Wednesday’s Small Cap Biotech Catalyst Watch And Trade List

by Scott Matusow
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Submitted by Scott Matusow as part of our contributors program.

Below, I have listed 5 biotechs with near-term fundamental catalysts that should see their respective prices on the move. I also list the chart for each company and offer my price target opinions based on both the fundamental catalyst and technical indicators. Fundamental factors almost always trump chart technicals, so I use the charts as a “guide” to base my entry and exit points of any trade/investment.

GTX (NASDAQ: GTXI) engages in the discovery, development, and commercialization of small molecules for the treatment of cancer, cancer supportive care, and other serious medical conditions.

GTx is expecting to release topline data from the two pivotal clinical trials termed POWER 1 and POWER 2 for enobosarm (Ostarine®; GTx-024) sometime by late July/early August. Enobosarm is an oral selective androgen receptor modulator that GTx is developing for the prevention and treatment of muscle wasting in patients with non-small cell lung cancer.

Both of the pivotal trials were placebo-controlled, double-blinded, and were fully enrolled by the 4th quarter of 2012. The data from these trials are of the utmost importance for patients with muscle wasting because there is currently no approved treatment.

Because Insiders hold 69.28% of the company’s shares, the risk of share holder dilution before the trial data catalyst is presented is highly unlikely. Capital raises via share holder dilution is certainly a huge killer of a stock’s momentum.

Joseph Hyde, the former Chief Executive Officer of Autozone and director of the FedEx Corporation, is currently on GTx’s board of directors and is the largest shareholder. He holds 9,405,014 shares of GTx, with a current market value of over $42,500,000.

Jack Schuler, the former President and Chief Operating Officer of Abbott Laboratories (ABT), also owns 6,954,144 shares, with a current market value of over $31,500,000. It’s important to note that neither of these heavily invested insiders has sold a single share within the last year. In fact, they have continually added, with the most recent acquisition as close as March 31, 2013, by Joseph Hyde.

Considering the significant unmet need potential in treating muscle wasting along with huge insider ownership, I estimate the stock price of GTx to appreciate to around $8.50 a share before the results of the data are announced by early August, which I expect to be positive.

I really like the GTx chart setup above, as just about every indicator points to a breakout, especially the relative strength index (RSI) touching a possible breakout point. $7.75 looks to be the next stop, with some buying resistance at $7.50. I look for a new trading range between $7.30 and $7.75 to emerge soon with GTx.

I consider GTx to be one of the better biotech catalyst trades around, and with a good data release, a move to over $11 seems likely to me, which would place its market cap over $700M — still undervalued based on the strong unmet need here.

Trius Therapeutics (NASDAQ: TSRX) is a biopharmaceutical company focused on the discovery, development and commercialization of innovative antibiotics for serious, life-threatening infections. Trius is developing Tedizolid for the treatment of gram-positive infections, including methicillin-resistant Staphlyococcus aureus (MRSA). After presenting positive Phase III data, Trius is expecting to file an NDA in the second half of 2013. The company states in its first quarter financial results:

After successfully completing and reporting positive top-line results for our ESTABLISH 2 study, we are preparing to file our New Drug Application (NDA) for tedizolid later this year and, if approved, to potentially launch in the U.S. in the second half of 2014.

Tedizolid demonstrated several advantages over many of the approved therapies that are making billions on the market. With a market cap of about $413M, Trius is still under speculation valued. There has also been some buzz that Trius might get bought out by a large pharmaceutical company sometime before year’s end. It is my opinion that Trius continues its run in 2013, and could see a year end price nearing $15 a share once investors fully do their due diligence on it.

For some time, the Trius stock saw strong resistance at $8.50. After finally breaking through this resistance, the stock rallied top $9.25, before many traders and investors took profits. It strongly appears the former area of resistance here has become support — $8.50 a share. Much like GTx, the indicators seem to be suggesting that a breakout might be coming. I look for a move back to around $9.25, which is now a new area of resistance. If heavy buy-side volume comes into the stock, we could easily see a move past resistance, and possibly a test of $9.50

Insmed (NASDAQ: INSM) focuses on developing and commercializing targeted inhalation therapies for patients battling serious lung diseases. Insmed is expecting to report Phase III trial results for Arikace to treat cystic fibrosis patients with Pseudomonas lung infections by July, as suggested in the company’s recent First Quarter Financial Results Report:

Completed the patient treatment period of the Company’s registrational Phase 3 clinical trial of ARIKACE, the Company’s Iiposomal amikacin for inhalation, to treat cystic fibrosis (CF) patients with Pseudomonas lung infections in Europe and Canada and remain on track to report top-line clinical results from the trial in mid-2013.

