I have been trading stocks for years and recently I found one of the most lucrative trading methods is trading biotech stocks on momentum. Biotech stocks can be very volatile and have their share of risk, however, if you have a solid trading plan you can mitigate some of this risk creating great risk/reward to make the trade.
The most lucrative trading method is using the momentum of a biotech’s upcoming PDUFA date as a catalyst for the stock to rise on average of 10-40%. A PDUFA (Prescription Drug User Fee Act) date is the final date set by the FDA to approve or not approve a prescription drug. This is after up to three clinical trials and millions of dollars have been spent researching and compiling data all for the future sale of these drugs. This is the catalyst that drives the stock as a prescription drug is given a patent and has no competition for years. The trading plan is to get in early enough and ride the momentum to a week or two before the PDUFA decision date and then sell for a profit.
I will now go over my first shared biotech momentum stock:
XNPT – Xenoport
Xenoport is currently awaiting FDA approval on April 6th for Horizant for the treatment of restless leg syndrome. This is a resubmission from a CRL (complete response letter) that was issued back in 2009. See link:
Recently the company has issued 4M common shares up to the public, diluting the current shareholders. Often this happens with a biotech before they get drug approval because it is often very expensive to bring a drug to market and most of these companies have no revenue. Their bread and butter is in their pipeline. So these biotechs frequently issue more shares to fund their R&D efforts. Usually these offerings dilute the shareholders and drive the stock price lower because of this dilution. This is the case here see the stock chart:
On or around Feb 19th, XNPT announced the sale of the shares which caused the big drop that day and the slide since. This creates a great buy opportunity to get into the stock now for the run up to the FDA decision.
Currently XNPT also has the following drugs in its pipeline:
My price target is between $10-11 about 1-2 weeks before the April 6th PDUFA date. I will comment more as the date comes closer. As always do your own due diligence (DD) before investing in any security.
Disclosure: Long XNPT