It’s rare that a well-known hedge fund takes a stake in an under-the-radar penny stock. This is largely because the value of most hedge fund trades exceeds the entire market cap of these minuscule companies.
However, the fund managed by Michael Burry, Scion Asset Management, did just that in the second quarter. It bought 633,959 shares of BioAtla (NASDAQ: BCAB) for a reported price of $1.37.
At $52m, Burry’s hedge fund is quite small by Wall Street standards. This means that a home-run penny stock can probably still move the needle when it comes to returns. BioAtla’s market cap is just $78m.
As a contrarian investor, he has a great track record of identifying overlooked opportunities. He famously bet against the US housing market between 2005 and 2007, a move that earned him widespread recognition following its depiction in The Big Short film.
This penny stock has collapsed 95% since late 2020. So, should I follow him into this trade?
The $1 stock
BioAtla is a clinical-stage biopharmaceutical company developing a novel class of antibody-based therapeutics for the treatment of solid tumour cancers.
Specifically, its using Conditionally Active Biologics (CAB) technology. This approach allows for more precise targeting of cancer cells, aiming to increase treatment efficacy while reducing toxicity.
It has two major phase 2 programs, BA3021 and BA3011, along with a pipeline of other innovative therapies. The first drug targets the ROR2 receptor, a protein found in several solid tumours, including lung cancer, melanoma, and head and neck cancers.
The second combines an antibody with a chemotherapy drug, allowing the payload to be delivered directly to cancer cells.
So we’re talking potential next-generation cancer treatments here.
Financial picture
The net loss for Q2 was $21.1m, an improvement from $35.8m in Q2 2023. It still had $61.7m in cash at the end of June, enough to fund operations through Q3 2025 (another year).
The company remains focused on completing its Phase 2 trials. Of course, progress will depend on successful outcomes and FDA approvals. Neither is guaranteed.
Progress
That said, a recent update on BioAtla’s BA3021 clinical trial showed promising results for treating patients with a type of head and neck cancer. The drug demonstrated good tolerability and an ongoing complete response and disease control rate of 77%, suggesting substantial anti-tumour activity.
The company plans to meet with the US Food and Drug Administration (FDA) to discuss the next steps, reflecting confidence in the drug’s potential.
Other pipeline readouts are due later this year.
Should I buy BioAtla stock?
This all sounds very promising. However, I’m hearing Warren Buffett in my head here. He’s warning me not to stray too far outside my “circle of competence“.
Michael Burry attended medical school, earning a degree in medicine before pursuing a career in finance. I’d say this background makes him more qualified than me (who has never studied medicine) when looking at pre-revenue biotech stocks like BioAtla.
Moreover, I’m a long-term investor, whereas many of Burry’s hedge fund trades are short term. For example, he bought 175,000 shares of oil giant BP in Q1. By Q2, however, he had sold the lot (at a loss).
Weighing everything up, this stock is far too speculative for me. So I’ll be investing elsewhere in October.
