This is a post about friendship and lessons.
Can I tell you about my good friend Dzu? I promise this will go somewhere.
I met Dzu in college at UC Irvine. It was five of us boys, all living with one room of each other, all dorming on campus as freshmen. We would play Counterstrike all night, watch Lakers games, and grab In’N’Out in the early AM. An extremely Southern California-coded experience. But Dzu and I became the best of friends because we had one key thing in common: we like to make money. Consider it an exchange of minds. I played poker and I gave him some tips on how to win. He traded stocks and gave me a bunch of nonsense advice.
For example, he’d share the secret sauce about his strategy: cup and handle patterns. WTF is a cup and handle? He gave me a book on technical analysis, written by John Murphy. I read the whole thing. I was extremely skeptical yet intrigued. We had many polite arguments over the validity of technical analysis. Bunch of nonsense, I initially thought.
Dzu wasn’t a pure technician though. He considered himself a long-term swing trader/investor who concentrated on underfollowed small cap stocks. Avocado growers. Silver junior miners. Chinese manufacturing names. Early stage biotech.
The Never-Ending Ballad of AVNR
He had this one stock he obsessed over, an early stage bio stock called Avanir Pharmaceuticals (AVNR). Total dog of a stock. Some of these early stage bio’s would exist for decades and the only tangible thing they’ve ever done is destroy shareholder capital. This Avanir had existed since the 1980s under another name1(Lidak Pharmaceuticals), then pivoted to a new drug, then pivoted again. Just one failure after another.
At this time, arond 2008, AVNR was now on in its 3rd decade of existence and on its 4th lead drug, trying to get approval and attempt comemrcialization. Chart is an absolute waterfall of death after dilution and reverse splits. Their product? It started with dextromethorphan, it’s basically cough supressant found in Robitussin–seeemed like something with zero proprietary value on its own. So what they did conjure to make it special? They simply added another extremely regular ingredient to it–quinidine, from a decades-old heart drug. They called this “unique” mixture Nuedexta.
What does this incredible drug from this incredible company do, according to Dzu?
No, really. It cures involuntarily laughter and crying–something that’s called Pseudobulbar Affect (PBA), a side-effect of patients suffering from ALS/MS or other neurological diseases. Well shame on me for laughing now. It seems like a good cause. Dzu toured me through some opnline support groups of ALS/MS victims who suffered from PBA, who claimed to have great results from taking Nuedexta in clinical trials. Okay, valid.
I bought the stock too.
AVNR was the first biotech I ever invested in and boy, did I regret every second of it. What I would experience was endless cycles of hope only to get crushed again and again by trial re-designs, short seller attacks, and company dilution. I’ve now learned that this is extremely normal in early biotech land. You’re supposed to feel like shit, over and over again, and somehow you must keep believing anyway. It’s like a bad sports team that keeps kicking you in the nuts, but you pathetically come back every season, ready and hopeful that *this time*, you won’t get your nuts kicked again.
There came a point where I didn’t want to get my nuts kicked anymore. The final straw came AVNR received FDA approval. That’s good, right? Wrong.
AVNR gapped up 100% to $5 and sold off immediately. It was my first time experiencing the sell-the-news effect. The Market Gods taught me a valuable lesson that nothing is ever straight forward–“Oh you got your precious approval? Watch us sell the shit out of your stock.” All of that suffering in the name of “conviction” was for nothing. Fool me once, shame on you. Fool me twice, can’t get fooled again. I sold and never looked back.
Dzu however, remained steadfast that AVNR would find its way eventually. At this point, I had become the daytrader who obsessed over price movements and he had doubled down on the research aspect of investing. I wanted to move on, he wanted to remain a true believer. He had actually been in this stock since 2006, when the company had received what’s called an Approvable Letter–the predecessor to today’s Complete Response Letter. This letter basically says Hey y’all, your drug seems interesting but because of our many concerns, you need to re-submit NDA. That means a whole lot of time and money has to be spent in getting approval again. And then we actually got it and still get kicked in the nuts!
On what was our 1026th conversation about Avanir sometime in 2011 as the price continued to lag, I convinced Dzu to sell it. Six years you suffered man. Why go on like this? Move your capital into something better. Don’t be a bagholder. Technical analysis, which you introduced me to, says this stock is the dog of all dogs, languishing forever in the $2-4 range. Sell!
