TAKING STOCK: Speculating on Sarepta

prev
next

Dear Mr. Berko:

Starting in October, my stockbroker pitched a company called Sarepta Therapeutics. Apparently, it has developed a drug that could be a blockbuster in six months, and the stock could double to $80. Finally, in December, I invested $38,000 for 1,000 shares on margin because there wasn't enough cash in my account. Sarepta is now $18, and I'm burning mad about this loss. My broker is still bullish and wants me to invest in another 1,000 shares, reducing my basis to $28. What do you think?

-JL, Fort Walton Beach, Fla.

Dear JL:

I think, by cirkey and gadzooks, that you're dumber than a beer can! Never, ever borrow money to speculate. But stupid is as stupid does, and you've lost $20,000 in five months. Although, consider yourself blessed by an angel; had you bought Sarepta (SRPT-$18) in October in the high $50s, your loss would have been nearly twice as much.

Among the most significant problems facing Americans is that too many of us have investment IQs below freezing. Most Americans don't understand compound interest, can't compute current yields or grasp yield to maturity. And most don't know the difference between the national debt and the deficit. Nor do they understand the difference between speculating and investing. SRPT, which hasn't earned a dime since God's dog was a puppy, burns money like a blast furnace and doesn't produce a marketable product. It's a bleeping insufferable, rank speculation, not an investment-though it may be an insufferably good speculation. Generally, if a stock has a decent balance sheet and income statement, a record of revenues, earnings and dividends, and produces products in demand by consumers, then it's considered an investment. And it may be a lousy investment.

Sarepta is a biopharmaceutical company that seems to have developed "an antisense phosphorodiamidate morpholino oligomer" therapeutic. Because that's a mouthful, management gave it a less unpronounceable name, Eteplirsen. I haven't an inkling of what Eteplirsen does, but recent phase 3 trials indicate impressive success in the treatment of a virulent strain of Duchenne muscular dystrophy, a genetic disorder that destroys the body's muscles. Duchenne usually affects young boys. Those afflicted are unable to walk by the age of 12. The disease also severely damages the heart and lungs. The fatality rate is 100 percent. No one has lived past age 25. Clinical trials treating 9-year-old boys began in 2011. After four years of treatment, 10 out of 12 boys could still walk. In a comparable group, none of the dozen boys taking the placebo could walk. And wonder of wonders, zero side effects or safety concerns were reported. In February, 38 physicians plus leading experts in this field who examined thousands of Duchenne patients posted a very positive opinion letter on Eteplirsen to the Food and Drug Administration.

But the FDA seems to have "mental dystrophy"; it trusts only large clinical trials and refuses to approve the drug. The FDA demands a massive study of 5,000 Duchenne muscular dystrophy patients in a double-blind trial. In a double-blind study, half the test group would receive Eteplirsen ("the right stuff") while the other half would get a placebo (the wrong stuff). But because Duchenne patients are so rare, such a trial would be nearly impossible. And more importantly, it's ethically questionable. Would you sign up your 9-year-old boy for 100 weeks of muscular injections and high-risk biopsies if the drug your kid would get could be a saline solution?

Some say the FDA is a bureaucracy of Borg-like employees actively moldering in numerous government agencies with increasing frequency. Federal jobs for these low-skilled, overpaid, vacuous employees are entitlements, and they can't be fired. They are the quintessential federal bureaucrats, and their daily activities include considerable efforts to justify their jobs by making them appear hugely more important than they are.

Next time you get the itch to speculate, consider a call option and reduce your risks. A January 2017 call to buy SRPT at $38 would cost you $2 today. If Eteplirsen were to be approved-and eventually, I'm told, it will be-SRPT could run back to your $38 purchase price. But the option value would grow nineteenfold, to $38, and you'd have a $16 profit per option.

--------

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

©Copyright 2016 Creators.com

Published: Tue, May 10, 2016

Comments

  1. No comments
Sign in to post a comment »