Update on Small Cap Biotech Lottery Ticket Basket Strategy; Observations and Sample of Recent Trades (GYLD,TCON)-January 11, 2017/

Some of the trade discussions will be delayed by one or two days. 

1.  Exchange Traded Senior Bonds HTGZ and HTGX: 

The exchange traded senior unsecured bonds issued by the BDC Hercules Capital (HTGC) go ex-interest tomorrow for their quarterly interest payments.  

Hercules Capital Inc. 7% Senior  Notes due 2019 (HTGZ) 

Hercules Capital Inc. 6.25% Notes due 2024  (HTGX) 

I recently increased my HTGZ position to 328 shares by buying a 100 share lot in a Roth IRA account. I discussed my reasoning in an earlier comment and will simply drag and drop the relevant discussion here. 

"This bond matures on 4/30/2019 and may be called by the issuer at anytime now at the $25 par value plus accrued and unpaid interest.

The coupon is 7% on $25 par value.

Prospectus 

When Hercules announced the partial call, it started an intention to do more partial calls of this bond:

Feb 17, 2015 Press Release

Hercules Technology Growth Capital Announces Intention to Partially Redeem its 7.00% Senior Unsecured Notes due 2019 

Nothing has happened in the interim other than selling another exchange traded bond, HTGX, with a 6.25% coupon and a 2024 maturity date. This note was last sold in a public offering in June 2016 and the use of proceeds section indicates that the funds will be used to make investments: Prospectus 

HTGC has recently entered an equity distribution agreement with FBR to sell that bond up to $150M in principal amount. It is possible that little or no sales will occur thereunder. The Use of Proceeds section indicates to me that it will use the proceeds to make investments. Nothing is mentioned about redeeming the 2019 senior note. 

I also own HTGX.

Item # 4. Added 50 HTGX at $24.92:

Update For Exchange Traded Bond And Preferred Stock Basket Strategy As Of 5/16/16 - South Gent | Seeking Alpha

Item #3. Bought 100 HTGX at $24.98-Roth IRA:

Update For Exchange Traded Bonds And Preferred Stocks Basket Strategy As Of 5/10/16 - South Gent | Seeking Alpha

So Hercules is raising funds through selling securities and has so far failed to follow through in using the funds raised to retire the 2019 note. Instead, the firm has opted to invest the proceeds.

With rates rising, I doubt that Hercules would be able to issue a replacement bond with a lower coupon now. Even if a new senior bond could be sold now at a lower than 7% coupon, the underwriting discount and Hercules' own costs would likely eat up any benefit of a lower coupon.

So this is a bet that the security will not be called anytime soon. Hercules will probably need to raise funds at some point to pay off this bond, but that could be with another bond or a commons stock offering. A better option for the 2024 bond proceeds would have been to retire the 2019 bond IMO, but that has not happened and there is as of yet no indication that it is about to happen.

My original purchases of the 2019 bond were made several years ago at below par value:

May 25, 2012

3. Bought 100 HTGZ at $24.6 Yesterday-ROTH IRA

Stocks, Bonds & Politics: Sold 3 TIP Bonds Maturing in 2019 at 120.45/Sold 50 NPBCO at $26.17 and Bought 100 HTGZ at $24.6-ROTH IRA

May 4, 2012

4. Bought 100 HTGZ at $24.63 Last Monday

Stocks, Bonds & Politics:  Bought 100 HTGZ at $24.63/Sold 50 SLGPRC at $25.5 Roth IRA

Assuming no call prior to the maturity date, and Hercules survives to make all interest payments and to pay the principal at maturity, the YTM would be about 6.67% for this last purchase, which is tax free in the Roth IRA. Interest rate risk is subdued given the 3 year, plus a few months, period to maturity. That is my thinking in a nutshell."

End of Quote

Sourced from South Gent's Comment Blog # 7: REITs, Preferred Stocks And Bonds, Regional Banks, Healthcare & Biotechs, CEFs, Currencies And International Trading - South Gent | Seeking Alpha

2.  Short Term Bond/CD Ladder Basket Strategy: 

A. Bought 2 Northeast Utilities 1.45% Senior Unsecured Bonds Maturing on 5/1/18:  

Short Term Bond Ladder - South Gent | Seeking Alpha

Link to FINRA Page: Bonds Detail

Bond Ratings: 

Moody's Rating	Baa1 (01/31/2014)
Standard & Poor's Rating	A- (04/23/2015)
Fitch Rating	BBB+ (07/06/2016)

7/6/16 Press Release: Fitch Upgrades CL&P, PSNH, and WMECO; Affirms Parent Eversource at BBB+ with Outlook to Positive 

YTM at Total Cost = 1.627%

Northeast Utilities is now known as Eversource.

