible outcome is that researchers will be unable to prove that quantitative oncogene values have a statistically valid impact on patient survival rates over and above the current diagnostic paradigm. There is a significant amount of work ahead.
The second proof source is a paper by Su et al, published in 2008 that compares KRAS detection levels in serum, plasma and urine in 20 patients. They found that the detection levels were comparable among the three in small samples (10ul) but increased substantially in urine when the sample size was increased (200ul). This is a tiny study showing the potential advantages that a large volume urine sample delivers versus the alternatives.
Since the results of this study are incorporated into TROV's corporate presentation almost verbatim, I was curious if the company funded the research. I could not find a reference to Xenomics in the Acknowledgment section but I believe that it funded most or all of the study. Item #8 in the Reference section is a study published in 2004 by the same researchers. Xenomics is listed as a sponsor there.
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Xenomics' financial support does not invalidate the study results. It just means that there were clear expectations by all parties before the work began. Sponsored research is commonplace in the medical business. It is an integral part of the sales and marketing kit as the scientific validation of the product or service.
The fact that TROV credentials the concept of monitoring tumor response to therapy with two tiny studies, one that did not include urine samples at all and the other it sponsored is telling. This clearly underlines the embryonic status of TrNA testing. The work has just begun. Compared to the formidable work ahead, it is barely off the drawing board. Here is a statement from the July 31 Prospectus:
The use of the transrenal molecular technology has never been commercialized for any indication.
Now let's look at how TROV sells the market opportunity for TrNAs. Here are slides #13 & #14:
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#13 is one of the most informative slides in the presentation because it concisely summarizes my argument about the preliminary nature of TrNA testing and how much work remains to be done to gain market acceptance. Note the title: "Building value through clinical validation". All medical products must go through this process. The clinical utility must be proven scientifically before the medical establishment will consider adopting it. Note that Phase 1 is "Qualitative Validation". The first bullet states that studies will be performed (e.g. Janku) to demonstrate the concordance of TrNA values with biopsy and serum/plasma results, i.e. the false positive/false negative comparisons ("yes/no" results, either the mutation is present or it is not). This phase is where TROV expects to show the superior sensitivity of a urine sample.
It is important to remember that this still a proof-of-concept study at this early stage. It will validate the concept of greater sensitivity enabled by the larger volume of urine in the test sample. This is the first step in the scientific validation of quantitative oncogene monitoring. Establish superior sensitivity and then confirm the scientific validity of quantifying the minute amounts of cell-free DNA. The value of this rests on the assumption that "earlier is better" vis á vis cancer diagnostics. If the oncologist can detect an increasing level of tumor-specific mutations earlier (before a diagnostic image would show it), then he can intervene earlier for the benefit of the patient.
Conceptually, this is true, but this is where things get a bit muddled. What remains unanswered is the clinical relevance of this greater sensitivity. In other words, if the detection level increases from, say, .21% down to .03%, and an upward trend is detected (e.g. .03 - .05 - .08) what intervention is appropriate? Should the patient be screened more frequently (bullish for TROV) until the quantitative value reaches a certain threshold or does the oncologist take immediate action? Is an MRI or biopsy needed? Should low dose chemo be initiated? This is fertile ground for unnecessary procedures and higher costs. Sorry to say, but more clinical studies will be needed to answer these questions.
The reason that I mention these issues is the similarity between this aspect of TrNA testing and prostate cancer screening with PSA. Proponents forecasted that this biomarker to be a profound life extender for men, but there is considerable debate as to whether it has had an impact at all. In May, 2012 the U.S. Preventative Services Task Force recommended against PSA screening for men of all ages (excluding surveillance after diagnosis). A major contributor to this reversal of fortune for PSA is the skyrocketing costs surrounding the use of the test caused by the misbehavior of clinicians. Their lack of understanding of how to interpret the test results combined with a strong bias towards action has resulted in a colossal increase in unnecessary reflex procedures including biopsies and prostatectomies. These have had a deleterious effect on patient morbidity.
Employing TrNA testing for monitoring cancer recurrence is not precisely the same, but the colossal reflex intervention costs and the potential negative impact that these actions will have on patient morbidity and mortality will be even more profound. Doctors' financial incentives create a strong bias for action. When the increased sensitivity of TrNAs enables the oncologist to see an upward trend much earlier in a cancer survivor, the oncologist will be highly motivated to intervene. Unnecessary follow-up consultations, diagnostic images, biopsies and even chemo/radio regimens will abound. Treatment costs will skyrocket. The last bullet under Phase 3 on slide #13 about reduced medical costs is pure fiction.
Ballooning treatment costs are not an immediate concern for TROV, though. It just wants the oncology community to start ordering its tests. The cost/benefit impact of TrNA testing on cancer patients will take years to ascertain.
