Every wise individual investor or day trader has a plan or ultimate goal with each purchase he makes whether for a 2-day "flip" or a "runup" to a binary event such as a PDUFA or clinical data presentation. One can peruse stock boards and forums and get a general feel for the overall tone of a stock's potential by weighing the extremes of obvious short and long position investors and then more strongly considering the more middle-ground posters giving casual opinions backed with links and facts. Apart from the obvious SEC filings, company news releases and analyst opinions, there is another interesting source by which to obtain information in the form of small pharma and/or biotech bloggers. While many of these bloggers may post wild expectations for share price gains and losses via exorbitant sales projections or clinical results, there are some who are more midstream and post all their findings, both good and bad, and allow their readers to make their own decisions based on the facts presented. I consider myself a more middle ground blogger. However, I do find myself getting a little more enthusiastic about some small pharmaceuticals more than others due to the hope they may potentially bring in the form of treatments for indications with unmet needs, especially in cancer treatment therapies.
I have been writing biotech-related and small pharmaceutical blogs for several years, well before I wrote the first of my more than 50 articles I now have in this current venue. My scientific background does not necessarily give me the formal education necessary to have first-hand knowledge of the healthcare sector, but it does give me the ability to use the scientific method to research, formulate hypotheses and make predictions based on my research as pertaining to clinical trial data and possibilities of regulatory success. In order to present some transparency and to help readers understand how at least this one particular blogger trades and invests, I have decided to unveil some of my own personal trading portfolio and some of my trading strategy. Like most investors, I have no formal training necessary to give investment advice. Instead, I have learned through my own research, trial and error (more of the latter) and the scientific method to perform technical analyses of stock charts and fundamental analyses of small pharma earnings to make my final determinations for investment ideas.
My trading portfolio does not include my long-term investments that I have "bought and forgotten". Those long-term investments are in the form of mutual funds and large capitalization stocks with stable earnings, solid dividends and charts I am more comfortable watching and interpreting. Rather, my trading portfolio consists of many small pharmaceuticals and other companies I believe to be undervalued and or trading undervalued due to various reasons. Each of these companies either has a major catalyst upcoming to present a trading opportunity or has been recently sold off, and I believe it to potentially recover for solid gains. Please understand that my level of risk tolerance is higher than that of many investors and traders. However I do trade these methodically, deliberately and with a plan. The holdings I present are not done such to promote, but are rather to allow investors to have insight into my trading methodology and to perhaps introduce them to some new possibilities. The companies introduced may give the readership a few ideas for some securities that I believe to have positive risk/reward ratios not for the long term necessarily, but certainly for short or mid-term plays.
Cytosorbents Corporation (OTCQB:CTSO) has always been a favorite of mine and is actually one of the first companies I actively traded. When I first discovered the company it was called MedaSorb Technologies, but the company announced its name change in May of 2010 to its current name. Cytosorbents is a small medical device company that is focused on its biocompatible highly porous bead filtration cartridges to filter various components out of patients' blood. The possibilities for the extracorporeal filter are numerous, and the company has one regulatory approval to its credit by receiving the CE Mark in March of 2011 for one variation of its platform, the Cytosorb device to remove cytokines. Elevated cytokines in patients can be due to any of numerous reasons ranging from critical injuries to influenza. Elevated cytokine levels can lead to inflammation, organ failure, immune dysfunction and death. The 2011 marketing approval in Europe opened the doors for the company to begin limited marketing of its first and only approved product, of which it is only generating limited revenue.