ES Stock Quote - Eversource Energy Stock Price Today (ES) 

Eversource SEC Filings

Press Release 2016 3rd Quarter Results 

ES Analyst Opinion | Analyst Estimates 

B. Bought in Roth IRA 1 Vodafone 1.5% Senior Unsecured Bond Maturing on 2/19/18: 

This is my second purchase of this bond. The other purchase was placed in the Fidelity taxable account. 

FINRA Page: Bonds Detail (prospectus linked at that page)

Bond Ratings: 

Moody's Rating	Baa1 (07/23/2014)
Standard & Poor's Rating	—
Fitch Rating	BBB+ (08/26/2016)

YTM at Total Cost: 1.534%

8/26/16 Press Release: Fitch Affirms Vodafone at BBB+ With Stable Outlook 

3. Eliminated the ETF GYLD (100 shares in two taxable accounts): 

Reasons: Trade, Source of Funds, Short Term Income Vehicle Only  

101 Shares +$88.05

100 Shares +$19.95

Arrow Dow Jones Global Yield ETF (GYLD) 

Sponsor's Website: Welcome to Arrow Shares

Last Discussed Here: Item # 1 Bought 50 GYLD at $18.57(near all time low)-ROTH IRA: Update For Portfolio Management And Positioning As Of 12/3/15 - South Gent | Seeking Alpha

That lot was later sold. The preceding linked post has links to other round-trip trades. 

Total Trading Gains to Date: $452.11

The trading is designed to capture several monthly dividends and to escape with a profit. 

It would not have paid to be a long term holder as shown by some of my exit prices: 

Item # 6 Sold 50 GYLD at $28.09-Roth IRA (7/19/14 Post)(total return +$154.9)

Item # 4 Sold 100 GYLD at $28.32 (8/9/14 Post)(total return +323.22 or 12.1%)

Sold 100 of the ETF GYLD at $25.49 (2/21/15 Post)

While the ETF generates significant income, it does own international stocks and bonds and has consequently been hurt by USD strength. Moreover, the fund maintains a significant position in MLPs and emerging market debt which have underperformed since mid-2014.  

4. Merck (own): Merck bucked the downtrend in pharmaceutical stocks today caused by Trump's statement that the drug companies were "getting away with murder".  Possibly, some investors who voted for Trump with become weary of the Orangeman's Big Mouth before his firm term is up or at leas refuse to quickly turn the constant stream of B.S. into sirloin steak. 

This was the news that gave Merck's stock a lift today: 

Merck Receives FDA Acceptance of Supplemental Biologics License Application for KEYTRUDA® (pembrolizumab) in Combination with Chemotherapy for First-Line Treatment of Metastatic Non-Squamous Non-Small Cell Lung Cancer  

The expansion of Keytruda's label is material to Merck's future. 

MRK $61.63 +$1.71 or 2.85% : Merck & Company 

IBB $277.94 -$8.56 or -2.99% : iShares Nasdaq Biotechnology ETF 

5. Bond Rally Continues: 

Today's rally, however, faded into the close. 

IEF $105.56 +0.12 or 0.11% : iShares 7-10 Year Treasury Bond ETF 

LQD $118.03 0.18 0.15% : iShares Investment Grade Corporate Bond ETF

I am starting to sell recently purchased potentially long duration exchange traded bonds and preferred stock into the current rally.  I will discuss one disposition in tomorrow's post. 




6. Small Cap Biotech Lotto Basket Strategy: 

As previously noted on numerous occasions, there is nothing in my background that provides me with any qualifications to assess biotechnology stocks. I suspect that it is true also for some who sell prescription services with their recommendations. For me, I just buy in small amounts whatever interests me after doing some cursory research. I am okay with lighting a match to the entire "investment" and watching it burn into nothingness.  Maybe I will do okay with a few lightening strikes. 

These selections are extremely volatile and there was widespread carnage today after Trump's news conference. Trump's bombastic noise will be grating on investors nerves for as long as he is President.  

Today, I bought 50 TCON at $4.8 in my IB account. I placed a limit order twenty cents below the then existing price. After Trump spoke, the price went south in a hurry, hit my below market bid and then proceeded even lower. 

TCON $4.75 -$.35 or -6.86%: TRACON Pharmaceuticals, Inc.

I have no particular insights into this company. It came to my attention after reading this information published on 1/4/17: TRACON Pharma clarifies development path for lead product candidate; shares ahead 11% - Tracon Pharmaceuticals (NASDAQ:TCON) | Seeking Alpha

I did not read Bret Jensen's premium article since I am not a subscriber. TCON Latest News & Analysis-Seeking Alpha

I do review even for these immaterial purchases the last earnings call transcript and the most recent earnings release. 