For a couple years, the stock did nothing. Now with regulatory hurdles cleared, AVNR had the onerous task of commercializing their drug. Analysts did not believe there was much of a market for Nuedexta–just a niche drug, at best, that would be difficult to sell given that many doctors had never even heard of the condition called PBA. I’d check in on the stock and see it trading in the same $2-4 range as usual. Whatever.
But quietly, the company did some stuff. Sales went from $15 million in 2011 to $95 million in 2014. That’s 50% annual growth, not bad. I remember it finally broke over that $5.70 resistance in 2013 and thinking “oh okay, good for you Mr. AVNR.” Then randomly, maybe just a week after that key price breakout… I see AVNR with a BIG POP pre-market!
Oh shit. That could only mean one thing.
Otsuka, a larger Japanese pharma company, took them off the market at $17/share. They saw big time value in Nuedexta. I had to check in on Dzu’s thoughts.
Dzu: I was always a believer. I only sold because you convinced me to.
Dzu wasn’t wrong, he was just early. He didn’t blame me per-se. Just bluntly said I was the critical reason why he sold. Dzu’s not the type of to be angry over this stuff, god bless him. Water under the table but I personally felt bad. I had realized that the ballad of AVNR was Dzu’s story, not mine. And he should have been the one to end it and learn whatever lesson had to be learned–good or bad. It affirmed an inclination within me to not give advice to people who clearly picked their lane, which wasn’t mine.
Post college, our paths woulkd diverge even further. Dzu went through graduate school, studied for his licenses, and took an associate job in equity research at a boutique investment bank in the Bay Area. No more cup and handle patterns I guess. I moved away to NYC to become a prop trader at “MBC Securities”2(SMB Capital). I wanted to trade momentum and price–leave it for the analysts like him to figure out the fundamentals.
The Saga of LQDA
Fast forward eight years later. In 2019, Dzu gets a promotion from associate to an official analyst. He initiates coverage on his first biotech stock, a nice milestone moment for his career.
I remember we used to laugh at these so-called equity analysts with their dumb buy/sell ratings and especially how they always updated their price targets posthoc (giving them zero predictive value). What was the point?
But now my best friend is one of them, so I had to respect it.
I thought maybe there was opportunity for us here. Like, now Dzu was a professional level guy with access to all these biotech CEO’s and institutional traders, maybe he could pass on tips to me? My firm is going to upgrade this company soon, wink, wink, y’know?
But no, he doesn’t want to play it that way. “I have ethics!” he claims. I have to respect that too.
Even so, I’d ping him for his thoughts. Around 2023, I ask him about this stock called LQDA, a small cap stock that had developed a mini cult following on biotech Twitter.
Dzu: Be careful. You know how biotech can be.
I feel like the shadow of AVNR was all over the subtext of our conversation–that there would be these unexpected ups and downs that I had to mentally prepare for, just like back then. At this point, he’s seen it all in biotech.
For those who don’t know the saga of LQDA in the past 4 years, let me try to explain it quickly:
In 2022, LQDA has a drug called Yutrepia that treats Pulmonary Arterial Hypertension (PAH)–which is high blood pressure in your lung’s arteries. Supposedly very effective. The problem was they couldn’t launch due to a patent war with a bigger pharma rival called United Therapeutics (UTHR). UTHR basically said “hey LQDA, stop this, we’re doing an injunction, we got the patent”. So this took a long time to be sorted in a federal court.
Finally, the injunction was vacated in 2024. Big win for them. This is where I got involved and bought 10,000 shares. They can finally launch the drug. Great right? De-risked, right?
Wrong. A few months later, the FDA unexpectedly ruled that UTHR’s rival drug, Tyvaso, would hold maintain another year of exclusivity, which prevented final approval of Yutrepia until May 2025. This caused a big sell-off, with the stock trading from $15 to under $9 within a day.
I sold it. Ugh. Even though it’s supposed to be an investment and the story wasn’t over, I just gave up against adverse price action. What can I say, I’m a little bitch who hates drawdown. When the market moves against me, I’m trained to believe the market is right and that I am wrong. It wasn’t a particularly large loss either but I just didn’t want to deal with this saga anymore. Memories of AVNR where the back and forth drama took way too long and I got impatient. I felt a little imposter syndrome–uh Pete, why are you trying to be the smartest guy in the room on biotech drug results?
