Back in 1849, California experienced one of the wildest and most lucrative discoveries of the century: Gold deposits. Thousands of people from different states and continents flocked the area in hopes of striking gold and making a fortune. The early gold miners became filthy really rich as the combination of very high demand for gold and very limited supply available made gold really expensive. Nowadays, most of us think that it is quite rare to spot opportunities like this, but is it really that rare?
Enter Cancer Research
As the effect of globalization spread throughout all regions around the world, business competition and our fast-paced lifestyle continues, the ever-increasing trend of cancer incidents will continue to rise due to factors such as work-related stress, junk food and lack of exercise. According to the World Health Organization's projection, by 2030, new cancer cases will increase by 75%. With just a few companies researching and producing effective drugs for cancer, this creates an economic situation similar to the gold rush where the demand is steadily rising while the supply is still very limited.
The Rush for Gold
Currently, there are several companies researching cancer treatments but only a handful have workable cancer treatments under development such as Pfizer Inc. (PFE), Novartis (NVS), Oncothyreon Inc. (ONTY), Agenus, Inc. (AGEN) and Northwest Biotherapeutics (NWBOD.OB). Investing in one of these companies' stocks may result in a big gain over the next 6-10 months time once their clinical trials are completed. Based on the historical performance of similar companies in the past, most notably the 2-day price jump of Medivation Inc. (MDVN) after its prostate cancer drug XTandi was approved on August 31, 2012, we can also expect similar or greater gains if these drugs/treatments get approved.
Stock chart source: Bloomberg.com
Based on recent press releases, there are 3 leading companies that seem to have promising cancer treatments under development: Pfizer, Novartis and Northwest Biotherapeutics.
Where the Gold's at?
Pfizer and Novartis are in patent wars regarding some of their cancer patents in India, and because of this road block, it might take them some time before they can start production of their proprietary cancer drugs.
One company that seems to stand out from the group in the race to produce an effective cancer drug is the small cap Northwest Biotherapeutics, with its several cancer treatments showing great potential based on initial trials. The company has 3 cancer treatments in their arsenal namely DCVax®-L, DCVax®-Prostate and DCVax®-Direct.
The first treatment, DCVax®-L, developed specifically for operable solid tumors, is already undergoing a 300-patient randomized Phase III clinical trial to treat Glioblastoma multiforme brain cancer.
The second treatment, developed for late stage prostate cancer, DCVax®-Prostate, was already cleared by the FDA to be used in a multi-center and double blinded 612-patient randomized Phase III clinical trial. The third and most economically promising treatment, DCVax®-L, is the company's third line of cancer treatment that has just been cleared by the US FDA for Phase I/II clinical trials. Out of the 3 product lines, this treatment shows the most promise specifically because it seeks to treat late-stage cancer patients whose cancer/tumor has already spread and whose chances for survival are very slim.
Given the 3 aces that the company currently holds, the probability for a sudden stock price appreciation during the next 6-12 months has increased dramatically. Even if just one of the 3 treatments gets approved, we could expect upward movements of at least 15-20% based on the previous gains experienced by Oncothyreon Inc. and Medivation Inc.
Don't Sell the Farm
It seems that investing in Northwest Biotherapeutics seems to be a very good bet. Hold your horses! Just because the odds that you'll strike gold with Northwest Biotherapeutics are high doesn't mean that you should use your entire retirement or college fund to invest in the company. They still have a ways to go, and any glitch in the trials could cost the company and shareholders plenty. So a couple of lots tucked away should be fine until some positive news comes out in the coming year.
Test the depth of the water with one foot
Northwest Biotherapeutics is still traded over-the-counter and not yet listed under NASDAQ; therefore it has no publicly traded options, but all of that may change really soon.
The company has just recently announced a 1-for-16 reverse stock split and the total number of shares was increased to 40,000,000 shares to prepare for its $25 million offering and NASDAQ listing.
This may be interpreted as a move to attract large institutional investors by increasing liquidity and its increasing its stock price to the minimum dollar value per share that most institutional investors look for before investing in a company.
Usually, after listing in one of the major exchanges and meeting some criterias to list stock options, it may take the company a few days to a few weeks before stock options will start to be traded.
Based on past Phase I/II/III clinical trials of other companies, it will take 6 months to 1 year before a treatment will be approved by the FDA and be allowed to be manufactured and sold.
Another way of making sure that one gets a piece of the action while not risking losing his shirt in this trade is to buy call options (based on the company up-listing to NASDAQ). Look for a long-term, cheap, slightly out-of-the money call option, say a call option for March 2013, and just sit on it until it appreciates. Long-term options are usually mispriced, and a lot of traders and money managers use these as a license to print money. Remember the marshmallow experiment? If you're patient enough, your marshmallow just might get quadrupled or even more.
Why bother with call options and not just invest in the stock directly? There are several risk factors that I've considered for this trade opportunity. First, the company has shown increasing operating loss yearly since 2009 as expected, since it is investing a lot in research and development of drugs/treatments. Even though Northwest Biotherapeutics has the financial and marketing support of the local German government, it wouldn't hurt to lean on the safe side and put a limit on the possible loss limiting a purchase to a few shares or, just wait for the uplist by just purchasing options contracts. If you take the options route, if by any bad luck/chance that the company fails to produce any workable cancer treatment (highly unlikely since 2 treatments are already in Phase III clinical trials), the maximum that you'll lose is the price of the contract. Just make sure that you just used extra cash and didn't put your home up for mortgage for this trade. Put in mind that it's the size of the trade that kills you and not the price action.
The Early Bird Catches the Worm
In the California Gold Rush, the earliest miners got the best slice of the pie with minimal effort since they just collected the gold on the surface and the late miners had to do the hard work digging deep into the mountains and collecting ores. If everything goes according to plan and we see the company listed on NASDAQ, it is reasonable to expect that the sudden inflow of institutional funds may create a long term reversal and uptrend for the stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.