The initial market opportunity for TrNAs is qualitative testing. Per slide #13, the potential market size in the U.S. is $100 - $200M. This is based on, I believe, Dr. Schuh's back-of-the-envelope calculation he used in his Rodman & Renshaw presentation last year (3.4M current and surviving cancer patients with KRAS/BRAF/PIK3CA tested 2x/year @ $400/test; 10% market share). The current qualitative testing market for these oncogenes, however, is quite a bit smaller. According to Qiagen's IR representative, the KRAS testing market is $20M. The company's therascreen test kit is the dominant player with a 50% share. The remaining competition is comprised mainly of LDT's. According to NIH's NCBI database, there are currently 362 independent genetic testing labs in the U.S. Most of these are located in research/teaching institutions.
The BRAF and PIK3CA testing markets are quite a bit smaller, but I could not find a reliable source to confirm their sizes. I will make a generous guess that the pair is ~$10M. Let's assume, then, that the total testing market for the three biomarkers is $30M. Dr. Schuh's projection is clearly an exponential increase based on the assumption of widespread adoption of TrNA testing (this is an area that I wanted to clarify with him but he did not return my call). This is the point I made earlier about TROV having to elbow its way into the mix. This will take some sales and marketing muscle to pull off because TrNA testing represents a change in the current paradigm.
Today, almost all KRAS/BRAF/PIK3CA tests are performed on biopsy samples. Here is the typical sequence of events:
1. The oncologist obtains a small sample of tumor tissue via needle aspiration. He then puts the tissue in a labeled plastic container and sends it to the pathology lab. The oncologist will taken no further action until he receives the pathology report. For the time being, he is done.
2. The pathology lab receives the sample. The pathologist removes all non-tumor material and affixes a slice of the tissue onto a glass slide for interpretation. At the same time, he removes a small portion of the tumor tissue for DNA testing. After he examines the slide for the presence of cancer cells and obtains the test results, he sends a written report to the oncologist specifying the diagnosis including the criteria that he used in making his determination.
The visual inspection of tumor tissue by a pathologist is the gold standard for confirming the diagnosis of cancer.
So how does this affect TROV in its efforts to launch TrNA testing in its CLIA lab? Quite a lot. The oncologist is TROV's target customer because he is the one who will order the TrNA test. If he does order, he now has to do more. Instead of just one step (biopsy) he now must obtain a second sample (urine) and manage the concomitant logistics associated with sending a second sample to a different lab (order form, packaging, separate collection cup, transport, reporting). This may seem trivial, but it is more work. Convenience goes down not up. Now he must change his behavior in this situation. He must change his habit. The convenience of urine sampling is insignificant in this scenario, especially since the need for a biopsy sample remains.
This is why a concept sale is so difficult. It requires multiple sales contacts to chip away at the inertia of changing long-ingrained habits. Based on my own experience, it takes 5 - 10 person-to-person calls to get the customer into the action stage (e.g. product evaluation, check with colleagues for their opinions, place an order). It is a surprisingly long process even when your product has profound advantages. Habits are notoriously difficult to change, especially when the customer forgets 90% of what the salesperson told him as soon as the rep walks out the door. A successful sales effort requires repetition and persistence.
According to The Advisory Board Company, the total number of practicing oncologists in the U.S. for all specialties is ~12,500. How well is TROV positioned to influence this group? Today, it employs one sales representative focused on the "pilot" launch of the HPV LDT test in Southern California. The Chief Commercial Officer has some work to do in the next couple of years.
Phases 2 & 3 on slide #13 represent TrNA testing's evolution into quantitative oncogene monitoring. This is where the big money resides but it is years away. Note in Phase 2 that the scientific validation remains restricted to correlation. Even this phase will take years. Note the first bullet in Phase 3 that states "extensive clinical validation..." Note Objective 2 in slide #14 that includes PFS and OS. By definition, these are long-term objectives. Here is a paragraph from the July 31 Prospectus:
The results of our clinical studies may not show that tests using our transrenal molecular technology are superior to existing testing methods. In that event, we will have to devote significant financial and other resources to further research and development, and commercialization of tests using our technologies will be delayed or may never occur. Our earlier clinical studies were small and included samples from high-risk patients. The results from these earlier studies may not be representative of the results we obtain from any future studies, including our next two clinical studies, which will include substantially more samples and a larger percentage of normal-risk patients.
Buffettesque patience will be the prescription here.
It is important to be realistic about the near/medium-term commercial potential of TrNA testing. Nothing will happen quickly. Important clinical studies have just begun. Many advantages of TrNAs remain conceptual. A year ago, I stated in my article that it would be a stretch for TROV to generate $1M in revenues in 2013. The total through Q2 is $168.1k.
