Key insights
- The author argues that Wave Life Sciences (WVE) is undervalued due to a misinterpretation of clinical trial data for its obesity drug, WVE-007. They believe upcoming clinical trial data in late June could be a positive catalyst, leading to a significant price increase. The potential for acquisition and mispricing of options volatility further support a bullish outlook. The company's strong cash position until Q3 2028 mitigates financial risk.
The position is $6 calls on WVE expiring July 17th.
The stock trades for $6.33.
Thesis/DD:
- THE CATALYST: The stock fell 50% over a month ago after data on WVE-007, an obesity medication, that showed "less fat burning" than standard GLP-1 agonists that are usually used to treat obesity. The problem here is that the study was conducted on HEALTHY PATIENTS, NOT OBESE PEOPLE. A closer examination reveals that the drug actually works amazingly well, especially given that it is NOT a GLP-1 agonists like the other obesity medications on the market. The fact that this positive data caused a 50% selloff reveals the street's lack of understanding and a reversal of the move when more clinical trial data becomes public in late June. 2. POSSIBILITY OF AQUISITION: This company faces a fairly high probability of acquisition, and discussions of aquisitions in the past has caused the stock to skyrocket to 20$/share, although the final price shareholders would be liquidated at would likely be considerably higher, with one analyst (who might actually understand medicine) giving the company a fair value of 22.50. 3. MISPRICING OF VOLATILITY EVENTS: You'll notice that the Illiquidity of the options chain, and the fact that a lot of the players in the chain (especially on the call side) are selling call options that are vested to them as part of their compensation package is causing the Calls to trade at prices that do not reflect the power of the upcoming Catalysts. For example, there is a 75-85% chance of WVE-007 returning a positive outcome in it's next stage of the clinical trial process, a Catalyst that would cause the stock to skyrocket 100-400%. This is not reflected in the price of options. 4. CASH RUNWAY: The company is not solely relying on WVE-007. They have several other drugs in their pipeline, and their current cashpile takes them through Q3 of 2028. The company dosen't face any meaningful financial hardship for the rest of the fiscal year.
TLDR: Company make good drug, morons on wall street don't understand drug and sell stonk, stonk go down but soon go up