In speculative, small cap biotech investing, investors who are able to accurately forecast when positive, market moving catalysts are to occur are better able to position weight their investments based on a specific timeframe to avoid unnecessary risks and produce much more profitable returns.
This is exactly what happened in the case of a medical device company, InVivo Therapeutics (NASDAQ:NVIV), earlier this year when it gained 82% over a 50 day period from the time a catalyst was forecasted until the date that catalyst was publicly announced. In this article, I will present a new opportunity to benefit from two near-term catalysts likely to propel InVivo shares as much as 50% higher (from $3.25/share basis) over the next 30-60 days.
Example of Forecasting a Catalyst: InVivo's Recent 82% Rise
On February 14, 2013, I wrote an article outlining a short-term investment idea based on the imminent news expected of a potentially bullish decision by the FDA to grant orphan status, or Humanitarian Use Device Designation, to InVivo Therapeutics' lead biopolymer scaffolding product for the treatment of complete functional spinal cord injury, an area where no successful treatment options currently exist.
At the time, InVivo was trading at $1.62/share and I called for a 60% rise in share price by March 9, the date I forecasted for the company to receive notice from the FDA on Humanitarian Use Device Designation. As it turned out, I underestimated the FDA approval time by 18 trading days and underestimated the news' bullish impact on the stock. When the news was announced on April 4, InVivo's shares rose to $2.94/share for an 82% return. And by six trading days later on April 12, the stock had run to $3.79/share for a 134% return.
Investors who missed this 134% parabolic move ($1.62 to $3.79) which occurred in just under 60 days have another opportunity to participate in what is expected to be another major InVivo move, based on two clearly forecasted, near-term catalysts over the next 30-60 days. These catalysts will increase InVivo's credibility and exposure in the national media due to the commencement of human trials and in the investment community due to uplisting to a national stock exchange.
Catalyst #1: Human Trial Commencement and National News Coverage (Timeframe: 30-45 days)
On April 5, 2013, InVivo received another important approval by the FDA - the Investigational Device Exemption (IDE), which permits InVivo to conduct clinical studies on its implanted scaffold device. The initial press release announcing this significant milestone states, "With this approval, InVivo intends to commence a first-in-man clinical study in the next few months that will test safety and performance of its biopolymer scaffold in five patients."
The specific commencement date and sites for these historic trials are no longer a mystery based on comments last week by CEO Frank Reynolds at InVivo's annual shareholder's meeting. Opportunistic investors were given a specific forecast for this catalyst making their investments much less speculative. Reynolds expects to start the trial with the first patients this summer and specifically mentioned the date of July 4th. The sites for the studies will be Harvard Mass General Hospital in Boston and Geisinger Health System in Pennsylvania.
This news is still very much unknown by the broader investment community because InVivo has yet to issue a press release. Those who attended or listened to the shareholder meeting know and those who did not are still in the dark. When the news of the imminent trial commencement is released (which I expect in the next 30-45 days), InVivo should see major national news coverage likely to expose the story to new investors, propelling the stock higher. Even before this clinical trial commencement, over the last month InVivo has already been featured on FOX Business Network and on Canada's Business News Network.
As the first patient suffering from traumatic spinal cord injury receives this revolutionary implant, major news outlets will likely flock to cover these historic developments. We know from CEO Reynolds that initial results in the trial can be detected in as early as a few weeks from implantation. If a partially paralyzed patient is able to regain some function, this is exactly the kind of health science story that will bring even more attention to InVivo.
Catalyst #2: Uplisting to Major U.S. Exchange and Expanded Investor Interest (Timeframe: 30-60 days)
In a strategic move which paves the way for an imminent stock uplisting, InVivo issued a call notice for the early exercise of warrants issued in 2010. This call was possible because InVivo's stock price exceeded $2.80/share for 20 consecutive days. This warrant exercise concludes on June 3 and is expected to bring in over $16 million in cash to InVivo's balance sheet enabling the company to fully fund operations into 2015.
Not only will the warrant exercise provide significant cash, but it will also remove the major impediment (derivative warrant liability) InVivo faced which had prevented it quantitatively from moving to a major U.S. stock exchange.
CEO Reynolds put it this way,
Since early April 2013 when we announced FDA approval to commence a first-in man clinical study for our biopolymer scaffolding to treat spinal cord injuries and Humanitarian Use Device status for the product, Wall Street has taken notice and our stock price has appreciated significantly. This has permitted us to call the Investor Warrants which will pave the way for an uplisting to a national securities exchange, a milestone that we expect will increase liquidity and unlock additional inherent value in our company.
During last week's annual shareholder's meeting, InVivo management informed investors that uplisting will occur in 60 days if not sooner. This provides a significant catalyst for share price appreciation as many investors and institutions will not invest in a company unless they meet the requirements of a major exchange and have the liquidity that a major exchange brings.
InVivo Therapeutics Background
InVivo is a Cambridge, Massachusetts-based medical device company focused on utilizing polymers as a platform technology to develop treatments to improve function in individuals paralyzed as a result of traumatic spinal cord injury. The company was founded in 2005 on the basis of proprietary technology invented by the legendary Robert Langer, ScD., Professor at Massachusetts Institute of Technology.
For excellent, comprehensive InVivo fundamental analysis, I would refer you to the work of notable biotech analyst Jason Napodano and his article outlining InVivo's billion dollar opportunity in the spinal cord injury arena.
Key financials for the company include:
$10.9 million cash on hand (as of 3/31/13); additional $16.1 million expected by June 3 on warrant exercise bringing cash on hand to near $25 million.
32% inside ownership aligning management with shareholders; 23% owned by CEO Frank Reynolds
Low burn rate, only $850K per month in 2012
Conclusion: $5 Price Target Based on Imminent Catalysts Over Next 30-60 days
Based on clear and specific guidance from InVivo management given on May 23, investors have an opportunity to again forecast imminent catalysts which are likely to drive the stock much higher. The commencement of its first-in-human trial on or near July 4th coupled with an uplisting to a major exchange will expose InVivo to a much greater audience. Not only will InVivo's story likely be featured on more national news programs (as it has already), but the uplisting will provide more investors and institutions the ability to take an equity stake in what some analysts see as a billion dollar market opportunity.
My near-term price target for InVivo shares after these catalysts happen is $5.00/share which is still conservatively less than some current analyst targets of $6.00/share. At the current share price of $3.25 (as of May 31), this represents a possible 54% return over the next 30-60 days.
Disclosure: I am long NVIV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.