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The small pharma sector is ripe with companies having abundant catalysts providing share price spikes - and often subsequent dips - causing multiple trading opportunities for those playing the volatility. Although I learned to invest as a long-term investor years ago, I have since learned that, for me, maximum earnings occur as a result of riding the waves of catalysts, selling and then buying back at share price dips. While I do invest in various quality companies and enjoy the gains due to dividends and steady uptrends, I do devote a portion of my portfolio to short and midterm trades rather than the long-term holds. Both approaches require much research in the companies I invest in, with each having its own techniques, risks and rewards.

In many cases, I may choose to ride a stock's price up to (but rarely through) a significant catalyst or binary event, only to sell at a hopeful profit and then, perhaps, never revisit the stock again. In other situations, I may ride the share price up, take partial or total profits, and then buy back the same number of shares if/when it dips, reserving the earnings for additional plays. The latter two scenarios often depend on the quality of the catalyst that caused the initial share price run up. If clinical data was marginal or questionable, if management appears to be hiding significant portions of a licensing deal or clinical results, or if there are other peculiar bits of unanswered questions, I either never return to the stock or I perform much additional research to quench my concerns. If the catalyst was indeed positive with solid long-term implications, I eagerly await reentry into the stock after a "sell on the news" event, stock offering, stock technical dip, or other event providing a wise and solid long-term hold.

Fear - A Strong Motivator and Influencer

With Halloween approaching soon, I thought it relevant to visit my biggest fear as a trader: watching a previous holding rise to unprecedented levels while I sit on the sidelines afraid to chase the share price up, all the while realizing it would likely continue to rise. Many seasoned day traders and traditional investors have gone through this situation and either watched and regretted, chased up to only lose in the subsequent dip, or were lucky enough to buy in on the way up and exit with more subdued gains than possible if they had held their earlier position. Although I do a fair amount of day trading, I believe my hybrid investing/day trading approach serves me best as an individual investor with slightly more-than-an-adequate amount of time to research and watch the markets. I typically prefer the smaller capitalization companies with significant catalysts upcoming to provide the necessary volatility for my trading technique. With each rule, however, there are exceptions. As my trading portfolio evolves, there is a handful of small capitalization pharmaceuticals that I simply refuse to keep out of my portfolio, except for a very brief period of time. These companies simply offer too much in terms of expected and unexpected catalysts, and could experience significant upside at a moment's notice. Although I may still day trade these special companies, I either day trade a portion while maintaining a base number of shares, or I sell all and watch technical indicators very closely and anxiously while awaiting quick reentry. Following are three of my favorites in this ever-changing group within my portfolio.

The Fear-Inducing Hopefuls

AcelRx Pharmaceuticals (NASDAQ:ACRX) is a $68 million market cap specialty pharmaceutical company with huge share price-moving catalysts ahead. The company boasts a growing pipeline of clinical candidates in advancing trials primarily in treating acute and breakthrough pain. AcelRx's pipeline is based on its NanoTab® sublingual administration platform that is showing promising results in clinicals. The most advanced candidate in the pipeline, ARX-01, is a NanoTab® version of Sufentanil, an opioid analgesic currently marketed for IV and epidural anesthesia. Sufentanil is an effective analgesic, but its current IV administration renders its activity short-lived. Clinical trials thus far indicate that the ARX-01 NanoTab® version causes a uniform induction into patients' plasma rather than an earlier spike and then waning efficacy usually seen in the IV-administered versions. Success in the ARX-01 clinicals could be a huge share price-mover for the company's common shares. Sufentanil has a higher therapeutic efficacy and lower propensity for respiratory depression than other commercially-available opioids. If ARX-01 can improve on the administration of the drug, as trials indicate, by eliminating the initial spike of the drug and, instead, provide a uniform level in patients' plasma, it could take a huge bite out of not only Sufentanil's current IV-administered market, but also many other commercially available opioids.