Murphy's Law is yet another issue that gums up the works. TROV validated the KRAS test protocol in Q4 of last year in anticipation of launching the LDT offering the same quarter. This was one of the two key milestones in my article. TROV consummated its contract with MDACC in June to acquire paired biopsy/urine samples. This is from the 2012 10-K:
On June 27, 2012, the Company entered into a research agreement with University of Texas MD Anderson Cancer Center ("MDACC") to provide samples and evaluate methods used by the Company in identification of pancreatic cancer mutations. Under this agreement, the Company has committed to pay $90,400 for the services performed by the University. As of December 31, 2012, $45,240 has been paid to MDACC under this agreement.
Here we are in September and we are still waiting for the launch of the KRAS LDT. Dr. Schuh told me that MD Anderson has been inconsistent in sending them the paired biopsy samples with the urines. Nothing is easy.
The verbose point that I am making is that the "multi-billion dollar" opportunity is a chimera. It has no chance of it happening for at least 5-10 years, probably more. By then, other technologies/therapies/devices may be available that will obviate the advantages of TrNAs. Even this matters little, though, because TROV will be long gone before then. The salient question for long retail investors is whether there is more near-term upside in the stock. There might be.
Events Favoring TROV
In the year since I wrote my first article, there has been much progress in molecular diagnostics arena. These developments, along with several TROV-specific events, bolster the company's prospects for the next 1-2 years because they reinforce bullish investor sentiment. Here is the list (in no particular order after #1):
1. The cost of molecular diagnostics testing has dropped precipitously. According to Dr. Schuh in his Rodman & Renshaw presentation, the cost of sequencing 50-100 oncogenes using NexGen sequencing technology can be done for ~$200. Only a few years ago, the cost was prohibitive (well into the $000's). This enables more clinicians to determine a patient's molecular "PIN Code" as it relates to personalized medicine. Advancements in Digital PCR now enable the quantitation of specific oncogenes for as little as $10. As late as 2009, the cost was $1500/mutation. This is the most profound change favoring TROV. Any time the cost of a technology drops this drastically, new uses and markets emerge. The best example of this phenomenon is the breath-taking evolution of computers as the cost has plummeted. The economy of molecular diagnostics has the potential for a comparable impact in medicine. Here's a graphic from Raindance Technologies' Raindance Digital PCR brochure:
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2. The concept of companion diagnostics has been clinically validated and is part of the treatment paradigm for certain types of cancer. The FDA has approved 19 regimens to date. The pace of future submissions will accelerate as new products and indications for other diseases are developed.
3. The concept that "more sensitive" diagnostics is better. This is a powerful intuition for researchers in most areas, particularly cancer and infectious diseases, especially in the early stages of a new technology or capability (e.g. quantitation of minute amounts of cell-free DNA).
4. The molecular diagnostics juggernaut. This is the medical equivalent of Godzilla leveling Tokyo. The pace of discovery and innovation will continue to accelerate as the knowledge base grows.
5. TROV's Chief Executive. I perceive that Dr. Schuh has the experience and skill to whip the business into good enough shape to sell it, which is precisely what is going happen (more on this later). He replaced the amateurish website with one that is infinitely more professional, he has concisely articulated TROV's value proposition in his corporate presentation and he has met one of the two key milestones I identified in my first article (HPV collaboration). He is an effective chief evangelist and he is getting things done.
6. The recent investment of $15M by Bridger Management LLC, an NYC-based hedge fund that runs ~$1.5B. This is only one data point and institutional investors are wrong just as often as the rest of us, but it is reassuring to see nonetheless.
What The Future Holds
TROV's situation reminds me of one my favorite Yogi Berra quotes: "If you come to a fork in the road, take it." I base this on the fact that the company has several strategic options it can employ to build its business, but ultimately it does not matter because it will be sold no later than 2015, in my opinion. The degree of fundamental progress will be relatively immaterial by then. What will attract a suitor will be how realistic the "castle in the air" of quantitative oncogene monitoring appears. This will be determined primarily by the conclusions of scientific studies, the continued well-executed salesmanship by Dr. Schuh and the conversion of some key opinion leaders. It will remain a concept sale.
On the fundamental side, there is not much to be had. The LDT tests will not generate much revenue because TROV is not appropriately positioned to commercialize them. The Chief Commercial Officer only has one sales person on staff. He apparently just works Southern California attempting to build demand for the HPV test.
Actions speak much more loudly than words. The fact that the initial commercial outreach for the HPV testing service is a "pilot launch" says that TROV has modest expectations for it. Otherwise, it would be aggressively adding sales personnel. Dr. Schuh informed me that he intends to out-license it to a company that focuses on the STD diagnostics market because TROV intends to concentrate on the cancer space. I agree 100% with his strategy. The STD arena is an entirely different market. It is best to transfer HPV to a firm that prioritizes that segment of diagnostics.
