Idorsia: Time to be greedy (technical analysis) (OTCPK:IDRSF)

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Eonen

An update on the most recent developments

Since my last Idorsia: Someone’s Playing With Fire article, Idorsia (OTCPK:IDRSF) released its third quarter results with a mixed picture amid weaker than expected sales of its largest QUVIVIQ product, but strong revenue growth in Japan for PIVLAZ, resulting in overall revenue of CHF 21 million for the quarter. With respect to QUVIVIQ, investors should consider that the company is still negotiating broad commercial coverage in the United States and that reported sales do not reflect demand or volume of prescriptions dispensed at this stage, as Idorsia offers a comprehensive co-pay program, including a free 30-day prescription for new patients, as part of its launch campaign. The company expects two regulatory approvals for QUVIVIQ in the coming months as it is under review with Swissmedic and Health Canada, while the drug will be launched in Germany and Italy in the coming weeks as the first and only dual orexin receptor antagonist available in Europe.

On November 10, 2022, Idorsia announced that approximately 9.1 million serving and retired U.S. military personnel and their families will have improved access to QUVIVIQ through the TRICARE healthcare program. Sleep problems experienced by military personnel and their families are notoriously relatively higher compared to society in general.

The company could also attract a new top-tier institutional investor, as Capital Group announced the 3.09% stake on October 26, 2022.

More importantly, Idorsia reported positive results from its Phase 3 PRECISION study of aprocitentan. Both the primary key objective, demonstrating the hypotensive effect of aprocitentan in patients with confirmed resistant hypertension, and the secondary key endpoint, demonstrating that the effect of aprocitentan on blood pressure is durable in these patients, could be confirmed, leading to the conclusion that aprocitentan has significant and sustained efficacy after 4 weeks and over 48 weeks of treatment, while primarily reporting clinically manageable edema/fluid retention over the course of the first week of treatment as an emerging side effect.

PRECISION Phase 3 study

Idorsia, Investor Webcast November 2022

The question now will be whether these obtained results are sufficient for Aprocitentant to become a successful drug as expected, while taking into account the adverse effects if the product ever comes to market. In this article on Idorsia, I have already considered a significantly lower target for the annual income of the drug compared to the average of the street. Therefore, I still feel comfortable with the assumptions of my recently adjusted valuation model, although some analysts may adjust their estimates.

A quick overview of the big picture

The US healthcare sector has performed better overall than other groups in the economy over the past year, with some industries showing signs of strength in recent weeks. The sector’s recent recovery is led by pharma retailers, general drug makers, and diagnostics and research companies, while biotech companies are still struggling to recover more meaningfully, the industry has reported sporadically. some strength over the past 12 months.

Sectors

finviz

The health industry

finviz

Turning to more specific industry groups, the NASDAQ Biotechnology Index (NBI), which reached its all-time high (ATH) on August 9, 2021, entered a significant downtrend in October 2021 and s has since corrected significantly, losing around 40% until the trough on June 17, 2022, where it immediately returned and broke above its most important moving averages on a daily and weekly basis, as well as from its downtrend channel. Despite this recent reversal, the industry benchmark is still relatively weak, relative to the broader healthcare sector, tracked by the Health Care Select Sector SPDR (XLV), and after some consolidation, it now faces crucial price levels that will most likely determine the trend in the coming weeks.

BNI Weekly 10.11.2022

Author, using TradingView

Where are we now?

Since Idorsia’s main exchange is the SIX Swiss Exchange under the symbol IDIA, I consider this market to analyze its price action. Idorsia hit its ATH on January 24, 2020 and has since performed sideways on higher volatility, before decisively entering its long-term downtrend on a weekly scale at the end of July 2021. The stock has since been rejected every times it has attempted to overcome its EMA50 on a weekly time frame or its EMA200 on a daily scale, in fact, as I have written before in my old articles, IDRSF, and as IHS has repeatedly reported as well Markit which is now part of S&P Global (SPGI), not only the in the United States, but also the main listing on the Swiss exchange SIX, are notoriously shorted significantly, which is not surprising, considering the behavior of the evolution of the share price.

