Customer Service 1 (888) 261-2693
Advanced Search

Be Prepared for These Huge Biotech Catalysts in September

By Dr. George Huang, editor, S&A FDA Report
Friday, August 21, 2009

Biotech stocks are the most volatile in the world. One-day jumps of 200% and overnight crashes of 90% are commonplace. The biggest culprit behind biotech volatility? The United States Food and Drug Administration, the FDA.
 
Before ending up on pharmacy shelves, every new drug needs to pass through a series of regulatory hurdles dictated by the FDA. Without the FDA's blessing, a drug – no matter how great it may be – cannot make it to market.
 
So an FDA approval can help propel the stock 30% or more. A rejection could send the stock tumbling as much as 90%. Because of this, biotech traders love taking a position ahead of FDA rulings...
 
Which means next month is shaping up to be one of the most event-packed months for biotech traders. I've highlighted six major FDA decisions in the next month below:
 
Date
Company
FDA Action
Drug – Treatme
September 2
Allos Therapeutics (ALTH)
Advisory Board
Folotyn – cancer
September 2
Endo Pharmaceuticals (ENDP)
Approval Decision
Nebido – testosterone deficiency
September 7
Spectrum Pharmaceuticals (SPPI)
Approval Decision
Zevalin – cancer
September 12
ISTA Pharmaceuticals (ISTA)
Approval Decision
Bepreve - allergic conjunctivitis
September 16
Auxilium Pharmaceuticals (AUXL)
Advisory Board
Xiaflex – hand contracture
September 16
Theravance (THRX)
Approval Decision
Televancin – infections
 
For example, in September, the FDA advisory board will review Allos' cancer treatment, Folotyn, and Auxilium's hand-contracture drug, Xiaflex. The FDA typically follows the recommendation of the board. So a positive review likely means an approval in a few months, which will push both stocks up 20%-30% from here. But a negative reaction could hammer both stocks.
 
Of the approval decisions on the September calendar, I expect all four companies to receive final approvals for their respective drugs. And I expect investors can generate 10%-20% returns by owning the stocks ahead of the key dates.
 
But I know an even better way to trade these events...
 
As I mentioned, negative decisions – especially the "unexpected" ones – can send stocks tumbling 90% or more. In the ensuing frenzy, the market often dumps these stocks, which still offer plenty of value, without bothering to learn the reason for the rejection.
 
Thus, I am no fan of owning biotech stocks prior to important FDA decisions. A 20% return potential with a real prospect of a crash-and-burn is just not good idea.
 
Instead, I get most intrigued after these bloodbaths. Market overreactions create amazing opportunities.
 
In the S&A FDA Report, our 10-year backstudy of these events found investors can book 12% gains per year by blindly scooping up stocks in the days after the volatile FDA setbacks. If you can siphon out those with experienced management and decent pipelines, 50% low-risk gains are easily within reach as sentiment inevitably improves. This strategy soundly trumps any biotech index – or long-term S&P 500 returns – with way less risk.
 
The choice is yours – use the September trading calendar above to milk some volatility off FDA rulings before the event. Or simply wait for negative news before jumping in. I prefer the low-risk, no-brainer approach.
 
Good investing,
 
George Huang




In The Daily Crux
Market Notes
10-year yield sliding... Touches one-year low at 3.45%.
 
Spot price of natural gas breaks psychologically important $3 level... natural gas ETFs hit new low.
 
Sears plummets 12%... Largest U.S. department store chain buckles under pension, store-closing costs.
 
S&P 500 basically unchanged in August.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%