James Stocklasar Thomas Jr's confession:
I am not a gambler yet I primarily focus on biotech stocks that are perhaps in the highest risk sector. Even more so, I typically buy and sell micro-cap biotechs that by market standards are considered extremely risky.
To mitigate that risk I normally do not hold through advertised news events such as clinical trial results and/or FDA decisions. Some call this "XXXXX trading" which suites me because this style of trading is about arriving at the party early and exiting before everyone gets drunk over good or bad news. Granted, you may miss the big pay day or you may escape without losing your shirt, but you will most likely enjoy repeated 10-50% gains! Do that a few times in one year you'll understand why I've traded: Zalicus (ZLCS), Catalyst (CPRX), Antares (ATRS), iBio (IBIO), Astex (ASTX), Vivus (VVUS) and some others in years previous. Making money is about knowing when to buy and sell. Of course, that's why I affectionately get called a "flipper" and a "pumper and dumper" though I've been tempering my writing style of late to stay focused on the positives.
Here, SA readers are being treated to a more refined article as to why I am very bullish on Acadia (ACAD) and Astex . Included in this article I am including my 'Under Construction' philosophy of my trading style reflecting the lessons that I've learned through trial and error.
Going back to my very early days in Zalicus , I learned the hard lesson that it would have been better to buy Zalicus before Exalgo's FDA approval. Naively, I bought it after FDA approval and learned what many already know: Sell on the news. Of course, that lesson took time to sink in and this old dog recently tried to trade Vivus after correctly calling both drug candidate FDA approvals. Unfortunately, I found myself watching the dollars go out of my account. I suppose many people felt the same way when they watched Arena's (ARNA) drug get FDA approval and then promptly go down.
I've learned that holding through the news can be dangerous. That's why I sold Zalicus before it announced Synavive's results which happened to fail. I didn't have foreknowledge, just my own fear of losing my money. That's why when I bought iBio , I got in and got out as quickly as possible because I viewed iBio as a very risky biotech stock. I am a nervous Nelly!
Of course, one stock belies my inclination to sell before the news. That's Antares Pharma. Antares took a direct hit from CNBC, but fortunate and wise investors have been adding or reloading shares. While I haven't been able to do that yet, I do look forward to getting back into what is a stellar firm with two great catalysts just ahead: (1) news on Gelnique 3%'s sales in Q3 and (2) what I expect will be great results for the company's Vibex MTX injector. Yes, a rare biotech like Antares can certainly blow a hole in the theory of selling before the news.
On the other hand, I once got AEterna Zentaris (AEZS) and BioSante (BPAX) completely wrong, but I certainly was right about the plummeting consequences following Cell Therapeutics' (CTIC) dilution of its shareholders.
Of late, I discovered Catalyst and took a brief ride on its soaring share price. But the altitude got too high for me and I followed my mantra to never again be a pig who got slaughtered.
Why Acadia & Astex
So now we come to Acadia and Astex. Both stocks have news just ahead. Acadia will be reporting in November on its phase III drug candidate for people diagnosed with Parkinson's disease. Astex is waiting to hear from the EU for approval to sell Dacogen for elderly people plagued by acute myelogenous leukemia.
My current angle is to get in (I already have) on the Acadia trade with the expectation that there will be increased investor buying going into November. How long I will hold will be dictated by how much I earn (Or dare I state? Lose!). But I am currently looking at Acadia because I've concluded its share price is sorely under-valued for a company with great odds to announce great clinical results. Of course, that still needs to be proved, but right now I like everything I've read about the current phase III trial design and the earlier phase II results.
According to Acadia: "Top-line results from this trial are expected to be announced by the end of November 2012." From what I'm reading, market sentiment seems to be very positive and previous company news seems to support that view. That means the market will be turning to this stock. The window to buy low and sell high is right now.
I also point investors to a number of stellar articles on Acadia by SA authors:
- Biotech Treating Incurable Disease Warrant Early Look
- 7 Innovative Biotechs That Could Soar By Year-End: George Zavoico
- Acadia: A Big Move Into Parkinson's Disease Psychosis Results
The only risk I currently see running up to pimavanserin's results is the possibility of a small dilution cited in a corrected article (original article cited here) published by Thomson Reuters. However, given the size of the drug catalyst's potential, I don't see this risk as a significant downer. Parkinson's disease psychosis represents a significant need as Acadia states:
Pimavanserin is a new chemical entity that we discovered and have advanced to Phase III development as a potential first-in-class treatment for Parkinson's disease psychosis (PDP). Pimavanserin is a small molecule that can be taken orally as a tablet once-a-day. Pimavanserin selectively blocks the activity of the 5-HT2A receptor, a drug target that plays an important role in psychosis. We hold worldwide rights to pimavanserin and have established a patent portfolio, which includes numerous issued patents covering pimavanserin in the United States, Europe and several additional countries.
As for Astex, I have re-entered the stock simply because I am ignoring my sell before news philosophy because I think EU approval will add value above and beyond where Astex is currently priced. The Astex merger with SuperGen was a great move and the strategy is paying off in a cash-enriched, very deep oncology pipeline that includes drug candidates from pre-clinical to marketed (Dacogen). With $121M as of Q2, I highly doubt Astex is going to go belly up. In my opinion, the Astex trade is going to surprise Wall Street because once again I got it right before they (whomever they are) discovered it.
In my previous research, I made this case for Astex and it remains unchanged:
Astex is very unusual for most biotechs below $3/share in that the company sits on more than $119M in cash, has zero debt, and generates around $20M/Q in revenue. So investors don't need to worry about bankruptcy -- that's for sure! Ifavor the odds that Dacogen will be approved in Europe for leukemia treatments, primarily because the recommendation for Dacogen's approval has already been given by the Committee for Medical Products for Human Use (CHMP) of the European Medicines Agency (EMA). This bodes very favorably for the drug's approval.
Finally, I would note that the Astex chart has held its ground and I see positive news from Dacogen approval in Europe as adding even more value.
In The Final Analysis
I suppose readers are learning that like many of them, I am still 'Under Construction.' I continually question my buying and selling decisions, but if anyone has been following my journey I think my skills are an equal match for the Ivy league grads who work on Wall Street. I will also match my research skills and writing ability against any Wall Street author, high-powered or not.
Small pea voice though I am, I use my noggin in the choice of stocks I've bought and sold with no thanks to Wall Street. And here's the thing: I watch the volume that often follows the publication of my articles so someone (perhaps the Consortium -- that's a joke) must think I'm quite astute at picking great biotechs. May Acadia and Astex soar like eagles.
I reiterate my very strong buy Acadia and Astex.
Additional disclosure: Investors buy and/or sell at their own risk. Do not use my articles for investment advice. Seek the advice of a Wall Street professional with diplomas to prove it. For me "long" is until I sell. I do not "short" stocks. Finally, I declare that I may trade any stock at any time mentioned in this article.