Alimera Sciences Inc. (ALIM), Dendreon Corporation (DNDN) and Vertex Pharmaceuticals Inc. (VRTX) are three pharmaceutical stocks with near-term catalysts and the potential to move higher over the next year. This article will take a look at the three opportunities and suggest a few options strategies that traders can use to capitalize on them.
Alimera's Iluvien Gets a Second Chance
Alimera Sciences Inc., a biopharmaceutical company specializing in prescription ophthalmic pharmaceuticals, could see near-term upside after announcing plans to re-file for FDA approval of its Iluvien technology. After failing to initially approve the drug, the FDA wanted to see safety and efficacy data through month 36 of the Fame study and held a meeting with management to discuss the results.
Analysts like Oppenheimer see a high probability that Iluvien will be approved this time around and predict that the company's stock price will rise significantly following the approval. Notably, the company has also submitted applications for the drug device in the United Kingdom, Austria, France, Germany, Italy, Portugal and Spain that could unlock further value.
Dendreon Sees Robust Demand for Provenge
Dendreon Corporation, a biotechnology company focused on cancer treatment therapeutics, could see near-term upside after as demand for its Provenge treatment continues to rise. Earlier this month, the company reported that the number of accounts infusing the treatment rose to 135, while noting that it is on-track to meet its goal of 225 sites by the end of the second quarter.
Analysts ranging from Leerink to ThinkEquity have raised their price targets on the stock in recent weeks, suggesting that the company is making solid progress towards implementing its 2011 launch of Provenge. Meanwhile, other analysts like Collins Stewart studied physician surveys that suggested that demand is tracking above consensus analyst estimates.
Vertex's Eyes Upcoming PDUFA/NDA for Incivek
Vertex Pharmaceuticals, a pharmaceutical company focused on small molecule drugs targeting a number of diseases, could see near-term upside upon PDUFA approval of its Incivek NDA on May 23, 2011. Meanwhile, the company also benefited from the recent FDA approval of telaprevir for people with genotype 1 chronic hepatitis C.
Goldman Sachs is very bullish on the stock – and particularly the near-term call options – saying that they may make the company a more attractive M&A target. The analyst issued a $59.00 per share price target, but noted upside that could approach $87.00 in the event of an acquisition. Meanwhile, similar sentiments were echoed by ThinkEquity, which maintains a $62.00 per share price target.
Using Options to Play Pharma Catalysts
One of the most popular ways to play pharmaceutical catalysts is with stock options, but traders should carefully analyze the pricing before purchasing them. While Vertex call options may be relatively cheap with low implied volatility, pharmaceutical stocks with catalysts tend to exhibit more volatility and become more expensive as key approval dates approach.
That said, traders that are bullish on these catalysts may want to consider buying near-term call options or utilize a bull call spread, while those that are simply betting on volatility should take a look at a straddle or strangle strategy to profit.