The Edge In Trading Biotech
The unique aspect of biotech
that distinguishes trading in this sector from all others is the fact that these
companies tell you when their big move will occur. Yes, they make it known
willingly and translate this information in many ways. Where else can you
research a company and accurately know in advance when a move on either the
upside or downside will take place? This is why there is a built in edge for the
biotech trader, and this is why I love being a part of it. Yes, the strategic
information is out there, sometimes obvious and naked for all to
discover. However, often the information necessary to focus on the timeline when
a company’s stock will move is vague, disguised, or even glossed over. Yet, it
is available to discover, interpret, and ultimately take advantage of. You may
be skeptical, but the truth is in the entire process a company must go through
in order to get a new drug to market, a process we can thank the FDA for
shaping. It is during this process that a trader can pause and strategically
prepare upside or downside strikes with very good accuracy based on known events
in the embryology of a new drug.
The day an FDA advisory
committee meets to decide the ultimate fate of a new drug application is
considered to be the equivalent of a category five hurricane in potential stock
movement. Many a small-cap company’s fate is decided on the decisions made at
these advisory committee meetings focusing on the approval of new drugs. The
short and long-term repercussions of an FDA advisory committee new drug decision
are enormous. Companies and investors leave these meetings reborn if the
decision is in their favor and some are scarred for life, never to recover if
the decision is negative. The beauty of these meetings is that their dates are
public knowledge, announced months in advance so trading strategies can be
plotted. However, often advisory committee meeting agendas naming company names
are buried somewhere amongst the FDA’s previous release of
information. Regardless of where it is buried, most often it can be discovered
with some work.
The next best thing after an
FDA advisory committee meeting date for an investor focuses on the release of
phase III clinical data on a new drug. A phase III clinical trial is carried out
to prove whether a new drug does what the company claims it does. Once a phase
III clinical trial is complete, the next potential step for a company is to file
a new drug application with the FDA. Normally the release of phase III data will
provoke a noticeable movement in any biotech company’s stock price. Obviously,
the direction of this movement will depend upon whether the data supports or
negates the efficacy of the new drug. Often, biotech companies will keep this
data very close to the vest and release a small sliver of it at a formal medical
conference in anticipation of filing an application with the FDA. New drugs in
phase III clinical trials that are geared to treat major market diseases such as
cancer, heart disease, hypertension, diabetes, obesity and AIDS often attract a
lot of attention from investors at the time of release. Interestingly enough,
there is a method to the madness a biotech company employs when deciding to
release phase III clinical data that can be exploited by investors.
The bottom line is there are
sentinel events within the embryologic development of a new drug aimed at a
growing disease market that attracts a lot of attention from investors. With
work, the timing of these events can be uncovered fairly regularly and
successfully exploited by the biotech investor. This is where the edge in
biotech investing is created.
FDA Biotech Watch List
February is a quiet month this year for the FDA. However, the Agency more than
makes up for its hibernation in the month of March. During the first two weeks
of March, three biotech small caps take their chances with new drugs, along with
investors, in front of FDA advisory committees. I like the chances of all three,
however, I believe only two will experience exploitable moves in their stock
prices. Stay tuned, my next piece will elaborate.
Biotech Clinical Data Watch List
La
Jolla Pharmaceutical Company
(
LJPC |
Quote |
Chart |
News |
PowerRating) is
the company in the spotlight. In December, the company completed its phase III
clinical trial testing their new drug Riquent for the treatment of Lupus renal
disease and is poised to announce the results. Systemic
Lupus Erythematosus
(
SLE |
Quote |
Chart |
News |
PowerRating), referred to
as Lupus, is a life-threatening autoimmune disease commonly afflicting
women. The disease process can commonly involve multiple organs in the body,
particularly the kidneys. The current treatment today is relatively not
effective and characterized by serious side effects. La Jolla Pharmaceutical
Company’s drug Riquent is designed to prevent the production of antibodies in
the blood that initiate the kidney disease in Lupus patients. The final data
from the recently closed phase III trial has not been revealed. However, the
preliminary data published looks promising, and if this turns out to be the
case, the stock will move. Expect the release of this data as early as this
month.
Good
Luck,
Paul
Ruggieri MD