When you’re trading biotech stocks, there’s a lot of research to do. From analyzing biostatistics, catalyst events and drug candidates, it’s a lot to learn. However, that doesn’t mean you have to learn everything about biotech stocks to start trading them. If you want to get started trading biotech stocks, you might want to consider reading this handbook. It breaks down exactly what you need to know to start trading stocks in the industry. That said, let’s take a look at how to research biotech stocks to potentially trade. Once you’ve done your research, you should look to develop a watch list and trading plan. Finally, you would need to execute.
Trading Biotech Stocks: Researching Companies
Some good tools for researching companies include BamSEC, SEC Edgar, BioPharmCatalyst and Finviz. BamSEC does have a monthly fee, but it condenses all SEC filings for you. When you’re first starting out to trade biotech stocks, you could use SEC Edgar as well.
Generally, when you’re trading biotech stocks, there needs to be a catalyst. In other words, there needs to be industry-changing or company-specific news. You’ve probably seen a biotech stock double and wondered why it did just that. Well, chances are that the stock had a key data release. In other words, it announced results for one of its drug candidates, whether it be Phase I, II, III or FDA approval data.
Now, you’re probably wondering, “How do I actually research biotech companies?”
Let me show you how to do just that.
Trading Biotech Stocks: Researching Companies Example
The first thing you want to do is go to BioPharmCatalyst.com. This tool is free to use and is helpful to identify upcoming catalysts. This is one of my favorite tools for idea generation.
If you go to the sidebar and click on “Catalyst Calendars” then “FDA Calendar”, you should see something like this.
When I find something I like, I’ll head over to the company website and look at the stock chart. If all looks good, I’ll conduct some more due diligence. Basically, you want to go to the company website to see whether it has more than one drug in its pipeline. You could research into the history, as well as the managers of the company.
Thereafter, you can go to SEC Edgar to look at company filings, but BamSEC makes it easier to do my research. Again, it does have a monthly subscription cost, but you could do the same research with SEC Edgar.
One thing I like to look for is whether insiders are buying or selling the stock. Insider buying and selling could be found on the SEC Form 4.
For example, here’s a look at an example of insider buying, which looked interesting to me.
The Chief Revenue Officer, along with other directors, bought shares after Tilray Inc (TLRY) conducted its initial public offering (IPO). That’s pretty bullish to me.
Another fact that looked interesting to me was found in the SEC Form 424B4. Privateer Holdings owned over 80% of the equity interest in the company, and over 90% of the voting power.
That means Privateer Holdings has control of the number of floating shares.
That in mind, the company could potentially explode if there’s a positive catalyst. Here’s a look what the stock did after a slew of positive catalysts.
Now, it’s not rare to see biotech stocks with large percentage moves.
Let’s take a look at a biotech stock trade example.
Biotech Stocks: Trade Example
Amarin Corporation PLC (AMRN) had an upcoming data release and I was interested. The drug in the pipeline was fish oil and looked like it was going to be the “gold standard.” Now, I looked to buy in front of the catalyst for the run up.
Prior to its positive data, the company had a fantastic earnings call and updated the data for their trial. I bought stock and call options (which were expiring in a few months). I expected the stock to rebound and run up into the catalyst event.
Now, I don’t like to hold a stock or options into a data release because that goes against my strategy. The catalyst run-up didn’t work as well as I expected.
I sold my AMRN call contracts for about a breakeven trade. I held these for a long time and it’s finally getting a run. However, again, I don’t want to hold into a catalyst event because it’s a risky trade.
However, some risk-taking traders profited off of this.
If you’re interested in taking advantage of the volatility of biotech stocks, the catalyst system can show you how to time your entry and exit points for maximum profit potential.
If you want to trade biotech stocks, that means you need to research those companies. It doesn’t mean you need to know the company like the back of your hand. You just need to know it well enough to know what’s going on. For example, I focus on the drugs in the pipeline, the managers, company history, earnings and insider buying. This should be enough to get you started developing a biotech stocks watchlist.
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.