Action in biotechnology stocks remains robust, and the NASDAQ Biotechnology Index continues to soar. While it’s pretty easy to lose your shirt speculating in biotechnology stocks, following strong trading action can yield good opportunities.
Speculative traders certainly can piggyback strong trading action, riding the momentum of a new approval or drug discovery. For risk-capital portfolios, it’s definitely worth having a few revolving positions in biotechnology stocks, simply because the rewards (when stock market activity is buoyant) are mostly worth the risk.
KYTHERA Biopharmaceuticals, Inc. (KYTH) illustrates the potential to engage in piggyback trades on good news.
KYTHERA is a clinical-stage company that’s working on the development and commercialization of prescription products for the aesthetic medicine market. This might not be “cutting edge” or the kind of “pure play” bioscience that some investors want, but that doesn’t matter, because it’s what the stock market wants. (See “Old Adage of ‘Don’t Fight the Fed’ Stands, but Big-Cap Earnings Uninspiring.”)
The company’s current focus is on the facial aesthetics market, which accounts for the majority of the aesthetic medicine sector. Its lead product candidate is “ATX-101,” an injectable drug currently in Phase III clinical development for the reduction of submental fat, otherwise knows as a “double chin.”
In August of 2010, Bayer signed a licensing and collaboration development agreement with KYTHERA, obtaining development and commercialization rights to ATX-101 outside of the U.S. and Canada. This is exactly how you want your clinical-stage biotechnology stocks to develop—in collaboration with a brand-name pharmaceutical company that has a thick wallet.
Bayer recently completed two pivotal Phase III trials of ATX-101 in Europe for the reduction of submental fat. KYTHERA completed enrollment in its Phase III clinical program for ATX-101 in more than 1,000 people in 70 centers across the U.S. and Canada in August 2012 and is working on the final results. The stock jumped on this news.
KYTHERA was also upgraded by a Wall Street firm, seeing a big price target increase. Then it got upgraded by another Wall Street firm, and the stock soared again. The company’s stock chart is featured below:
Chart courtesy of www.StockCharts.com
Among many biotechnology stocks, this company came to market with a specific technology and a specific target market. Company management knew that financial markets would be willing to finance developments for the aesthetic market because profit margins for these treatments are so robust.
KYTHERA finished the second quarter with approximately $76.0 million in cash and spent $7.8 million in research and development for the completion of the treatment phase of its Phase III trials in the U.S. and Canada. The company is now in the follow-up phase of those trials.
Keeping an eye on big share price moves and news from biotechnology stocks can yield solid piggyback trades for aggressive investors. But a trade is a trade, and it’s important to cut losses quickly and take profits without remorse. Biotechnology stocks are 100% risk-capital securities.