Courtesy of Pharmboy
Here at Phil’s Stock World, we try to offer the best of all possible worlds. Phil has the rounded techniques of using options, covered calls, shorting and overall market direction to a prime. David Ristau gives us one up and one down pick of the day for 2-3% gains (he has been on a roll), and Optrader satisfies the swing trades. And then there is me, Pharmboy. I try to investigate the science behind the scenes to give the best possible chances to our readers on entering stocks we think will be profitable trades.
Take Ariad (ARIA), which I wrote about in August 2009. We had several different approaches, but the favorite was buying the stock at $1.30, selling and equal amount of the February 2010 $2.50 puts and calls which if the stock was $2.50 or above on OPEX, one would have made 68% ( in other words, 100 shares of stock with 1 call and 1 put sold would have gained 68% of the original $1.90). Where did ARIA finish up on the February OPEX…. $2.54. Lucky, somewhat on the OPEX play, but ARIA has been one of the core biotech holdings at PSW, along with DCTH (we jumped on this stock at about $5), CRIS (in at $1.21), KERX, and QCOR. Now, not all are perfect, as we have had a few that have gone south on us, most notably GILD. (Actually, Optrader correctly picked the direction on them a week back and I should have paid more attention to his 5d MA strategy.)
PSW has a great group of traders and investors that are willing to offer advice and point to better option and stock plays for all to benefit. As Phil notes, the more eyes on the charts and the market gives us the distinct advantage to play the game with them, not against!
Next, on to a few picks that could have us very happy in the next 6-18 months….
The picks I am outlining today are a bit more risky than past posts, but I believe they have the potential to make it to the game. They may not be a market leader, or the next Genentech, but I believe they have the right ‘products’ in place if management acts accordingly and the FDA gives them the two thumbs up.
Discovery Laboratories (DSCO)
This is by far the riskiest play I have ever recommended. Why do it now….because it is VERY cheap – like McD’s hamburger cheap. Discovery Laboratories is developing surfactant therapies to treat respiratory disorders and diseases based on its KL4 surfactant and capillary aerosol-generating technologies. Its development stage products include Surfaxin, a synthetic, peptide-containing surfactant in phase III clinical trial for the prevention of respiratory distress syndrome in premature infants; Surfaxin LS, a Phase III trial product to improve ease of use for healthcare practitioners; and Aerosurf, an aerosolized KL4 surfactant that has completed first pilot Phase II clinical trial for the treatment of respiratory distress syndrome in premature infants.
RDS is a common condition in premature infants, as the lungs are one of the final organs to mature in the gestational period. RDS affects approximately 220,000 infants in North America and Europe. The current RDS market for surfactants is estimated to be approximately $75 million/yr in the US and $200 million/yr worldwide. The market has been constrained by the lack of further development of animal-derived surfactants coupled with the risks associated with surfactant administration in its current form giving DSCO a leg up on the rest of the competition. What’s been holding them back….I have noted it many times before in chat about biotech companies, and this one is no different – manufacturing. More notable, stability and release testing for the final product which is part of the final manufacturing data set. Once all the data are in and the annual NDA updates are complete, DSCO should be off to the races. Again, very risky, but I think the reward outweighs the risk – just don’t use essential funds to make this trade. The FDA decision is due sometime in early 2011. One should enter with a 1/4 to 1/2 entry and pay no more than 0.55c or wait for a pullback.
Cerus Corporation (CERS)
Cerus is a biomedical products company, engages in the development and commercialization of the INTERCEPT Blood System – which is designed to inactivate blood-borne pathogens in donated blood components intended for transfusion. Currently, it markets the INTERCEPT system for platelets and plasma primarily in Europe, the Russian Federation, and the Middle East. They are in talks with the FDA on their Phase III clinical trial in the U.S. In addition, the company is developing INTERCEPT Blood System for red blood cells or red blood cell systems, which is designed to inactivate blood-borne pathogens in donated red blood cells for transfusion. Cerus Corporation has collaboration agreements with Baxter International, Inc.; and BioOne Corporation, as well as the United States Armed Forces. With the approval overseas (the EU is a bit ahead on this compared to the US regulatory agency), there is a good chance that the company could pull a profit (albeit small) next year. The next few quarters could give us a sneak peek into how well INTERCEPT is being adopted in Europe. The stock is currently $3.16. I would buy a 1/4 allocation of stock here, so if one plans on owning 1000 shares, then buy 250 now.
Finally, Jazz Pharmaceuticals (JAZZ)
I mentioned Jazz our daily chat (along with DSCO and Javilin for $1.26) and I think now is the time to start a play on the companies FDA date in November. Briefly, Jazz develops and commercializes products for neurology and psychiatry primarily in the United States. The company’s marketed products include Xyrem, a sodium oxybate oral solution for the treatment of excessive daytime sleepiness and cataplexy in patients with narcolepsy; and Luvox CR for obsessive compulsive disorder and social anxiety disorder. In clinical trials, the company’ has a late-stage product candidate JZP-6, which has completed two Phase III pivotal clinical trials, for the treatment of fibromyalgia and a FDA decision is pending in October – something I am betting on approval for this trade. Other product candidates in clinical development consist of JZP-8, an intranasal formulation of clonazepam for the treatment of recurrent acute repetitive seizures in epilepsy patients who continue to have seizures while on stable anti-epileptic regimens; JZP-4, a controlled release formulation of an anticonvulsant for the treatment of epilepsy and bipolar disorder; and JZP-7, a transdermal gel formulation of ropinirole for the treatment of restless legs syndrome. In addition, the company is developing oral tablet forms for sodium oxybate.
What do Iike about Jazz…the management. The science is solid, and the group knows how to focus in on specialty products – they sold their last company to J&J for $12B – ALZA! Jazz has just priced a new round of shares (7M) for $8.35, and a director of the company bought 10% of those offered. The company is currently trading at $8.11. We are getting a discount!!! Buying the stock at $8.11 and selling the December 2010 $10 calls for $1.60 or better give a nice return of >30% if Jazz is above $10 in December. That is something we don’t sneeze at over at PSW. If one has the appetite for a bit of risk, selling the December 2010 $7.50 puts for $1.80 or better sweetens the deal if Jazz is successful. The risk is one owns them at $7.50 if JZP-6 fails the FDA review.
As our daily pick master, David, says, "Good Investing!"