ACRX Candidate and Data

Three phase 2 trials show promising results in which the ARX-01 version of Sufentanil was administered every 80 minutes instead of every 20-40 minutes for comparable pain control as effectiveness wanes. The primary efficacy endpoint in these three phase 2 clinicals was SPID-12 (a cumulative measure of difference in pain intensity over the 12-hour study relative to baseline subjects). In the trial in which patients had elected knee replacement surgery, ARX-01 at 15 mcg showed a statistically significant reduction in pain intensity over the study period for a (P<0.02) correlation (significance is usually inferred at 0.05 or less). For a patient group having major abdominal surgery, ARX-01 at 15 mcg also showed a significant reduction in pain intensity for a (P < 0.001) correlation. In the third trial in which patients having unilateral knee replacement surgery utilized the handheld component of ARX-01 in an open-label study, the 10 mcg dose had comparable efficacy with a (P < 0.001) correlation, wrapping up the three trials and giving much hope for a large indication group with possibilities for other indications in the future.

ACRX Upcoming Catalysts and Reasons for My Fear of Not Having a Base Position in 4Q

On August 23rd of this year, AcelRx initiated its third phase 3 trial for ARX-01. The company initiated the first of these trials in March for post-operative pain following major open abdominal surgery, with intent to enroll 150 patients. A second phase 3 trial was initiated a month later for the treatment of post-operative pain associated with major abdominal or orthopedic surgeries. The trial will compare ARX-01 to IV administration of morphine and will enroll 400 patients. The company plans on presenting topline results from these two trials in 4Q 2012. The fast enrollment and then presentation of topline data in less than 9 months after enrollment initiation is a testament to the large indication targeted, and presents a large area of need in the healthcare sector. The third trial is scheduled to complete and have topline data available in 1Q 2012, providing another upcoming catalyst to monitor for in the coming weeks.

ACRX has a great deal of catalysts coming up in the next few months. With three phase 3 trials presenting topline results in 4Q 2012 and 1Q 2013, catalysts are abundant in large indication groups. Looking ahead, successful results from these trials should be leading to a New Drug Application (NDA) for ARX-01 in 3Q 2013. The company has spoken with regulatory officials in Europe and believes the trial design, if successful, will also allow for a Marketing Authorization Application (MAA) to be submitted in 2013 as well. It appears that my fear of not having a continuous position in ACRX may even carry over well into 3Q 2013.

OncoSec Medical (OTCQB:ONCS) is a $22.8 million biotech company whose platform is based on an electroporation device administration system the company terms "OncoSec Medical System" (OMS). The basis for the system's design is a 6-probe electroporation device that applies a targeted electrical current to a cancerous tumor or tissue region. This electrical current imparts a dramatically-increased porosity (about 4000-fold) of the cells' membranes in the targeted area. A previously-injected cancer fighting agent is rapidly absorbed into the cells' interiors where it is trapped almost immediately after the electrical current is removed and the cell membranes return to their original states. Phase 3 data were impressive, utilizing the chemotherapy agent, bleomycin, in the OMS NeoPulse platform. However, regulatory success is uncertain even after a July data reevaluation appeared to debunk an earlier decision by the Data Monitoring Committee to discontinue the two legs of the trial in 2007 for locally recurrent and second primary squamous cell carcinoma of the head and neck (SCCHN). According to my recent interview with OncoSec CEO and president, Punit Dhillon, the company will pursue partnerships for the NeoPulse platform, which is seen as a "near term commercial opportunity." Meanwhile the company will be primarily focused on its other OMS platform, ImmunoPulse.

ONCS Candidates and Data

OncoSec currently has three phase 2 trials underway using its ImmunoPulse platform for Merkel cell carcinoma, metastatic melanoma, and cutaneous T-cell lymphoma. A novel immunotherapy treatment option, ImmunoPulse uses an electroporation device to administer a DNA-based cytokine coded for the immune-stimulating agent, interleukin-12 (DNA IL-12). Once the plasmid is inside the targeted cells, the current is removed and the agent effectively trapped inside the cells. These cells are then essentially "reprogrammed" to express the IL-12 interleukin. The IL-12, in turn, mediates enhancement of the cytotoxic activity of natural killer (NK) cells and CD8+ cytotoxic T lymphocytes. In essence, the treatment causes the targeted cancer cells, normally ignored by the immune system, to be seen as foreign and be attacked accordingly.

