3/13/2013

Interesting 13D filing last Friday by First BioMed, a Billion dollar hedge fund, they disclosed an 8.8% stake in the biotech company Vivus ($VVUS). First BioMed also filed a proxy with this 13D, stating that they want to replace the company’s entire board. First BioMed said in the filing that they are concerned about the company’s strategy and the failure of its launch of Qsymia (its new weight loss drug) six month’s ago. First BioMed also stated that they are focused on fixing the company’s strategy on marketing Qsymia in both the U.S. and Europe.

What’s so great about 13D filings is that the filing actually tells you what price the hedge fund paid for the stock that they recently acquired. In this case First BioMed acquired more than 8.8% of Vivus at an average price of around $11.

So what do we make of all this, we have a top Billion Dollar Hedge Fund, BioMed acquiring a huge stake in a $10 biotech company, and the hedge fund is also taking a stance against the company trying to replace the board, and fix the company’s strategy. I think makes the stock very interesting now, Vivus has dropped from $30 to around $11 over the last 8 months, on the disappointment of the company’s sales for its new weight loss drug. So there is some value here and if First BioMed can actually fix the company’s strategy and improve the sales of its new weight loss drug, I think this could be a $21 stocks and that’s a great risk reward trade.

That is the great thing about following activist Billion dollar hedge funds, when they file a 13D and a proxy contest, it usually puts a bottom in on the stock, and in this case, I think the bottom is in at Vivus around $10. So what is the best way to trade this stock probably options, or using a stop loss.

If you believe that the Billion dollar hedge fund BioMed, with its almost 9% ownership of Vivus, can change Vivus and make it profitable then the stock offers compelling risk reward. You put a stop in a little below $10 at $9.75, and with this new catalyst of First BioMed’s ownership and proxy contest and the stock could easily hit $21, then you are risking $2 dollars to make $10, and thats an incredible 5 to 1 risk reward.

Will Meade
Editor of the Billionaires Portfolio