There are numerous reasons I like the company. First, I try to invest in treatments I understand at least somewhat, and I am very familiar with the technology that Cytosorbents is utilizing. The filter device is actually more complicated than it may sound, as it has been developed to retain a certain particle size range of molecules, and allow all other size molecules and cells to pass through partially or totally unretained. As a chemist, I utilize a variation of the concept in the form of Gel Permeation Chromatography (GPC), or more specifically, size-exclusion chromatography. The porous beads in the filter are of such a pore size to allow the larger molecules and cells to simply bounce off the beads and pass on through the filter quickly. Meanwhile, the smaller molecules simply pass around or straight through the beads, also taking a quicker path through to the filter effluent. Meanwhile, the targeted size molecules take the much longer path through the beads' network of passages and pores and are consequently retained efficiently in the timeframe that the filtration is employed. In theory, an extended time of filtration would ultimately start allowing these particles to work through the porous beads and result in no filtration, but the filters are taken offline before this point and discarded as biowaste.
A second reason I like my position in Cytosorbents is due to the expandability of its product line. With the porous beads engineered to target discreet particle size ranges of molecules or even elements, the platform's potential is significant as the company has already expanded its use in the form of a HemoDefend filter to clean transfused blood of many antibodies, free hemoglobin and inflammatory mediators that can often cause blood transfusion complications. Additional resins have been designed to remove chemotherapy agents, aid in drug detoxification and a host of other possibilities.
Although still largely in a development phase with its pipeline, the company has had much interest from many sources adding to the company's financials to further research in a host of indications. Recent awards to help shore up the company's cash position and also provide some validity to its platform include:
- An up to $3.8 million DARPA award, depending on milestones achieved, to aid in treating sepsis.
- An up to $1 million grant from the U.S. Army to treat burn, trauma and smoke inhalation in large animal models. These types of injury are the most prevalent in the military as well as civilian populations.
- An up to $488,958 grant for the treatment of sepsis and other critical care illnesses from the Federal Qualifying Therapeutic Discovery Project (QTDP) Program.
Although I see the long-term potential for Cytosorbents, I do trade in and out of the security on dips and spikes in the share price and try to maintain a base number of shares in the event of a surprise catalyst such as a product licensing, partnership or outright buyout. The company's stock currently trades in a fairly tight range from its current support of $0.13 to an upper value of $0.16 since July, so wise and patient entries are encouraged with a close watch on the stock's trading behavior while stop limits are advised. When investing in or trading CTSO, please remember to take into consideration that this is an OTCBB-listed company and has the implied risks inherent with less liquidity and more potential manipulation than its big board counterparts. The company is still operating at a loss and requires investment dollars and grants like those mentioned above to fund its clinicals.
Questcor Pharmaceuticals (QCOR) has had a volatile year of trading with a 52-week range of $17.25 to $58.91. The company's major marketed therapy is its H.P. Acthar gel, an artificial form of a hormone produced by the anterior pituitary gland that is used in a variety of illnesses with an inflammatory component involved. Questcor currently has approvals for using Acthar in Multiple Sclerosis relapses, infantile spasms, nephrotic syndrome, dermatomyositis/polymyositis and others, for 19 total indications worth of approvals, an amazing accomplishment for a single therapy. Acthar's growing use and expanded indications have proven to be huge revenue generators for the company to the tune of $208.4 million in 1H 2012, up over 150% from 1H 2011's $82.8 million. The company's cash position on June 30th was solid at about $129 million and should only continue to improve depending on more recent developments.
On September 18th, QCOR common shares closed out at $50.52. However, the shares would open on September 19th at $26.36, down about 50%, after insurance provider, Aetna (AET), announced that it was limiting its coverage of Acthar. Aetna stated on its website that the drug was medically necessary only for West syndrome, a condition that causes infantile spasms, but not for the conditions, such as MS, that are often treated with steroids saying "our previous position was that this was a last-resort treatment" and then "we now state that it is not medically necessary because there is no clinical evidence that the drug is more effective than steroids." The company's shares were pummelled by the news even though the company noted in a subsequent press release that "during 2012, Aetna has accounted for approximately 5% of the company's shipped prescriptions for Acthar. Based on its current assessment of the Clinical Policy Bulletin, the company does not believe that the bulletin will have a material impact on the Company's results of operations."
