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We are going to look at two speculative biotech stocks that have been loved and hated equally over the last few years. Dendreon Corp, (NASDAQ:DNDN) and Zalicus Inc, (ZLCS). Such love hate relationships with stocks can be of benefit to both investors as traders and it means these stocks give many opportunities for both longs and shorts. Right now these stocks appear to be ready for some love from investors. Both have upcoming events. Dendreon has a very important earnings report and Zalicus has trial data pending.

Zalicus Inc. (ZLCS)

This stock has attracted equal numbers of haters and lovers over the last few years, and especially over the few months after bad news came on its rheumatoid arthritis drug Synavive and the trial was stopped. With partnership deals with Novartis (NYSE:NVS), Covidien (NYSE:COV), Sanofi (NYSE:SNY) and Amgen (NASDAQ:AMGN) over the years that investor interest has been warranted. The stock price action over the last year has left many investors disenchanted. This, however may bring opportunity for investors looking for some speculative plays for their biotech stock baskets.

The company discovers and develops drug candidates focusing on the treatment of pain and inflammation. The company’s clinical and preclinical product candidates include Synavive, a glucocorticoid prednisolone product candidate, which is in Phase IIb clinical trial for the treatment of rheumatoid arthritis; Z160, an N-type calcium channel blocker that has completed Phase I clinical trial to treat neuropathic and inflammatory pain; and Z944, an oral T-type calcium channel blocker, which is in Phase I clinical trial for the treatment of various chronic pain conditions.

Zalicus' sole FDA approved drug is Exalgo® (hydromorphone HCl) extended-release tablets (8, 12 and 16 mg), for the management of moderate to severe pain. The U.S. commercial rights to Exalgo were acquired in June 2009 by Mallinckrodt, Inc., a subsidiary of Covidien, plc with Zalicus receiving tiered royalties on net sales. At $1.4m last quarter these sales are minimal. In January Zalicus underwent a bear attack when an article surfaced stating that Mark Corrigan, the CEO, sold all his shares. The article was later retracted but the damage was already done and the stock had shed 12% of its value. The CEO had only sold 113,000 shares to cover the tax lax liability of exercising 500,000 shares of stock at 76c.

This brings us to the current pipeline for Zalicus and it looks very attractive, especially at this low valuation. Z160 a first in class, oral, state dependent, selective N-type calcium channel blocker. N-type calcium channels are recognized as important targets in controlling pain since they appear to play a key role in transmitting pain through the spinal nerves to the brain. In September 2012, Zalicus initiated the first Phase 2a study (Clinicaltrials.gov Identifier: NCT01655849) with Z160 in 140 patients with chronic neuropathic pain associated with lumbosacral radiculopathy (LSR). In January the second Phase 2a trial was started. This news sent shares of the stock up 20%. Z944 a novel, oral, T-type calcium channel blocker that has demonstrated preclinical efficacy in multiple inflammatory and acute pain models. The company was just awarded a patent for this drug. On July 10, 2012, Zalicus announced that the company initiated a Phase I multiple ascending dose (MAD) clinical study with Z944. We should be seeing trial result news anytime on Z944 and if positive the drug could enter Phase II trials in the coming weeks. The company stated that it expected this to occur in Q1 in their last earnings report. News could come in the next four weeks. The initiation of Z160 Phase II trials caused a nice 20% pop in Zalicus earlier this year and similar news on Z944 could see the stock move again. Zalicus has also proven that it can attract large pharmaceutical companies to partner with them on drugs so positive news on the Phase I trials could see another deal unfold.

A quick look at the Zalicus chart shows a breakout from the recent consolidation at 69c leading to a move to the 200-day moving average at 88c. Above this level a gap fill to $1.20 would quickly follow.

Dendreon Corp.

This is a stock that has been hated and loved on like no other stock in recent memory. From crashing on bad FDA news to rocketing on FDA approval to crashing on poor sales this stock has seen it all! We previously discussed Dendreon in our article titled, "Cancer Stocks To Watch," and detailed our expectations for the upcoming earnings report on February 25th. To recap briefly, based on the last earnings report and guidance that was given, and using a similar growth rate, we projected $96m in revenue for the next quarter. If the company is able to hit the numbers we projected previously we could quickly see a 50% move from these oversold prices. Over the last week the stock has shed 20% on fears over the upcoming report, falling back to support at the 50-day and 200-day moving averages. If our numbers prove out there could be a substantial short squeeze in the stock. Currently 33% of the float is short. Netflix (NASDAQ:NFLX) has shown us how surprise earnings reports can rocket stocks with high short interest higher.

The Dendreon chart has dropped $1.50 over the last week and is currently trading at its 200-day moving average. A break through $6.25 should see a move back to the recent highs and above $7.22 a move to the $8's.

Speculative biotech stocks carry great risks but great rewards too. As we have highlighted in other articles we feel that investors should have some risk in their portfolios and with the gains that can be seen on positive news so great, biotechs are a must have component of risk. These two speculative stocks have upcoming catalysts that could quickly see shares move 50% higher, Zalicus on its trial data and Dendreon on its earnings report.

Source: Speculative Biotech Stocks That Could Bounce 50% On Upcoming Catalysts