In 2012, treatments for pseudomonas lung infections in CF generated about $424 million in sales, with Novartis capturing about $317 million from TOBI and Gilead Sciences’ Cayston capturing $107 million. If Phase III trials are successful and the drug is ultimately approved, Insmed should be able to capture a large portion of the market share.

Insmed has had a nice run recently, from around $8 a share to over $14.20, mostly propelled by a Lazard Capital Markets analyst beginning coverage on the stock with a “Buy” rating and a price target of $21 per share. The analyst believes that Arikace could realize revenues of more than $600 million a year by 2020.

Insmed currently trades at $12.76, so there could be some additional price appreciation here, possibly back to the $13 level.

Insmed technical indicators seem to indicate a flat trend, with a possible move to slightly over $13. The purple line shows a bit too much distribution to allow for strong price appreciation. However, if data presented with Insmed is good, the stock can certainly resume a strong up-trend.

Progenics Pharmaceuticals (NASDAQ: PGNX) is a biopharmaceutical company focused on developing therapies for patients with cancer. Progenics is developing an antibody-drug conjugate (ADC) therapy for prostate cancer that binds to prostate-specific membrane antigen (PSMA).

On June 10, Progenics announced positive data for two of its oncology products at the 2013 Annual meeting of the Society of Nuclear Medicine and Molecular Imaging (SNMMI). Senior Vice President of Medical Affairs for Progenics stated:

Ongoing studies of product candidates targeted to PSMA, an enzyme expressed on the neovasculature of almost all prostate cancer cells, potentially could lead to the development of highly specific prostate cancer imaging and treatment options. We are developing candidates that could improve outcomes for cancer patients, including the two candidates featured here at SNMMI in oral presentations as well as our phase 2-stage PSMA antibody-drug conjugate.

Progenics believes that its technology also has the potential to work on solid tumors and other types of cancers. This news is significant for the company which should allow Progenic stock to continue its momentum upwards in the coming months. The company is also waiting on an announcement of an Advisory Committee for RELISTOR subcutaneous injection, which is indicated for opioid-induced constipation. Executive Vice President Bill Forbes stated:

While it is not possible to definitively determine the duration of the appeal process, at this time, we continue to believe a conclusion could be reached during 2013. Relistor has been available to patients with advanced illness who suffer from OIC since 2008.

Although there is no set date for the announcement, this news would serve as a significant catalyst for investors. With a market cap of only $245M, Progenics seems under speculation valued. I believe that we continue to see nice price appreciation throughout the rest of this year.

The above chart shows me a swallow ascending wedge, which is a period of a down trend in a stock price. The recent larger yellow candle above could indicate a reversal of the descending pattern, which would put pressure on shorts to cover. Based on the strong purple line accumulation and blue line money flow index, I think Progenics could see a price approaching $6 soon, which is the resistance point that started the current down channel/wedge.

Supernus Pharmaceuticals (SUPN) is a pharmaceutical company that develops products for central nervous system (CNS) disorders. It is focused on treating unmet medical needs in epilepsy, attention-deficit hyperactivity disorder (ADHD), and depression. The company is developing Trokendi XR, which is a novel once-daily extended release formulation of topiramate. Supernus was given a tentative approval in June 2012 for Trokendi XR because Topamax has exclusivity until June 22, 2013. Chief Executive Officer Jack Khattar states:

As expected and as previously communicated, most recently during our May 13, 2013 quarterly earnings call, since this approval was granted before the June 22, 2013 date of expiration of the Topamax data exclusivity, this approval came in the form of a tentative approval. We will now submit the “Request for Final Approval” letter to the FDA based on which we expect to receive Final Approval and then launch our product, as anticipated, in the third quarter of 2013.

The chart above seems to indicate to me that 2 strong moves are possible, either up or down. While the accumulation looks good, the money flow index is pointing downwards, which in my experience indicates to me that shorts are getting into position, anticipating a “sell on news” However, because of the strong accumulation indicator, the shorts might also be over estimating the sell on news, and could get squeezed. Therefore, my long trade price target is $7, with a short cover price target of $6.

Because Supernus had to wait a year until exclusivity of Topamax ended, I feel investors have let this company fall of the radar. If Supernus can successfully launch its product later this year, I believe there will finally be a reversal in the downtrend that started in late 2012, which could make for nice longer term appreciation.

Disclosure: I am long GTXI.

Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are my opinions only. Trading stocks is risky — always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.

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