I have a strong position on QCOR based on the response by the company about Aetna's minimal exposure to Acthar's total sales so far in 2012. I believe that Q3 earnings, once presented (perhaps third week of October?), will give the market a better idea of Aetna's impact on the therapy's sales and could present a solid upside for investors. Before Aetna's announcement, Acthar's sales were growing at an impressive rate, and I see no real reason why its limited coverage by Aetna would negatively impact those sales. Trading at just under $20 currently, I have a speculative belief that $30 is easily attainable in the coming days as the market more fully researches the company's potential earnings. This speculative belief is based on Acthar's growing sales as well as the fact that, although many analysts have downgraded the company since Aetna's announcement, there are still no "sell" ratings by any of those agencies.
On September 24th, another wrench was thrown into the mix with another piece of bad news from the company in which it stated that it was being investigated by the U.S. government in regard to its marketing practices for Acthar. Questcor announced it was fully cooperating with the government, although no further details were given. With such limited information, I have no idea where this investigation could be headed. The government does work slowly, and I don't think this should directly come into play as far as a potential share price run up to Q3 2012 earnings. I will trade this security accordingly and likely not have a substantial position after earnings, unless the company gives more details and clarification on the U.S. investigation. From a technical analysis standpoint, I believe a close above $20.00 per share should be construed as bullish and a signal for traders and investors to consider. Representing a psychological resistance point, the stock trading at the $20 level for a couple of days in latter September with it as support, before shares finally fell below that level and bounced off it a few times as subsequent resistance.
Supernus Pharmaceuticals (SUPN) is one of the under the radar PDUFA run up plays in recent memory, but it is still not without some solid trading potential. The PDUFA date, short for the FDA's Prescription Drug User Fee Act, is the date in which the FDA has agreed to come to a decision as pertaining to the regulatory approval or rejection of a new drug's marketability in the U.S. based on efficacy and safety data generated from clinical trials. It is a major event in a development-stage company's life and a potential large catalyst, both upward and downward, for share price. Although Supernus currently does not have an approved and marketed product, the company did announce on June 26th that it had received a "tentative approval" from the FDA for Trokendi XR™, a once-daily extended release formulation of topiramate for epilepsy. The company stated that the FDA requires no additional clinical trials for its regulatory requirements. Included in that press release, keeping the stock price somewhat subdued, the company announced that the approval would be contingent on "resolving a marketing exclusivity issue raised by the FDA regarding a specific pediatric population."
Supernus’ next near-term catalyst, which should provide for much investor interest despite its current lack of “run up”, is its October 19th PDUFA for another epilepsy drug, SPN-804. The drug is an extended-release version of Novartis’ (NVS) already approved drug, oxcarbazepine, marketed under the name, Trileptal®. Oxcarbazepine is an effective epilepsy drug. However, it does have some side effects limiting its use. Supernus contends that its slow-release, once-daily version in the form of SPN-804, will avoid blood level fluctuation of oxcarbazepine and is an improvement over the Trileptal® version with a more tolerable safety profile. I see real potential in SPN-804 and see its PDUFA date as a solid trading event.
Currently trading at about $11.50, the company's share price is somewhat misleading as its market capitalization is only about $280 million. Although a 1Q 2013 stock offering is possible or even likely unless a marketing partner is found, Supernus mentioned in its Q2 2012 financials that it had $76.4 million in cash/equivalents on June 30th. This would carry the company into Q2 2013. Going against my normal inclination to always sell a development-phase small pharmaceutical before an expected binary event, I will likely hold my position and watch the share price response if/when FDA approval is announced. Please note again, I would hold through an event like this only in special circumstances and have only done such twice before, with failure on both occasions, although with only a limited holding in each case. The company's 52-week high is $16.68, and I'm hedging my bets on an approval possibly sending the share price back toward that range. I am still concerned about the market exclusivity issue concerns raised by the FDA, but I hope these issues will be resolved in the coming days and possibly catalyze share price increase even before the PDUFA date. Alternatively, failure to do such may not be announced until the October 19th PDUFA, which could present some risk holding through this event. Please trade this event cautiously.
