The backstory: Axovant Sciences Ltd. (AXON) was a company I was avoiding last summer, but that I am looking at now. It’s a British pharmaceutical company that develops small-cell drugs to treat neurological disorders that was beaten down on bad news earlier this year. A lot of times when biotech stocks fall on negative data, it creates potential upside for traders if the company has other drugs and indications they’re testing for; I see it all the time, where a whiff of good news changes a big downtick into a big uptick.
The setup: On July 21, I noted that Axovant Sciences was up more than 80 percent in advance of a late-September data release on a Phase 3 trial of Intepirdine in Alzheimer’s disease. I called Axovant a “jumpy stock” that moves a lot on news, and suggested traders avoid holding it through the data event.
The stock was at $26 before the data and cratered to $6.70 after AXON reported ugly topline results. Since then it’s fallen even further, to roughly $5.50.
Why it caught my eye: I’m looking at it now because you’re getting three shots on goal in January; two of those potential catalyst events are trials on Intepirdine — which didn’t turn out so well in the fall — and the third data readout is a Phase 2 trial for Nelotanserin, a different drug with applications in dementia cases.
How I’m playing it: On a technical basis, there is a big gap to fill on the upside. Any positive news — from any one of those three January readouts — could make shares skyrocket. I’m hoping to pick up shares close to $5, hopefully four to six weeks ahead of the catalyst events.
I’ll stop out below the 52-week low, at about $4.70 — I’ll keep a tight stop because two of those readouts are on a drug that previously failed — but my near-term target would be $7.50 to $8. I’ll be out by the time the catalyst events hit; you would have to be extra aggressive to hold through those events on a stock that has had some bad news in recent trials.
Kyle Dennis runs BiotechBreakouts.com. He is an event-based trader, who prefers low-priced and small-cap biotech stocks. He has day-traded AXON, most recently on Sept. 14 for a loss, but had no shares, options or open orders in the stock at the time this article was published on RagingBull.com.