Riding the Run-Up

Over at BioRunUp.com, there's a timely article dismissing concern that the biotech run-up strategy is faltering on the eve of its "Superbowl". October plays host to an unusually high number of FDA decision deadlines, perhaps the most eagerly anticipated being the two sets of PDUFA dates that fall on the same day: JAZZ and ALXA on October 11; and AVNR and BIOD on October 30.

Though JAZZ's JZP-6 Fibromyalgia drug candidate was hammered at an FDA panel in August, the stock has recovered spectacularly and with some investors banking on what would seem to be the outside chance that the company can convince the FDA that its REMS program can successfully mitigate the risk of what is ostensibly the date-rape drug GHB falling into the wrong hands, there may yet be a final boost to the stock's run-up from a steep post-panel sell-off.

The stock hit a momentary low of 5.90 in the seconds after the trade halt was lifted on 8/20 and filled the gap in fairly short order, touching 11.00 in the pre-market earlier this week. Much of that is due to the company's strong fundamentals outside of their JZP-6 candidate, but there's probably a run-up element in there too. The FDA's primary concern at the panel was not so much the safety of the drug but the risk of misuse or accidental dosage.

Though it's surely too much to expect JAZZ to reach its 52-week high just below 14.00 in the next 10 days, I'm hoping we see 12.00 at some point.

With ALXA, AVNR and BIOD all ending down for the week just ended, some might be questioning the effectiveness of the run-up strategy, but as Mark at BioRunUp says, echoing my own thoughts on this, all three stocks have already run up quite a way already and are experiencing what might be considered healthy pullbacks in recent days. All three were over-extended coming into the week and pulled back, though news of an equities sale by ALXA on behalf of a large shareholder helped to dip that stock excessively under 3.00 in the after-hours session yesterday.

It came back modestly today and with some positive speculative noises emerging this week on the possibility that their AZ-004 drug could get the green light from the FDA, a pop in the stock next week is not beyond the realms of possibility.

For Avenir and Biodel, the end of the month is still a way away and there is plenty of time for both stocks to resume their upward momentum. Personally, with a full position in AVNR already established, I'll be looking to scale into a position in BIOD once I've exited my ALXA and JAZZ trades next week. Hopefully, it'll be under $5...

Again, as BioRunUp suggest, If you look at the last few weeks, it's clear that the run-up method is still alive and well and should not be viewed in terms of the home stretch. Both Alexa and Avenir rose around from the mid 2.00s to the mid-3.00s before this week and Biodel rose from below $4 to a peak of around $6. Plenty of money to be made there if you played your cards right!

Of course, in addition to reward, the biotech sector is full of nasty pitfalls, not least sudden dilution, as has been the case with SNSS twice since June. Today's $15m share offering priced at 0.35 came out of left field for me and plunged me further into the red on this stock with no immediate hope for recovery unless I want to aggressively trade my way out. I may have to consider taking the heavy hit and moving on...