With 2012 well underway, the biotechnology industry has been among the best sectors in terms of performance, with a YTD gain of 9% for the industry. In the last three months, while the S&P 500 has performed with a loss of 2%, the biotechnology industry has traded higher by more than 1.60%. One may conclude that biotechnology signifies a sense of security (or at the very least diversification) in an unstable market -- an industry where opportunity and trends are always being pursued. With that being said, investors are never slow to search for biotechnology stocks that could potentially break out. As a result, I have identified four stocks that I believe could trade higher in the next couple weeks. These stocks have all followed different trends, and have very little in common, but all present the possibility to breakout in the near future.
Celldex (CLDX) is a company that I find very interesting; it has rebounded quite nicely in 2012 with a 65% gain. The recent momentum in the stock is in part due to its lead candidate, CDX-110, but also its therapeutic approach of immunotherapy in treating cancer, an approach that has become a hot ticket as of late. The company has had its ups and downs over the last two years, but the initial results from CDX-110 in the treatment of glioblastoma multiforme are encouraging, with an overall survival (OS) of 24.6 months compared to 15.2 months (historical cohort). Considering glioblastoma (a very deadly form of brain cancer) is a disease where an added month of life would be significant, the upside appears to be significantly higher for this stock.
Celldex first began to trade with momentum at the start of 2012, when its stock rose from $2.60 to over $5.50 in just a month. The rally was in part due to the initiation of its Phase 3 trial and also a bull market to start the year. It then fell with a public offering, but then recovered to over $5.00 at the end of March. Since then, the stock has retraced and found bottom level support around $4.00. The stock just crossed its 20-day moving average. Now that investors feel comfortable at this level due to the presumed bottom of its range, I would watch for increased buying pressure over the next couple weeks.
Galena Biopharma (GALE) began 2012 as one of the top two performers in the market, increasing by over 500% in the first three months of the year. Unfortunately, when gains such as this occur there is always going to be a significant amount of selling pressure on the other side of the trade. The stock has traded from a high of $3.54 to its current level around $1.20, still an impressive YTD gain of over 150%.
At the beginning of the year, GALE was perhaps one of the most undervalued stocks in biotechnology. Its lead candidate, NeuVax, is a Phase 3 immunotherapy candidate that treats recurrence of breast cancer with unprecedented success and has the potential to enter a massive market of potentially billions in revenue upon regulatory approval. Once this fact was realized by investors, the stock traded with authority. However, after market leading gains to start the new-year, the inevitable occurred, and profit taking caused a loss in momentum and selling pressure took over. At this point I would start watching GALE. The stock has established support around $1.18 leading investors to buy. In the last six weeks the stock has traded flat, insinuating that it has reached a bottom, which could possibly result in buying pressure among the many who are watching this stock. This is a stock that has the ability to change directions and trade higher very quickly. If any positive momentum is identified, it could lead to a fairly large rally.
Spectrum Pharmaceuticals (SPPI) has been one of the real wonders of the new year. By all accounts the company has significantly improved. It is one of the fastest growing companies in the market and had a bioscan requirement lifted allowing a ramp up in sales of Zevalin. Spectrum just acquired Allos Therapeutics which will lead to even more sales growth with the two companies' product lines easily merged together. Despite these many catalysts, with a massive pipeline and the expansion of Zevalin, the stock has traded lower by 15% YTD, a definite head-scratcher.
Since SPPI fell in mid-April, it has been unable to recover. Over the last month it has fluctuated between $11.00 and $12.00, but unable to break above $12.00 with any level of consistency; although on Friday, the stock did break out and traded around $12.50 for most of the day. In this range, I expect that SPPI will continue to trade higher. The stock is highly watched among institutional and retail investors, and as soon as an uptrend is identified, it too could very well trade much higher with authority.
The final stock that I think is worth watching over the next few weeks is Oncothyreon (ONTY), a stock with a loss of nearly 50% YTD. ONTY was one of the top performers in the industry back in 2011 until the company announced that results from its Phase 3 trial of Stimuvax would not be released until next year. The news was discouraging since the market expected an early release of the results from the trial. The vaccine, which treats non-small cell lung cancer, has been highly anticipated and is expected to gain approval once the trial is complete. When the results from the trial were delayed, the market assumed the worst: that its trial had been unsuccessful.
It has now been three months since ONTY's big fall, and now that investors have had time to reflect, I think it could begin to trade higher. The stock's fall was undeserved, as in order for the trial to complete, there must be a total of 708 deaths to occur. The fact that the trial is not complete could mean the drug is working better than expected, and that its chances of approval are even greater. Consequently, this offers a good opportunity for investors. Technically, the stock created a bottom around $3.45, and has now trended to near $4.00 per share. The stock is trading above its 50-day moving average, and if the stock can surpass $4.00, then I think an uptrend will occur. It would be the first time in over a month for the stock to reach this level, and it could create optimism.
The biotech industry has never failed to provide its share of rewards and heartaches to investors. 2012 promises to offer more of the same. Solid research via this article and others along with investors performing their own research of clinical data and financials will be the key to success for investment in this sector. Above are four companies I believe could have substantial upside in the coming weeks and months. Anything is possible with failures possible in anywhere from efficacy to safety for their clinical candidates. However, it is this risk that also provides for good upside and investment in this sector is recommended only for those willing to tolerate a great deal of risk and possible loss while hoping for the huge upside that is also possible. Invest wisely and good luck with these biotech candidates and others in 2012.
Disclosure: I am long GALE.