Present day, it’s now a $80 stock. They commercialized Yutrepia successfully and it would’ve been an 8-bagger for me, if I had held on. Whoops. There’s two lessons here, but you can’t learn them both, you just pick one.
The Tragic Lesson of ABVX
It’s 2026. Dzu is now a lead analyst taking home 7-figures in salary and bonuses. He has coverage on over a dozen biotech stocks. He’s doing really well on TipRanks.com. The last I met up with him in NYC, he showed me a calendar full of podshop portfolio managers and biotech executives. He’s a big shot now.
On the other hand, I am pivoting away from day trading and towards investing in pre-IPO and venture technology. Maybe I can make the whole fundamentals thing work.
I’m not even paying attention to the market on a daily basis. I’m just constantly reading stuff now–research reports, substack articles, podcast transcripts, pitch decks on private companies. But then I get an e-mail from a supposedly very smart source that usually deals in private companies… but this time it’s about a public company, one called ABVX. It’s a 45 page PDF on why they have a differentiated opinion. Blah blah blah--we anticipate follow-up Phase 3 positive data that could exceed market expectations and accelerate large pharma interest in M&A.
Sure, why not? I decide to buy the stock. It’s a thinly veiled excuse to gamble after being out of action for so long. I decide to text Dzu about it. Bro, I’m long ABVX now–thoughts?
I wasn’t sure how to respond to that. On the surface, it’s polite enough. But there’s clearly another subtext here that stuck in my craw a little bit–Pete you can’t handle this biotech stuff man. Maybe just stay in your lane???
I mean, he’s not wrong but still–a little encouragement perhaps?!
June 1st rolls around and bang, phase 3 clinical data is out afterhours. The efficacy? It’s amazing. AMAZING! Benchmark of expectations was 30% and they cleared 50%. See I told you I could do this!
Stock indicates $200 open… I am so, so validated right now.
And it opens… around $185. Then it sinks like a rock. Back to unchanged within minutes. I don’t even know how to react.
Within a few minutes, I learn that there is now additional, significant news for why the stock is going down, actually. It appears there were some “unrelated cancer deaths” in the trial. This has the market concerned. The stock goes negative and then as low as -40% from the close. Ugh.
History continues to repeat itself. I tell myself I’m going to hold it this time. The loss really isn’t even that bad3($20-30k unrealized range). I’m just going to wait it out. If I lose more because the drug blows up, oh well, no big deal–at least I’m playing out the thesis. My little birdie, the one that authored the 45 page PDF, even sends an additional note on the data, to say they’re holding the stock until there’s clarity on the safety data.
The next day comes. I ignore price action entirely. It doesn’t matter. This is LONG-TERM. I go to a cafe to read and get away from my screens.
The stock closes at the lows. Post-loss clarity starts to hit me again–Dzu was right… why am I trying to force the issue on biotech? I’m not committed to this ABVX at all. This is someone else’s play. I hit the sell button because I don’t want to think about this stock to hijack my thoughts indefinitely.
Fast forward a month later. ABVX releases an updated study data that suggests the cancer malignancy rates were just a big coincidence or whatever–stock goes back to $130, the price where I originally bought it. Whoops. I got gut-checked on my “investment idea” and I had crumbled, again.
Lessons
Since that little detour in biotech land, Dzu’s text–the one about me just being a momentum, easy money guy–has lived rent-free in head. Begrudingly, I know he’s 100% right. He’s known me for almost 20 years at this point. Despite all this cosplaying as a deep research-driven tech investor, my real edge is that I have a gift for finding easy trades that just go up in a straight line and don’t stress test my usual lack of conviction.
I had a bit of a dilemma in one of my recent IPO exits. I still believed in this company but all the signs were there to sell and take the risk off. It was a tepid IPO. Sentiment in the sector had waned. Key catalysts had been met without significant price impact. But long-term, the story wasn’t over–if the company executed properly over the next 2-3 years, I could possibly make another 3-8x. I could also hold the stock down to 0. Ultimately, I decided I didn’t have the stomach to be a true believer. I thought about our conversation again. Momentum guy. It’s just who I am.
I sold it and took my clean profit.
And as far as biotech goes? Leave it for the analysts.
