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The month of May has thus far been a very profitable one for investors in a number of small cap biotechs leading up to the June 2011 ASCO meeting -- particularly ones that haven’t consequently fared too well once their respective binary events had met its endpoints.

First up on the list is Oxigene, Inc. (OXGN), which has experienced nothing short of a meteoric rise from the $1.5 price per share level to $5.24 in a matter of three weeks following our report discussing the nearing of marketing approval of the first anaplastic thyroid cancer drug. While early technical analysis showed clear evidence of the oversold and undervalued condition, the stock has now begun trading at 10 times average volume in each of the past few days during this run, which often signals that a few hedge funds and institutions have begun to take a controlling stake in its low float, which sources list at 5.61 million.

While some argue that this could be due to a potential hostile takeover attempt, this is highly unlikely; more likely, it's an elaborate scheme to control the price of the shares to its liking. More worrisome is the fact that fundamentals or significant changes to the outlook for the cancer drugs in its pipeline have nothing to do with the recent momentum, according to an analyst at TheStreet.

Investors are looking forward to the ASCO meeting, which will provide updates for two studies in the company’s flagship product, Zybrestat. Last September, researchers stated the company’s drug (FACT study) had a median overall survival of 5.1 months compared to 4.1 months in ATC patients, one which was not statistically significant by any means. This caused a spike in the share price from $5 to $8 in just a few hours which, in the end, resulted in a move back down and erased all of the gains posted during that trading session.

The second set of results will come from the FALCON study for the company’s advanced non-small cell lung cancer treatment, though it is not clear it will be ready for this year’s ASCO meeting. The last update in November showed patients treated with the drug had survival of 9.5 months compared to that of 8.8 months for the control arm, which was not statistically significant nor clinically meaningful. Again, despite bad results, the stock had a spike from $4 to $5.5 on the news, which would eventually come crashing back down to even par two months later.

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From the above technical and fundamental analysis, it becomes clear that should history repeat itself, a swift move downward to the $3.5 support favors the short side into the upcoming ASCO meeting when compared to previous occurrences and expectations. There is also a lot of speculation that the company will take this opportunity and look to dilute shares in order to fund its less than stellar balance sheet, which is now estimated to hold $5 to 8 million in cash; of that, $3 million being used to fund clinical trials per quarter.

A new phase 1 clinical trial was also announced last Thursday, and while the market took this as a positive at first glance, it should be noted that this places further emphasis on the need to raise capital principal, especially considering that these trials cost upwards of $150 million from start to finish.

Next up on the board is Sunesis Pharmaceuticals (SNSS), which will be presenting the abstract for its VALOR study, a phase III trial of vosaroxin for patients with first relapsed or refractory acute myeloid leukemia. The company expects 450 patients at multiple global sites to be enrolled, with results potentially being out during 1Q 2013. Additionally, the company received FDA fast track status on Feb. 23. Unlike many other small cap biotechs, Sunesis is well funded with close to $15 million in cash, and should do well going forward as it just reported first quarter profit after getting a $4 million dollar payment from new partner, Millennium Pharmaceuticals (MLNM).

The stock has made a tremendous rebound from the $1.8 price in mid-March to settle at the current $2.87 resistance, which marks an inflection point. From the chart, we see a black doji candlestick printed, which dictates that there is indecision between buyers and sellers; thus we can look to the ASCO meeting for further direction once the fundamentals are out of the way. Traders can look for the 200-day moving average of $2.33 to provide strong support, with $3 being resistance directly ahead. Unfortunately, pressure will be on the downside, as a simple clinical trial design is not significant enough to drive momentum in the stock, considering no results will be provided.

Last but not least on the list is Cyclacel Pharmaceuticals (CYCC), whose phase I/II data for sapacitabine (an anti-cancer agent) is expected to be presented at the ASCO. Non-small cell lung cancer (NSCLC) will be a $13 billion dollar market in 2015, according to Zacks; therefore, given that it receives favorable results, Cyclacel could see significant share price appreciation due to its currently low market valuation at 79.2M. With a healthy $29.5 million in cash, the company looks ready to make a move higher, though in the short-term strong resistance from a technical standpoint could prove to be a strong barrier.

Making predictions based on the chart pattern for Cyclacel has been a relatively easy task, and should be one going forward as well. With the Relative Stregth Index now showing an overbought stock that gained strong momentum into the ASCO conference, it is expected that a pullback will now occur as the “buy the rumor, sell the news” principle comes into play. Below, the stock finds strong support at the 200-day moving average of $1.52, with strong resistance directly ahead at the $2 mark.

Source: 3 Small Cap Biotechs Primed For Corrections