NG-mother-effin-M

Last Updated on November 6, 2019 by Sultan Beardsley

Trade Summary

Ticker: NGM (Last: $13.01)

Entry: $12.70-13.0

Price Target: $14.50-20.00

Target Time-frame: 1-8 weeks

Trade Thesis

NGM recovered as I predicted in my original trade alert (+26% ROI) that went out to MS Money Moves members on 10/15/19. I remain bullish on NGM’s near-term price performance. Seventy-one percent of the outstanding shares are held by insiders and institutions. The largest shareholders being The Column Group L.P, David Goeddel (managing partner at The Column Group), and Peter Svennilson who are lauded in the biopharma industry. Goeddel’s last company (Tularik) was sold to Amgen for $1.3 B in 2003. Merck also took a stake worth $450 M before NGM went public which included a 15% equity stake. The key point here is that these are not your everyday stakeholders. They are activists as well as investors. They are in for the long haul and will continue to buy as long as shorts try to bring NGM down as shorts have done to every other NASH stock.   

Since October 11th there have been eleven Form-4s. If you look back further you’ll see many pages of insider buys since NGM’s IPO earlier this year. Today (11/6/19) four more Form-4s came out showing that the insiders above collectively purchased ~$420K worth of stock this week. Buying support like this from the likes of this caliber of scientists and investors sends a strong message to short-sellers. Moreover, it will stoke the interest of investors on the sidelines. The fact that from 1Q19 to 2Q19 the number of hedge funds invested in NGM went from 0 to 10 supports this assumption. There are also multiple intermediate-term catalysts. 

In November of 2018 MRK reported positive phase 1b proof of concept data which showed that once-monthly NGM313 had an efficacious effect on insulin-resistant (i.e diabetic) NASH patients. This led to MRK exercising its option to license NGM313 (now MK-3655) from NGM in January 2019. The initiation of the phase 2 study for MK313 could happen at any time and could be catalytic for NGM. Finally, top-line data from NGM’s phase 2 NASH study is expected in the first quarter of 2020. In my opinion, this data readout has the potential to propel NGM like Constellation Pharmaceuticals (CNST) which closed up 90% today (11/6/19) after announcing promising phase 2 data. To this point, CNST is another stock that The Column Group has a significant stake in (6.2 million shares, 18% ownership). Whereas in NGM they own 16.5 M shares (25% ownership stake). I don’t know about you but I concentrate my capital on my top picks. 

A final aspect of my thesis is that shorts have not covered since there latest attacks. Based on data available on iborrow, the number of shares available to borrow went down to 20K this week from 100K last week. Assuming I am correct, and shorts can not successfully bring NGM down, the combination of shorts covering and longs buying will fuel the next leg up. As I discussed above the float is locked up and sits at 22 M. Under these conditions, we could see a strong move up.

Key Focus

Insiders buying, shorts covering, initiation of Merck’s phase 2 study, top-line phase 2 NASH data that includes biopsy data (click here for the interim data announced Oct. 7th).

Technicals

NGM has been trading a tight range and setting higher lows this week. As I would hope, it bounced nicely off $12.60 support today and closed above $13.0. Looking at its channel I think between $12.70-13.00 is a good entry.

Levels I am watching for pulling profits: $14.50>16.46>18.40>20.00

Risk Assumption (If enter at $12.70)

I am not using a stop loss here, but I like to use one at -5% ($12.07)

Reward Potential (If enter at $12.70)

+14% (Exit $14.50)
+30% (Exit $16.46)
+45% (Exit $18.40)
+57% (Exit $20.00)

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I (Sultan) am/we are long NGM with a cost basis of $12.59. I will buy any dips below my cost basis. 

The actual price performance could vary substantially. Because of the risk of negative news coming after hours, stop losses can fail to work. 

Let’s get this bread y’all!