In the speculative world of biotech investing, investors look to get in stocks early before positive, market moving company events happen. These events are usually connected to FDA decisions or product launches. It is not uncommon to see a biotech company rise over 300% within days after positive news provides a huge catalyst to increase the stock price.
This powerful dynamic was clearly illustrated in the 315% rise ($1.43 to $4.50) of Acura Pharmaceuticals (NASDAQ:ACUR) on the day after my recent article was written. In that article, I speculated that positive catalysts were on the horizon due to strongly telegraphed statements by the company CEO in a recent press release. Sure enough, that catalyst (national launch of NEXAFED tablets) happened and the stock soared on record volume. Acura exceeded my stated $2.00 target and today sits at $2.30/share after consolidation after the parabolic rise to $4.50/share.
Thankfully for risk tolerant investors, these speculative biotech opportunities come along very often if you are listening to the right catalyst clues and doing important due diligence. The challenge for investors is to pick the right investment opportunities that carry the most reward with less risk.
The Next Biotech Buying Opportunity Based On Catalysts
The next biotech company I would like to bring to your attention that carries this profile is GTx, Inc. (NASDAQ:GTXI). GTx Inc. is a biopharmaceutical company, engaging in the discovery, development, and commercialization of small molecules for the treatment of cancer, cancer supportive care, and other serious medical conditions. As a GTXI primer to reference, I first wrote about GTXI in March 2012 and pointed out the buying opportunity at $3.38/share. At today's price of $4.75, I feel that GTXI is even a better buy now for investors looking to take advantage of very near term bullish catalysts.
Because of today's bullish FDA news, recent insider buys, and the recent, strongly telegraphed statements by GTx's CEO, investors have some visibility into what could very well be another parabolic move like we recently saw in Acura.
Catalyst #1: FDA Grants Fast Track Designation
In breaking news today, we learned that the FDA has granted Fast Track Designation to enobosarm (Ostarine®; GTx-024), GTXI's drug candidate for the prevention and treatment of muscle wasting in patients with non-small cell lung cancer. GTx is currently conducting two Phase III clinical trials for Enobosarm with top line results expected in the second quarter of 2013.
With fast track designation, this expedites the FDA review process to 60 days and confirms that Enobosarm has the potential to fill an unmet medical need.
As this news broke this morning during the pre-market session, investors quickly bid up the price of GTXI to $5.73/share, or 20% higher than the previous day's close of $4.75. Although shares are trading later in the regular session at three times the average volume, the price is flat at $4.75 presenting a great buying opportunity on such a muted reaction.
It is important to note that almost exactly one year ago on January 30, 2012, GTXI was also around today's price at $4.81/share and quickly rose 50% to $6.24 on massive volume on news that Citi had raised its price target on GTXI from $8 to $19. The significant upgrade was due to Citi's view that GTXI was one year away from reporting positive Phase III clinical trials for Enobosarm (Ostarine). Citi even estimated that positive results alone would be worth $11/share to potential biopharma company bidders. In the note, Citi said GTXI is "currently one of the most compelling small-cap biotech companies."
We are now one year closer to Citi's referenced positive Phase III trial and $19 price target prediction and we are only one quarter away from top line results. And Citi has not revised or updated that bullish view. I fully expect investors to bid up GTXI shares much closer to Citi's target price as we approach the Q2 2013 top line results for Enobosarm.
Catalyst #2: Premium Buyout by Large Global Pharmaceutical Company
One needs to only look at GTx CEO Mitchell Steiner's comments from the Q3 2012 conference call to realize that talks are underway and due diligence is taking place by large global pharmaceutical companies looking to buy or partner with GTXI. It seems that GTXI is trying to wait out Phase III trial results of Enobosarm to make their negotiating position stronger and buyout price higher for a potential acquirer.
After all, what we know from a previous partnership is that Merck (NYSE:MRK) was willing to invest $507 million in the Enobosarm (Ostarine) drug alone. That value would put GTXI at $8.05/share (based on 63M shares outstanding) and not even include the value of GTXI's other pipeline drug candidates. If the large global companies that Steiner references below present a hard to refuse offer based on their due diligence, we may not even make it to the Q2 2013 Phase III results to cash in as shareholders to a fairer value for this undervalued company.
CEO Mitchell Steiner's comments from Q3 2012 conference call (November 8, 2012):
Several large global pharmaceutical companies have been in discussions with GTx and have been in discussions with GTx due diligence and the whole bit.
GTx is a little faster than you would imagine in the sense that we enrolled the study so quickly that the position that we're taking, GTx, is that right now we've taken this program all the way through eight clinical trials, Phase IIs where we've shown in three separate Phase IIs that we have activity, proof of concept activity and now in a Phase III where we're almost done enrolling the Phase III.
So our position is let's wait for the data because when we have the data then it's going to give GTx a lot more options with the global pharmaceutical partners that we're in discussions with now and quite frankly it will help us understand what we want to do as a company from a commercial standpoint.
The good news is it's completely unpartnered to date and, secondly, we really own 98% plus of this asset. We pay a small royalty to the University of Tennessee where the original technology originated.
So and it's such a near-term thing. You're really talking about a few months. I think it's very much worth GTx's position from a standpoint of maximizing shareholder value to do that.
Catalyst #3: More Insider Buying
With many high-risk, speculative biotech companies, the evidence of large insider buying is usually not common. But GTXI's insiders have shown a willingness to not only buy in large quantities, but they have bought in the past month as recently as December 14, 2012. If this pattern continues as we approach the top-line Phase III results from Enobosarm, these buys would provide a significant catalyst as potential investors realize that even the company insiders see the stock price as undervalued.
The most significant insider buys were last year as GTXI director and former president of Abbott Laboratories (NYSE:ABT) bought 2,309,328 shares in the open market for himself, his children's trusts, and his family's charitable foundation.
And most recently on December 14, 2012, GTXI director Timothy Sear purchased 50,000 shares at $4.32/share.
For investors looking to invest in the next biotech company poised to produce significant short term returns due to upcoming catalysts, GTx provides an attractive speculative pick for potentially high returns. With today's bullish news of Fast Track Designation for GTx, confirmation from the CEO that large global companies bidders are pursuing due diligence on GTXI, and recent insider buying at $4.32/share, the time is right to buy now before a buyout/partnership or before Phase III results are released.
The risk, of course, with any biotech investment is that FDA will not approve a drug. This would surely impact GTXI's share price if that happens. But, with so many bullish clues referenced above, GTXI falls into my less risky biotech category and I continued to add to my position on today's news up to $4.75/share.
With Merck willing to pay $8/share for Enobosarm alone and Citi's Enobosarm drug valuation of $11/share, GTXI is poised to double from $4.75/share to my target price in the middle of that range of $10/share by Q2 2013 when pivotal Phase III clinical trial results are announced.