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Biotech Catalyst Trade Watch List: 4 To Keep An Eye On

By Scott MatusowStock MarketsJun 12, 2013 08:51AM ET
Biotech Catalyst Trade Watch List: 4 To Keep An Eye On
By Scott Matusow   |  Jun 12, 2013 08:51AM ET
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Today, I list 4 biotech companies with significant near-term catalysts ahead. Under normal market conditions, these stocks should see decent to very strong appreciation in the short-term. There are various ways to play these catalyst trades. Traders and investors can choose to sell their shares before the actual catalyst event to reduce risk, or increase their risk by holding their shares through the actual events. Personally, if I believe a company will have a sucessful catalyst event, I will roll profit out of the stock and roll it into the option chain via calls. Buying calls allows for a set limited max loss -- if the catalyst event is a failure, the most a trader/investor can lose is the price paid for the calls. However, if holding a position in the stock through the event, the losses can extremely significant, beyond a set limited loss. Investors and traders should consider these factors before making any trade/investment.

Biodel (BIOD) focuses on the development and commercialization of treatments for diabetes in the United States.

Biodel is expecting to release Phase II clinical data of RHI-based ultra-rapid-acting insulin for BIOD-123 in the third quarter of 2013. In the second quarter conference call the CEO Dr. Errol De Souza stated:

“We are pleased to report progress across the breadth of our portfolio of pipeline product candidates. Enrollment is fully complete in our Phase 2 clinical trial of RHI-based ultra-rapid-acting insulin BIOD-123 and more than half of the subjects have finished the study. We remain on track to report top line data in the third calendar quarter of 2013. On the research front, our new concentrated insulin candidate BIOD-531 has demonstrated an ultra-rapid-acting onset and basal duration profile in diabetic swine which could offer medical practitioners a novel therapeutic to improve prandial coverage while maintaining basal coverage in both severely insulin resistant patients and patients who use premixed insulins. We look forward to progressing BIOD-531 into clinical trials.”

In 2010, the Federal Drug Administration (FDA) gave Biodel a complete response letter for Linjecta, which was an injectable, fast acting human insulin for patients with Type I or Type II diabetes. Instead of going forward with that formulation, management decided to study four new formulations: BIOD-105, BIOD-107, BIOD-123, and BIOD-125. BIOD-123 and BIOD-125 were found to be the statistically better formulations. With management focused on correcting the problems it had with the Linjecta studies, BIOD-123 should have a more competitive chance at producing positive data. With a market cap of only about $64 Million, Biodel is under spec-valued.

GTX (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 soon this year. Both of the pivotal trials are placebo-controlled, double-blind, 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.

According to Mitchell S. Steiner, Chief Executive Officer of GTx:

“We are pleased that the DSMB (Data Safety Monitoring Board) has recommended that GTx continue as planned with our clinical studies of enobosarm under the existing protocols. The extensive safety database GTx is compiling from the numerous clinical studies of enobosarm will be a critical component of GTx's application for marketing approval, which we hope to submit following receipt of topline data from our Phase III clinical trials in the 3rd quarter of 2013.”

In both trials, patients with stage III or IV NSCLC were randomized at the time they began first line chemotherapy and were either treated with placebo or 3 mg of enobosarm. The study measured the response rates of enobosarm vs. placebo, on maintaining or improving total lean body mass. To test this, doctors had patients perform a stair climb to assess the individual's power at day 84 of treatment. Additionally, the study used dual x-ray absorptiometry (DXM) to measure the patient's bone mineral density at five months of treatment.

If the data turns out to be good for GTX here, we can easily see a double in stock price from its current level of $6.81, with a market cap of $429.24M.

Sarepta Therapeutics (SRPT) focuses on the discovery and development of RNA-based therapeutics for the treatment of rare and infectious diseases.

Sarepta should receive a decision from the FDA on whether or not to grant eteplirsen an accelerated approval, which wouldbypass a Phase III trial and go straight to market.

Eteplirsen is an antisense PMO-based therapeutic for the treatment of young boys with Duchenne Muscular Dystrophy (DMD).

The FDA decision is expected 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 -- I believe the FDA will grant the requested early approval before the end of summer this year.

Antares Pharma (ATRS) focuses on developing and commercializing self-administered parenteral pharmaceutical products and technologies, and topical gel-based medicines worldwide.

Antares expects a Prescription Drug User Fee Act (PDUFA) approval decision from the FDA on or before October 14, 2013 for OTREXUP (formely known as Vibex MTX). OTREXUP is a rapid subcutaneous (SC) self-administered injection of methotrexate (MTX). MTX is a medicine used to treat and control severe psoriasis or rheumatoid arthritis.

Investors and traders might have Antares and its OTREXUP under-the-radar, so to speak. Although its current market cap of $517.32M might seem a bit high on the surface, I feel it's actually somewhat low. OTREXUP is pretty much a given to receive FDA approval in October, and could bring upwards over $1B in revenue to the company in lifetime sales. Factoring in this product alone, Antares is roughly about $300M undervalued in my opinion. If we take into consideration its well positioned partnership with Teva Pharma (TEVA) for some of its other products like TevTropin® 10mg, Vibex™ EPI, and Vibex™ Sumatriptan, Antares could easily see a market cap over $2B in 4 to 5 years.

Antares also has warrants issued that are due to come to expiration this month, so I would expect the remaining warrants to be exercised soon. Last year, Antares saw a similar situation with warrant expiration. At the time, the stock ran up from around $3 to $5.58 in a very short period of time. I also speculate that Antares will be acquired this year by Pfizer (PFE), so I expect many warrant holders to hold their shares, rather then sell them.

Disclosure: I am long BIOD, 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.

Biotech Catalyst Trade Watch List: 4 To Keep An Eye On

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Biotech Catalyst Trade Watch List: 4 To Keep An Eye On

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