But won't the KRAS/BRAF/PIK3CA LDT's bring home the bacon? In my view, it is doubtful due to the personnel and time requirements of selling the concept. Habits are very difficult and time-consuming to change. I will be keenly interested in the uptake of these tests when available. If less-than-robust, then we have our answer.
TROV has two broad directions that it can take in building its business in preparation for a sale. First, it can deprioritize its out-licensing activity and pursue the development of test kits for direct sales (e.g. Qiagen's therascreen and Roche's cobas). Second, it could opt out of the direct competitive fray by focusing on out-licensing its IP to as many labs and equipment makers as possible and let them fight it out. The first option would enable TROV to capture much higher margins, but it is more expensive and time-consuming. The second option scrimps on the margins but is faster and should enable a more rapid diffusion of TrNAs into the market.
As I mentioned, though, it does not matter much because I believe that the company will be sold before either option will have made a significant impact on its business.
So why am I so sure that the company will be sold? Let's look at a portion of Dr. Schuh's employment agreement from the 2012 10-K (page 43):
Dr. Schuh is also eligible to receive a realization bonus upon the occurrence of either of the following events, whichever occurs earlier;
(I) In the event that during the term of the agreement, for a period of 90 consecutive trading days, the market price of the common stock is $7.50 or more and the value of the common stock daily trading volume is $125,000 or more, we shall pay or issue Dr. Schuh a bonus in an amount of $3,466,466 in either cash or registered common stock or a combination thereof as mutually agreed by Dr. Schuh and us; or
(ii) In the event that during the term of the agreement, a change of control occurs where the per share enterprise value of our company equals or exceeds $7.50 per share, we shall pay Dr. Schuh a bonus in an amount determined by multiplying the enterprise value by 4.0%. In the event in a change of control the per share enterprise value exceeds a minimum of $14.40 per share, $22.80 per share or $60.00 per share, Dr.Schuh shall receive a bonus in an amount determined by multiplying the incremental enterprise value by 2.5%, 2.0% or 1.5%, respectively.
Let's run the numbers. If no change of control happens, Dr. Schuh earns a bonus of ~$3.5M assuming a share price >= $7.50. If a change of control occurs @ $7.50 and assuming 18.2M shares outstanding, he will earn a bonus of $5.5M; @ $14.40 it is $6.6M; @ $22.80 it is $8.3M and @ $60 it is $16.4M.
As of August 30, TROV has traded above $7.50 for 30 consecutive trading days. If this continues, Dr. Schuh will earn his $3.5M bonus on or around November 22. I will be keenly interested to see if he accepts his bonus in all stock. In addition, I will wager that the board will authorize a rewrite of his bonus plan that will continue part (ii).
The loud-and-clear message of his bonus scheme is "get the price up and sell".
I stated in last year's article that I believed that a market cap of $200M would be the takeout point for TROV. This equates to $11/share (assuming no more dilution). I still believe that this is a good number. If this happens, Dr. Schuh will take home a tidy $8M bonus. Not bad for several years' work.
Buy-And-Hold Or Trade?
Speculative stocks, particularly in biotech, are irresistible to the retail casino crowd. They place their bets and hope to win a jackpot. The intense nature of their hope makes them superb marks for promoters who gleefully feed them a steady diet of "multi-billion dollar" opportunities. The "get rich quick" mentality lies at the core of this relationship. This is one of the six human foibles that Charles MacKay wrote about in his 1841 book: Extraordinary Popular Delusions and the Madness of Crowds.
Considering the case that I make here, I believe that TROV's share price will be bullish up to ~$11. Beyond that, I have no idea because I have no reliable way to forecast the intensity and perseverance of investor sentiment. The price could stall or it could triple.
For me, TROV remains on my watch list. I do not transfer an investment target to my Active List until I see strong evidence that the market is (literally) buying in to the company's value proposition in a significant way. I do not see this happening with TROV through 2015. I will be on the sideline with this one.
For current longs, I suggest that you maintain your position as long as the price remains above the 10-wk EMA on its weekly chart. If the price is below this line on a Friday afternoon near the close, sell it, no questions asked. You can always buy back in. If the price rebounds the next week, ideally, on higher volume, and resides above this line on Friday afternoon, buy back in. If not, wait until it does. If it does not and continues its downtrend, you may congratulate yourself because you avoided a loss.
For those investors considering a long position, you should keep your powder dry for now. The timing is not right. You should wait for a proper base to form and then identify an appropriate entry point. The exit point remains the same, a weekly close below the 10-wk EMA.
This stock is not for buy-and-hold types because of its speculative nature. If you ignore the chart action and hold onto your position expecting to see the sales and profits roll in and the company blossoming into the next Celgene, it ain't going to happen. There is always the chance that no suitor will come after TROV and that it will be on its own to survive. Then its real valuation will become obvious.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
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