NPS Pharmaceuticals (NPSP) shares have been on a steady uptrend with some dips for most of 2012. The company's October 2nd breach of short term resistance of $9.24 for a $9.32 close should be construed as a bullish signal heading to the company's October 16th FDA Advisory Committee meeting. The company will receive word on that day on the advisory committee's opinion of NPS's Gattex therapy for short bowel syndrome. The company has received Orphan Drug designation for Gattex® in the U.S. (FDA) and the European Medicines Agency (EMA) due to the small targeted indication. The Orphan Drug designation will provide the company such perks as clinical trial tax incentives, reduced federal taxes and a period of 7 years of marketing exclusivity with no competition. The company received marketing approval for Gattex already, as announced on September 4th, so it is well on its way to begin recouping its investment of time and money and hopefully provide shareholders with some gain as well as earnings projections come to light. Although the CE Mark doesn't guarantee an FDA approval, it does give an additional bullish sentiment to the upcoming advisory committee meeting as well as the subsequent December 30th PDUFA decision date.
Although NPS's market capitalization has increased to a respectable $804 million at the date of this composition, the 90% institutional ownership of the company's common shares doesn't leave many shares available for trading openly in the open market. The upside trading potential is compounded by the fact that there is a short interest of about 7 million shares, which could also add to the possible upside in the next couple of weeks heading to the advisory committee meeting and PDUFA date. As of June 30th, the company had about $30.7 million in cash and equivalents after Q2 revenue of $54 million, up 100% from the previous year's Q2 of $27 million. Interested investors should review the company's 2Q earnings release here to get a better understanding of its revenue due to multiple revenue streams, including its most substantial one being in the form of a royalty payment from Amgen (AMGN) for $25 million in the quarter. Of particular note was a comment from the company's CFO, Luke Beshar, in which he stated "From a financial perspective, this has been a strong quarter, highlighted by the recent announcement of a terrific agreement with Amgen. This transaction significantly enhances our cash flow and provides sufficient capital to support commercial launches of both GATTEX and NATPARA in a non-dilutive manner." With a couple of big catalysts ahead, a large short interest, a 90% institutional ownership, Orphan Drug designation for Gattex (recently approved for marketing in Europe) in Europe and the U.S., and minimal risk of stock dilution, the upside potential for NPS could be substantial.
Presented are four of my favorite pharmaceutical securities for short and midterm trading potential. With a wide range of indications targeted, varied market capitalizations and a mixed-bag of upcoming catalysts, I hope these give you an idea of how at least this particular blogger thinks when approaching trading and investing for short term and midterm gains. As noted before, I am not formally trained to give investment advice and don't have direct experience in the healthcare sector. I am a simple blogger and individual investor who is performing his own due diligence in his stock choices and sharing that research and decisions with those who may be interested. Readers are advised to perform additional research and to use my trading approach only as a starting point, as well as my stock choices. Although I may or may not invest in these securities for the long term, the imminent catalysts for some, and the potential upside and therefore shareholder interest in the others, should keep liquidity and volatility alive in these securities allowing for likely gains whether invested for the short term or a longer time frame. A risk assessment is advised for any of these securities based on the potential investor's own goals, risk tolerance and time allotted to monitoring the stocks' movements.
For additional consideration, following are the remaining stocks in my trading portfolio, any of which I may trade in and out of depending on market conditions, fundamentals or technical analyses. They are listed in alphabetical order of the companies' names:
AcelRx Pharmaceuticals (ACRX)
Agenus Inc (AGEN)
Apricus Biosciences (APRI)
Biodel Inc (BIOD)
Cellceutix Corp (OTCQB:CTIX)
Coronado Biosciences (CNDO)
Cytokinetics, Inc (CYTK)
Delcath Systems (DCTH)
Envivio, Inc (ENVI)
Oncolytics Biotech (ONCY)