Today, we look at 2 companies with significant short term catalysts quickly approaching, and one company that could be acquired before the year is over. Catalyst trades can be very lucrative, with several ways to trade them. For example, one can use the option chain to buy calls, effectively making a bet the stock will hit a certain price range by a given date. This allows traders to limit their losses if the stock does not hit the strike price. However, this also can minimize gains as well. For more risk, traders can choose to simply take a long position in the stock, trade in and out of position, or simply hold to the catalyst event.
When considering a trade on a possible acquisition target, remember that often times, acquisitions are very hard to predict simply on rumors and opinion. However, if a company is acquired and one has a position in the company, the reward often times is a massive one.
- Schlumberger’s 2Q’16 Revenue And Earnings Continue To Drop As Drilling Activity Remains Weak
- “Healthy” Food Options In The Core Menu Can Drive Revenues For McDonald’s
- Verizon’s Yahoo’s Internet Business Acquisition: Yahoo’s Internet Business Was Underperfroming
- Barrick Gold’s Q2 2016 Earnings Preview: Higher Gold Prices And Cost Reduction Initiatives To Boost Results
- Textron’s Q2 Earnings: Top-line Propelled By Increased Sales At Aviaition And Industrial
- JNJ’s Q2 Results Reaffirm Our Stance For Pharmaceutical Growth
Insmed (INSM) creates inhaled therapies for a number of different lung diseases including chronic lung infections for which there are no approved therapies. What is interesting about the therapy is how it’s delivered. Its patented eFlow Electric Nebulizer is a hand-held device that allows the patient to easily inhale from it, so that the antibiotic is delivered directly to the site of infection and into the lungs. The antibiotic agent is a liposomal form of Amikacin called Arikace. Arikace is an antibiotic commonly used by hospitals for severe infections.
Amikacin is an aminoglycoside antibiotic that is most often used to treat hospital acquired infections with multi-drug resistant gram negative bacteria. Insmed is testing Arikace in several trials for the treatment of Pseudomonas and Non-Tuberculosis Mycobacteria (NTM). The company is currently undergoing a Canadian and European Phase III (CLEAR 108) study for CYSTIC FIBROSIS patients Pseudomonas lung infections, initiated in the 2nd quarter of 2012.
In a Phase II extension study recommended by the DSMB for Arikace, 560 mg were administered once daily for 28 day periods, for 6 cycles and was well tolerated. No adverse effects were observed with longer term dosing. Data showed statistically significant reduction from baseline in Pseudomonas Aeruginosa density, including mucoid strains. Inhalation of Arikace also showed statistically significant sustained improvement in lung function. Top-line data is expected to be released mid-2013, so investors should be very aware of the therapy’s potential.
Amikacin, Ingredient in Arikace is FDA approved antibiotic for CF. But it wasn’t delivered well in lung.Insmed’s Liposome technology solves this delivery problem by placing amikacin into a liposome, which allows an extention duration of drug efficacy. Amikacin efficacy suggests that the drug is potentially better than TOBI which brings in annual revenues around $400m.With a market cap near $295M, Insmed appears to be undervalued by at least $100M, if not more.
I have made a YouTube video with chart analysis of INSM which you can view below;
Sarepta Therapeutics (SRPT)
On Monday April 15th, the FDA asked Sarepta to provide additional information on the drug eteplirsen, to consider early approval. Eteplirsen is an antisense PMO-based therapeutic for the treatment of individuals with Duchenne Muscular Dystrophy (DMD).
I feel early approval is likely here, and sooner rather than later. Because there has been a substantial advocacy push to get the drug to market as soon as possible, the FDA wants as much data as possible, so when and if the organization does grant an early approval, it will not be seen as a politically based decision.
Sarepta expects to provide the data the FDA is asking for by the end of the current quarter. The company should receive a decision from the FDA some time in the 3rd quarter, possibly early Q3. Some analysts have put a $50 price target on Sarepta, and if early approval is granted here, it’s my opinion the stock will surpass the $50 range temporarily, so traders and investors might consider selling what I believe will be a gap to over $60, as it’s likely the stock will sell the gap back down to the low $40 range. Remember, should the FDA grant the early approval, a lot of investors and traders will be looking at massive profit, and are likely to take that profit. In turn, I would expect short sellers to take advantage of this and sell the gap as well.
Sarepta is a stock investors and traders should keep on close watch, as there should emerge various trading opportunities, both long and short.
A Roth Capital Partners analyst remarked on Monday of this week that he believes ACAD is on big pharmas radar as an acquisition target.
Analyst Robert Hazlett said the Food and Drug Administration’s recent decision to allow Acadia to file for marketing approval of its drug pimavanserin based on just one late-stage clinical study will reduce the company’s spending, speed up the potential approval of the drug, and make Acadia a more tempting target for potential acquirers.
The above is interesting, because I have heard the same “back chatter” on ACADIA recently. The company’s lead drug, pimavanserin could potentially could be a huge revenue generating blockbuster.
Pimavanserin is designed for patients with Parkinson’s disease psychosis (PDP). The drug is a small molecule that can be taken orally as a tablet once-a-day. Pimavanserin selectively blocks the activity of the 5-HT2A receptor, which plays an important role in psychosis.
PDP is a debilitating psychiatric disorder that occurs in up to 40% of patients with Parkinson’s disease and is associated with increased caregiver burden, nursing home placement, and increased mortality — translation; the market potential is in the billions, and big pharma loves drugs with 9 zero potential.
The fact the company announced in April that the FDA has agreed to allow the company to file a New Drug Application (NDA) for pimavanserin means that FDA approval for the drug could come as soon as 2014, which brings the huge potential money tap closer into play.
PDP is a large unmet need market, which would support a much higher valuation from the current levels, and should attract large pharma interest, and again, I am hearing the back chatter on this. However, just because a lot of us are “hearing” these rumors does not mean the company will be acquired soon, if at all. Considering the factors mentioned here, and based on all publicly available information, I would say it’s better than 50/50 that ACADIA will be bought out before the end of this year. Regardless, ACADIA could very well end up doubling from its current price level in the next year — acquisition or not.
Disclosure: I am long INSM.
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.