Idorsia Current situation Weekly 10.11.2022

Author, using TradingView

Interestingly, how the stock declined to its most significant Fibonacci extensions, measured from two separate rallies that tried to keep the stock out of the mud, while its short-term moving averages showed their persistence as its trailing resistance through most of the decline. The stock has seen significant relative weakness since June 2020, compared to the sector benchmark tracked by the NASDAQ Biotechnology Index (NBI), and now looks particularly extended, while selling pressure, as measured by its volume weekly, has apparently declined over the past few weeks. .

On its daily chart, IDIA faces its long-term EMA200, a resistance that the stock has not consistently overcome since July 2020. On the other hand, the stock appears to be holding the EMA50 level, a significant support that the stock has recently often tested on increasing buy-side volume, while the recent pullback has re-emphasized some relative weakness. The stock has finally broken out of its downtrend channel and appears to be following a new strong uptrend line. Overall, this is the strongest pattern seen since the start of the decline, which will be very interesting to watch in future trading sessions, as it could knock the stock out of its long-term downtrend. term.

Idorsia Actual Situation Daily 10.11.2022

Author, using TradingView

Since my last article, published on August 24, the short volume on IDRSF has risen sharply by more than 17%, standing at 9,127,600 shares sold short, for a total of $134.27M, at the end of October. This is quite a risky bet, given that even though the volume traded increased, the short interest rate still stood at 3,969 days to cover, and recent very positive developments, as well as the integration of new leading institutional investors, while existing shareholders Lazard Asset Management would have increased its exposure by 241% at the end of September, all of which could lead to substantial upward momentum and trigger a short squeeze.

IDIA Recent Changes in Major Shareholders

TIKR

What comes next?

Although at this stage I would certainly be very cautious, this stock may offer an attractive contrarian entry point for more risk-tolerant investors. As we saw on its weekly chart, the stock is now extremely wide and may attempt to retrace some of its losses. I expect the stock to continue trying to overcome its 200 EMA, while we would need to see a gradual increase in buy-side volume when testing its broad resistance, and a decline in sell-side volume when tested. approaches its EMA50, until the stock consistently overcomes its EMA200. This could likely trigger a strong upside move that could even lead to a short squeeze, as US short exposure has reached new all-time highs. This scenario could lead the stock to break out of its high resistance level at CHF 15.80, with the next targets at CHF 16.50 and further at CHF 18, translating to more than 21% upside potential.

Idorsia Probable result 10.11.2022

Author, using TradingView

In my opinion, a consolidation was due, and the recent positive news may have led some momentum-oriented investors to take some profits off the table. Despite this, the risk of the stock falling further is still high, and I would definitely follow a strict contingency plan in order to avoid major losses. For less risk-tolerant investors, the EMA50 may offer the right stop-loss protection, but since this level could be repeatedly tested even in a possible continuation of the recent uptrend, I would set my stop loss with enough of a gap, giving the stock more air, which could now be pegged below 13.50 CHF (or around $13.60), and further adjusted if the stock moves higher.

The second most important catalyst, besides possible developments in the pipeline and positive feedback from the ongoing approval processes, is certainly related to the financing of the company. I am confident that management will find an appropriate solution in the coming weeks, which would reframe the risk profile of the business while providing more clarity on its future developments and achievable opportunities.

Long-term oriented investors who believe in this company might consider sizing their entry points based on the strength of the stock in the event of a steady breakout of the discussed air resistance, as the actual situation could present an unprecedented opportunity. since 2019.

The bottom line

Technical analysis is not an absolute instrument, but a means of increasing the probability of success for investors and a tool allowing them to orient themselves on any security. You wouldn’t drive to an unknown destination without consulting a map or using a GPS. I believe the same should be true when making investment decisions. I consider techniques based on Elliott Wave Theory, as well as probable outcomes based on Fibonacci principles, confirming the likelihood of an outcome contingent on time-based probabilities. The purpose of my technical analysis is to confirm or refute an entry point in the stock, by observing its sector and industry, and especially its price action. I then analyze the situation of this stock and calculate the probable results based on the theories mentioned.

Idorsia is a company that I have followed since its spin-off from Actelion, and despite my belief in the long-term success of the company, I also trade regularly with the stock on the SIX Swiss Exchange sizing my positions depending on the situation. The current setup may carry risks of seeing the stock pull back further, but it also offers a unique chance to take advantage of a likely breakout of its most important overhead resistance, which could lead to massive upside potential. Investors could structure a contingency plan based on their risk tolerance and execute it strictly, limiting downside risk accordingly, while considering recent events and other likely positive catalysts.

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