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Wednesday, June 26, 2013

Pharmaceutical Catalyst Update

Pharmaceutical Catalysts: What To Expect In The Next Few Months Update [Edit or Delete]0 comments
PDUFA dates can be substantial catalysts for any stocks that are focused on drug development. For small companies it can essentially be a make or break scenario, and the culmination of years of shareholder money as well as years of hard work by the companies. In my previous article I mentioned some possible run up candidates going into FDA panel decisions, as well as going into PDUFA dates. I promised an update to investors as to how these picks worked out, which I will provide below. However, there are a few lessons to be learned through looking at the historical pricing information that I would like to share with you:
1) FDA panel decisions vary widely in terms of runup potential
It appears as though the FDA panel decisions that were recommended often varied quite widely in terms of run up potential. While some of the panel decisions resulted in large catalyst events and large runups, others seem to have been a side note for investors, hardly causing for any runup at all. Often panel decisions can be very interesting for investors, and no one really knows which way they will go. FDA panels are when the FDA asks for the consultation of various people in the affected industries, usually the panel will consist of some doctors as well as other professionals. These panels render non-binding votes on a number of issues. While the panel votes are non-binding, the FDA does usually follow their panels. Unfortunately, panels can be very hard to predict, which is why I often advocate getting out before the FDA panel decision. One perfect example of panels being hard to predict was what happened with Dynavax Technologies (DVAX):
In Dynavax's panel, going in many investors thought that the vote was going to be positive (me included). From an efficacy standpoint, Dynavax's Hepatitis C Drug Heplisav was off the charts. However, there were safety concerns that were raised in the panel which were previously unforeseen by investors. Dynavax went on to receive a CRL based on the panel's concern that there was not enough data on safety, and it looks like Dynavax is going to have to conduct another clinical trial, the question for investors in Dynavax is simply how large the trial is going to have to be, and how long the trial is going to take. Dynavax for me, atleast, is a perfect example of why I dislike holding through FDA panel decisions.
2) After a negative panel vote, it is not very advantageous from a runup standpoint to get back into the stock
It would seem to make sense logically that after a negative panel vote (or one that would seem negative to the investment community), that there would be some investors buying in for the PDUFA date in the hopes that the FDA decision will not be the same as the panel decision. While the logic seems valid, there does not seem to be that great of an incentive for the investment community to actually execute this strategy. Buying a day after the panel vote at the closing price would have resulted in minimal gains in DVAX, the same goes for Titan Pharmaceuticals (TTNP.OB) if you counted the panel vote as negative. Note that for my calculations I assumed buying at the closing price the day after the FDA panel decision was announced, and selling at the closing price four days before the PDUFA date. Now, turning towards the results of my previous article.
For all of these results, I assumed buying on the closing price the day my article was published (March 22nd), and selling four regular days before the PDUFA date or the panel date depending on what I mentioned in the article. If the four day timeframe landed on a weekend, I generally went to the next trading day unless it was a long weekend (three days or more) where I would have sold the day before the long weekend began. When to sell before a PDUFA date is simply a matter of preference as to when you would want to sell going into a PDUFA date, I tend to hold closer to the line than I think I should. Also, please note that I did not include stocks that have not yet had their PDUFA date. For example Antares Pharmaceuticals (ATRS) which I recommended in my previous article, is not included in the results table.
For panel decisions, I went for a slightly different strategy (AVEO, DCTH and DEPO) for the ending price, I went out to seven trading days before the panel. This is due to the fact that the FDA will release briefing documents typically four to five days before the panel decision. I do not like to hold a stock going into the release of the briefing documents simply because if these documents are negative, than the stock will of course take a hit.
Results table from recommendations of previous article.
Stock TickerStarting Price (per share)Ending Price (per share)Gain/Loss (per share)
Sucampo (SCMP)$5.88$6.82+$0.94 (+15.9%)
Titan Pharmaceuticals$1.67$1.75+$0.08 (+4.7%)
Raptor Pharmaceuticals (RPTP)$5.68$6.67+$0.99 (+17.4%)
Delcath Systems (DCTH)$1.69$1.51-$0.18 (-10.7%)
Aveo Pharmaceuticals (AVEO)$7.50$8.27+$0.77(+10.27%)
DepoMed Inc. (DEPO)$5.76$5.71-$0.05 (-0.09%)
Flamel Technologies (FLML)$4.59$4.73+$0.14 (+3.05%)
Average of +5.79% gain. The Dow Jones Industrial Average from March 22nd, 2013 to the day of this article writing (June 24,2013) gained +1.9%. This means that these picks did beat the Dow by 3.89%.
While a 5.79% gain is great, it was not exactly what I was hoping for when writing the article. I was shooting for an average of around 7%. One risk with the Biorunup idea is the fact that there are other catalysts in between which could affect stock price.
While the results were still good, they were not exactly what I would have hoped for in terms of runup potential. It has been very interesting to wait these months and see exactly what kind of a runup investors experienced in these various companies. Some of these companies received extremely good news from the various committees and the FDA, while some of them received bad news. I try not to hold onto a company through the PDUFA date as anything can happen when the FDA is deciding the fate of a drug. I will create an updated biorunup calendar soon and present some more run up opportunities. These will be much further in advance, so hopefully, they will experience a larger run up. I hope that you have enjoyed this experience as much as I have, and continue to be interested in runup investing.
Disclosure: I am long ATRS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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