Phase 1 data for the ImmunoPulse (formerly known as ElectroImmunotherapy) treatment of malignant melanoma was promising, with the treatment construed as safe and well tolerated. 53% of patients with distant metastatic lesions had objective responses with 16% having complete responses. The results were hopeful, but another statement caught my eye in the phase 1 data set. The PR noted that, "In addition, 15% of these patients demonstrated 100% clearance of distant, untreated metastatic melanoma tumors; by comparison, only 0.25% of such tumors would normally be expected to clear on their own if left untreated." This was significant in that the treatment not only seemed to be effective for the treated regions, but also the untreated, which indicated a "learned" systemic response to the melanoma cancer tumors - a true immunotherapy response.

ONCS Upcoming Catalysts and Reasons for My Fear of Not Having a Base Position in 4Q

Like ACRX, ONCS has multiple catalysts upcoming in 4Q 2012 and then another in early 1Q 2013. As noted by the interview, the company intends on presenting interim data from the melanoma trial (OMS-I100) and the Merkel cell carcinoma trial (OMS-I110) at a "scientific conference before the end of 2012." OncoSec announced the enrollment initiation of a third trial, for cutaneous T-cell lymphoma, in July of this year. Although the company gave no guidance pertaining to interim data presentation for this trial, one could assume 1H 2013 depending on enrollment rate. Each of these three catalysts will likely be share price-movers, in one direction or another depending on the data presented. The company is compiling and evaluating data from the aforementioned phase 3 and 4 NeoPulse trials and is expected to present data pertaining to the "pharmaeconomic benefit" sometime in 1Q 2013, according to the interview with the CEO. These are the "known" catalysts as identified by recent company PR and the CEO interview. On a speculative front, the CEO did note that the company is seeking partnerships for the NeoPulse program and called the activity a "near term commercial opportunity." When or if a partnership can be found is anybody's guess, but it does add to the likely increasing buzz about the coming phase 2 ImmunoPulse data.

Consider a couple of final thoughts on OncoSec worth mentioning as part of my fear of ever trading completely out of my position in the next few months. Success in the phase 2 data presentations could be huge share price-movers as the implications of the adaptability of the platform to utilize other chemotherapy and immunotherapy agents begin to become evident. Conversely, it is my opinion that failure has already been priced into the NeoPulse pipeline as indicated by the company's low market capitalization of only $23 million despite completion of phase 3 clinicals; so any good news for that platform could be significant for the share price. The ImmunoPulse results may vary from indication to indication - and depending on the degree of metastasis of the cancers. In other words, poor data in one indication may not indicate poor performance in different indications. However, failure in all three trials could be catastrophic to the program, so investors should consider the risks therein. Finally, realizations of the company's potential and hope in its platforms is growing as indicated by yet another newspaper article profiling the company, this time in the Union Tribune San Diego. The article portrayed the company and its management positively, and is a noteworthy read for investors looking for an easy-to-read piece on the company's product line. The readership of the Union Tribune San Diego or of another recent article in the San Francisco Chronicle would likely not greatly affect the share price of ONCS. However, the articles do indicate the growing popularity of the company in terms of investment potential and cancer treatment hope.

NPS Pharmaceuticals (NASDAQ:NPSP) shares have been on a steady uptrend since the November 25, 2011 closing price of $4.97 to the current share price teetering around $10.00. By connecting the stock chart's lows and highs, one can see a strong and sustained uptrend channel to current levels, most of which is due to major catalysts culminating in Q4, 2012. NPSP is a development- stage company with a market capitalization of about $808 million. With an advancing pipeline having two candidates already completing the necessary phase 3 trials for regulatory application, drug marketability is possible in the near future (depending on FDA decisions and marketability of the therapies). Tackling indications with small market potential, but seriously unmet needs, the company's future earnings and pending regulatory success will be greatly aided by the Orphan Drug designations for its two lead product candidates. The Orphan Drug designations are important for the company as it 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. Without this designation, the company would have had difficulty recouping revenue invested in the development of either of these drugs due to the small market size targeted.

