How to Trade Biotech Stocks: Biotechnology Terminology Part 3

Kyle DennisKyle Dennis ·

In the final part of this trader toolkit series, we’re going to go over more biotech terminology to get you up to speed on understanding some intricacies of how to trade biotech stocks. Let’s dive right in.

How to Trade Biotech Stocks: Biotechnology Terminology Part III

Although this is the last part of the series, there is still a lot more to learn if you want to understand how to trade biotech stocks. However, these terms should provide you with basic working knowledge of what affects biotech and pharmaceutical stocks.

Marketing Authorization Application

Marketing Authorization Application (MAA) is similar to the NDA (discussed in part 2), but it’s filed with the Committee for Medicinal Products for Human Use (CHMP), which is part of the European Medical Agency (EMA), the European equivalent to the Food & Drug Administration. Unlike the FDA, the EMA has a number of branches. These include: general products, orphan drugs, and pediatric-use only drugs.

For example, Puma Biotechnology (PBYI) announced results of CHMP reexamination of MAA for Neratinib for one of its breast cancer treatments.

The press release noted, “Puma Biotechnology, Inc. (Nasdaq: PBYI) announced that the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) has adopted a positive trend vote recommending the approval of the Marketing Authorisation Application (MAA) for neratinib for the extended adjuvant treatment of early stage HER2-positive hormone receptor positive breast cancer. Today’s decision follows a reexamination of the negative opinion announced by the CHMP at its formal meeting with the Company to discuss the MAA on February 23, 2018. The CHMP communicated its intention to hold a final vote at its next meeting.”

Now, here’s a look with what happened to the stock.how to trade biotech stocks

If you look at the right of the chart, the stock opened up at $64.50, after closing at $51.10 the previous day. That said, you need to keep a look out when a biotech or pharmaceutical company announces news surrounding MAA.

The drug sponsor files the MAA with the CHMP and the process typically takes seven months. By the end of the process, the CHMP either approves or rejects the MAA as a treatment candidate. If the treatment is an orphan drug, the MAA is filed with the Committee for Orphan Medicinal Products (COMP).

If the CHMP or COMP grant approval to market the treatment in the European Union, it could be an indication that the drug company will see revenues and earnings grow over the long-term.

Drug Treatments

Next, let’s look at the different types of drug treatment terminology.

An OTC drug, or over-the-counter drug, is a drug that consumers could purchase without a prescription.

Generic drugs are produced after a patent expires, when any drug manufacturer can produce a drug with an expired patent that is similar in composition and could potentially have the same efficacy. That in mind, companies can sell generic drugs under the treatment’s chemical composition name, or the generic name. However, companies can’t sell the treatment under the brand name.

For example, Cephalon held a patent on Provigil. Modafinil is the generic equivalent of Provigil. That said, drug manufacturers can market and produce the drug, but only under the generic name. Keep in mind, only Cephalon can market and sell it as Provigil.

Final Thoughts

You should understand the basics of how news can affect biotech stocks. Now, you still need to continue your education if you’re serious about learning how to trade biotech stocks. It’s going to be tedious at first, but once you get the hang of things you could reap the benefits of understanding terms that could affect biotech and pharmaceutical stocks.

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Kyle Dennis runs Kyle Dennis’ Biotech Breakouts (biotechbreakouts.com). He is an event-based trader, who prefers low-priced and small-cap biotech stocks. He’s also using his knowledge and looking to multiply his capital through options trades.

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