Tuesday's Small Cap Biopharma Investment And Catalyst Trade List

 |  Includes: ENZN, PACB, PPHM, SRPT
by: StockMatusow

At Stockmatusow.com, my team of traders and investors scan the biotech sector daily, looking for stocks we believe provide excellent trading and investment opportunities. We factor in potential price moving catalyst events along with chart technicals and current news events, then pick what we feel are the best stocks.

Peregrine Pharmaceuticals (PPHM)

Buying factor:

  • The company announced yesterday it found an error in the study data for its Phase II drug, Bavituximab, that caused the data to appear negative.

Selling factor:

  • Overbought

Peregrine said the problems, first disclosed in September, are limited to the 1 milligram dose of the drug. After reviewing testing procedures at various trial sites, the company said there is no evidence that the problems affected results for the 3 milligram treatment of the arm. That study showed that patients taking the drug survived about 13 months after beginning treatment. The company is studying Bavituximab as a second option for non-small cell lung cancer.

Roth Capital Partners analyst Joseph Pantginis upgraded the company's shares to "Buy" from "Neutral." In a note to investors Pantginis said:

We believe this is a major step forward for Peregrine in getting Bavi back on track, though the company is still faced with a bit of an uphill battle.

In September of 2012, the company originally released a positive report on Bavituximab, causing the stock to surge more than 50% to over $5 a share. However, later in September, the company released a report stating that there was an error in the data, causing the stock to plunge from $5.39 to $1.16 in one trading session.

While the company has a long ways to go to gain investor trust back, the news yesterday is a step in a right direction. In my estimation, if the new report actually holds water this time, Peregrine could see the $4 level very soon. At yesterday's closing price of $2.43 and a market cap of $322.07M, Peregrine might have excellent speculation value at this level. Regardless, both traders and investors should understand that the company's track record with Bavituximab has been very shaky along with the stock potentially in an overbought situation. So, investors need to proceed with caution.

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The chart above indicates that the stock recently began to retrace its gap on significant volume. It seems the stock has run out of some steam at its current level, hitting hard resistance in the $2.50 range. I expect the stock to pull back and find support at the $1.65 level. If the data holds up this time, it's possible to see the price climb back over $4 a share in the next quarter or so.

Pacific Biosciences of California (PACB)

Buying Factor:

  • Recent large insider buying.

PACB stock struggled for most of 2012, but heavy insider buying along with a bullish chart indicate that the company might see a nice recovery for 2013. PACB develops, manufactures, and markets an integrated platform for genetic analysis. The company engages in developing a technology platform that enables single molecule, real-time detection of biological processes. It primarily focuses on the deoxyribonucleic acid sequencing market. Recently, the CEO and the CFO, both agreed to a pay reduction down to a base salary of $1. This along with the pair's heavy insider buying, is a sign of committed management as far as I am concerned.

Recent Insider Transactions







Dec 2, 2012




Purchase at $1.75 per share.


Nov 29, 2012




Purchase at $1.76 per share.


Nov 28, 2012




Purchase at $1.74 per share.


Nov 27, 2012




Purchase at $1.68 per share.


Nov 26, 2012




Purchase at $1.55 per share.


Nov 25, 2012




Purchase at $1.49 per share.


Nov 22, 2012




Purchase at $1.45 per share.


Nov 20, 2012




Purchase at $1.32 per share.


Nov 19, 2012




Purchase at $1.27 per share.


Nov 18, 2012




Purchase at $1.26 per share.


Nov 15, 2012




Purchase at $1.21 per share.


Nov 14, 2012




Purchase at $1.12 per share.


Nov 13, 2012




Purchase at $1.13 per share.


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The stock has been beaten up since its IPO in 2010, but recently has found a support level that indicates a move up. The inverted head and shoulders is very bullish and is just now testing the neckline after forming the final shoulder. A significant break of this can take the stock to the retrace and resistance level of $2.67.

Sarepta Therapeutics (SRPT)

Buying Factor:

  • Possible early FDA approval for Eteplirsen.

On 10/3/12 Sarepta announced a positive increase in novel dystrophin using the drug Eteplirsen, where patients achieved a significant clinical benefit on a 6-Minute Walk test after 48 weeks of treatment for Duchenne Muscular Dystrophy (DMD). After the 62 week data was released on 12/7/12, the company requested an end of Phase II meeting with the FDA which is expected to occur at the end of this month/early February. At this time, Sarepta should receive an answer from the FDA how to proceed.

The FDA could choose to grant Sarepta an accelerated approval right away or require a larger Phase III trial prior to approval. Because DMD is such a rare disease and because the data looks very promising, I predict the FDA will allow the accelerated approval, enacted as part of the FDA Safety & Innovation Act. This act encourages the FDA to consider a more efficient path for drugs that can treat rare diseases. The FDA could also allow Eteplirsen to market faster under another newly enacted provision, called "Breakthrough Therapy."

Breakthrough Therapy is a new pathway that was developed for targeted cancer drugs, designed to drive a much closer interaction between sponsors of drugs that show large efficacy results in earlier clinical trials. Although Eteplirsen is designed to treat DMD, I believe the drug qualifies for accelerated approval under the guideline.

If we hear word that the FDA has allowed Eteplirsen to market in this manner, I would expect the stock to explode much higher, possibly taking out its 52-week high of $45.

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Since the stock hit $45, it has come back down to reality, falling to a low around $21. Now the stock is setting up for another big move as indicated by a strong wedge shown in brown. I anticipate the stock to continue to oscillate in this range and coil up for a break out.

Enzon Pharmaceuticals (ENZN)

Buying factors:

  • Recent hiring of Lazard (LAZ) to serve as a financial advisor for the review of exploring selling the company, new large institutional position, and bullish chart technicals.

On 12/17/12, Enzon announced that its Board of Directors has retained Lazard to act as financial advisor in a review of the possible sale or disposition of one or more of the corporate assets, or a sale of the company.

The company announced on the same day its plan to suspend clinical development of its androgen receptor program due to poor clinical data surrounding the program.

Alex Denner, Chairman of the Board, commented:

The Board of Directors, following a review of the company's assets and strategic direction, has determined that it is in the best interest of Enzon's shareholders to pursue a sale, in whole or in part, of the company. In addition to a strong balance sheet and royalty revenues, Enzon's drug candidates and technologies offer the potential for a variety of transactions.

Balance Sheet

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Cash Flow Statement

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Billionaire investor Carl Icahn's firm has a 13% stake in the company, and has met with management to discuss the sale of the company as well. Also of note, Steelhead Partners, LLC purchased 2.7M shares of the company in December 2012, as shown in a recently filed form 13G.

Shares have been down since he announced that meeting in late November, but the chart shows that the stock is on the way back up.

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The stock has been in an extended down channel, but has recently shown signs of reversal. A break over $5 would be a key pivot point and over $5.15 would be very bullish as there would be a break of the trend-line resistance. The MACD has recently crossed bullish and the RSI is bullish as well, still showing plenty of room to run.

Enzon has good potential to bring in a decent sized premium upon a buyout. This one is not a rumor trade as the company is actively shopping the company around.

The company pulls in $50M in annual revenue and has a few high potential drugs in its pipeline. I estimate the company's net assets to be worth around $170M based on Enzon's latest 10Q.

Being so cash rich with $278M on its books as well as just turning profitable in Q3, 2012 means future dilution won't be necessary. Considering these factors, the company should be worth $350M. With the current outstanding share count of 44.42M, this equates to $7.87 a share. In my estimation, the fair buyout price should be around $7 a share.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PACB, ENZN, ANAC over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: 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.