NPSP Candidates and Data

NPSP should not only have an exciting 4Q 2012, but also 2013 due to promising phase 3 data in its two lead product candidates, GATTEX® and NATPARA™. NATPARA™ is beyond the scope of this article as its catalysts will likely begin taking shape in 1Q and 2Q 2013. However, GATTEX® is beginning to generate much interest due to upcoming events and its phase 3 data that was presented in 4Q of 2011. Used to treat adult short bowel syndrome (SBS), GATTEX® data was the subject of much debate in late 2011. SBS is a condition occurring in which patients who have had at least half of their small intestines surgically removed due to injuries, birth defects or to treat intestinal diseases. The ailment manifests itself via diarrhea and malnourishment due to inadequate absorption of nutrients and fluids. Current treatment methods involve tube feeding and medication to treat the symptoms. Phase 3 data presented in late 2011 were promising with a 91% response rate after 12 months of the treatment regimen. A response was a "meaningful reductions in parenteral nutrition (PN) and intravenous (IV) fluid volume in adult subjects," indicating less needed supplemental nutrition provided by tube feeding and less fluid needed by IVs in order to maintain the patient set's health. Of great concern to investors was a notation in the data, however, that three patients treated at centers in Poland had contracted cancer, with two of them dying. That mention caused a dramatic selloff in the company's shares. However, closer evaluation of the data indicated that the selloff was absurd as the lung cancer deaths were in patients who were elderly and lifetime smokers. A third patient, with metastatic adenocarcinoma of probable gastrointestinal origin, had a prior significant history of Hodgkin's disease treated with chemotherapy and radiotherapy.

NPSP Upcoming Catalysts and Reasons for My Fear of Not Having a Base Position in 4Q

NPSP has an October 16th FDA advisory committee meeting in which it will hear the panel's opinion on NPS's GATTEX® therapy for SBS. Although the FDA regulatory body is not obligated to comply with the panel's recommendations, it will give a strong indication as to what the FDA will likely decide. The PDUFA date, in which the FDA would normally render its decision on whether or not to allow marketing of the therapy in the U.S., was originally September 30th, 2012. However, the company announced on August 13th that the date was extended to December 30th. This commonly normally occurs if a company submits additional data within 3 months of the PDUFA date. Whether this additional data would be beneficial to the regulatory filing is anybody's guess. Knowing that the original new drug application (NDA) was in November of 2011, a press release on May 3rd gives a possible clue as to what the additional data could have been. The press release was an update on the ongoing phase 3 trial data acquisition and noted "four additional patients have successfully achieved independence from parenteral nutrition (PN) and intravenous (IV) fluids while on long-term GATTEX® therapy in STEPS 2 (name of the trial), a 24-month open-label study in adult SBS. To date, seven patients have achieved independence from PN/IV fluids while on GATTEX® therapy in the ongoing STEPS 2 study. These patients had depended on PN/IV fluids for periods ranging from 2 to 14 years." If this was the additional data set that was submitted within three months of the original September 30th PDUFA, the implications are likely positive as there were no other real known safety concerns apart from the ill-conceived notions of cancer in some of the patients, as noted above.

Although I am not quite certain as to how I will approach the October 16th FDA advisory committee meeting, I do believe that the highly-unmet need presented by SBS patients along with the solid phase 3 data will likely lead to a positive opinion by the panel. Further research is needed in order for me to formulate a final opinion, although I am currently leaning toward carrying at least half of my position into the panel date. Please note that the advisory committee is obligated to make background material available to the general public no later than two days before the committee meeting. Potential investors should monitor the Gastrointestinal Drugs Advisory Committee website in the final days leading up to October 16th (on a Tuesday). I will have made my decision on if or how much to hold through the decision by Thursday, October 11th of the previous week. As an added bit of information, NPSP did receive approval on September 4th from the European Commission (NYSE:EC) to market Revestive®, trade name of GATTEX®'s active ingredient, teduglutide, in the European Union. Not only does this begin the company's stage as a revenue generator, but it also gives a bit more credibility to the company's product line going into this year's catalysts via GATTEX® and next year's catalysts involving NATPARA™.

Source: Halloween-Like Fears Influence Small Pharma Trading Techniques For 4Q 2012