CEO Charles Theuer on Q3 2016 Results - Earnings Call Transcript | Seeking Alpha

SEC Filed Report for the 2016 3rd Quarter

The company is losing money and that can be expected to continue for some time. 

If a recent investor presentation is available, and one is for TCON, I will look at it: SEC Filed Investor Presentation Made in January 2017 I can see from that presentation that TCON has a couple of compounds in Phase 2 trials. The TRC105 compound may have started, or soon will start a Phase 3 trial. TRACON Pharmaceuticals Receives Special Protocol Assessment (SPA) Agreement from FDA for Phase 3 Clinical Trial of TRC105 in Angiosarcoma

I will glance at the pipeline material available at the company's website, recognizing that I have zero expertise in evaluating the compounds. TRACON Pharmaceuticals

I will look at some recent  SEC Filings. I noticed a form 13 filing, opened it and saw that a Cayman Islands based firm called New Enterprise Associates owned 17.6% of the then outstanding shares. SEC Form 13D 

I also saw a prospectus for a recent stock offering priced to the public at $5.75 per share. (SEC Form 424B5) So at least I bought my 50 shares at a lower price and maybe TCON will not have to tap the market again for a few months.  
Current Small Cap Lotto Ticket Basket (overall still in profit territory): 

I am going going to lose any sleep over that $214 downdraft today. 


The largest unrealized gains are in PGNX, CYTK and ARRY. 

I discussed buying a 50 share lot of CYTK here: 1. Bought 50 CYTK at $9.81:  Update For Healthcare Basket Strategy As Of 8/12/16 - South Gent | Seeking Alpha  I later added and still own 30 shares in my IB account bought at $8.75 (9/15/16). 

The ARRY lot was bought in the IB account at $4.1 (8/3/16):

The remaining 50 shares of PGNX was bought at $5.94 (7/25/16). Item # 4 Bought 50 PGNX AT $5.94-Update For Healthcare Basket Strategy As Of 7/29/16-Growing Lottery Ticket Component - South Gent | Seeking Alpha 

PETX moves in and out of that list with the first lot bought at $6.3 (Item # 2 previous linked post). That lot was over $10 for awhile. While the 100 share PETX position is still profitable, today's action brought it closer to break-even. PETX $7.91 -$0.34 or -4.12% : Aratana Therapeutics, Inc.

2017 Dispositions to Date (using commission free trades or $1 IB commission rate): 

2017 CARA 60 Shares +$260.35

2017 KPTI 30 Shares +$115.25

2017 NVTA 30 Shares +$46.49 (IB Account)

The 30 share NVTA disposition was the second round trip in the IB account. The other produced a similar result: 

2016 NVTA 30 Shares +$51.99

The 2017 CARA sale eliminated that position, having sold the other 50 share lot late last year: 

2016 CARA 50 Shares +$233.11

I have also eliminated PRTK, SUPN, EPZM, HZNP, SGYP and RIGL profitably: 

2016 RIGL 150 Shares +$109.24

2016 PRTK 30 Shares +$41.49

2016 PRTK 50 Shares +$45.19

2016 SUPN 30 Shares +$69.38

2016 HZNP 50 Shares +$52.56

2016 SGYP 50 Shares +$52.56

And I pared (or sold and repurchased) PGNX, IMDZ, BBC, MACK and CYTK: 

2016 PGNX 50 Shares +$96.51

2016 PGNX 60 Shares +$17.99

2016 CYTK 50 Shares +$94.99

2016 IMDZ 30 Shares +$41.49

2016 MACK 100 Shares +$132.47

2016 BBC 30 Shares +$58.28

Two stocks blew up after their major drugs failed in trials (NVAX: Lost $277.01 and EARS: Lost $91.47). That goes with the territory and more will occur for as long as I gamble in this sector.  You have to just shrug your shoulders when you see one of those  50+% up or down days. Advaxis doubled shortly after my first purchase at $7.9 and my last small lot add was at a lower price than my first purchase.  

IMGN recently rose quickly over 50% in price and that was just enough to turn my 150 share back into profit territory. 

Wild does not begin to describe the action in many of these stocks which is why I view my efforts in this sector as a form of entertainment, something that I do not receive when owning a short term A rated corporate bond which has a negative entertainment value.  




Disclaimer: I am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager starting in the late 1960s. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. A failure to perform due diligence only increases what I call "error creep". Stocks, Bonds & Politics: ERROR CREEP and the INVESTING PROCESS Each investor needs to assess a potential investment taking into account their personal risk tolerances, goals and situational risks. I can only make that kind of assessment for myself and family members.