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When you’re learning how to trade biotech stocks, you should focus on catalysts. The whole idea here is: traders and investors may buy stock ahead of its catalyst.

Consequently, the biotech or pharmaceutical stock’s price gets pushed up.

Now, there’s one thing to keep in mind, you should not hold a stock into a catalyst event because it’s hazardous.

That said, let’s learn a little about how to trade biotech stocks around catalyst events. Included is an upcoming catalyst in ARDX that we’re watching.

 

How to Trade Biotech Stocks – Focus on Catalysts

 

Biotech Trading Tools

Before you get started learning how to trade biotech stocks, you’ll need some tools.

  • BioPharmCatalyst.com is one tool that I find quite useful. Make sure you don’t go to BioPharmCatalyst though, I’ve made that mistake a few times. You can find upcoming events on BioPharmCatalyst.com, they have most upcoming events, but not all.
  • FDAtracker.com is another website, but it does cost around $30 a month with some useful tools. However, if you’re just starting out, you should try to limit your costs, and BioPharmCatalyst.com should be enough.
  • Company websites and presentations could provide useful information. Suppose you want to do some further analysis after you’ve found a potential catalyst on BioPharmCatalyst. In that case, you should refer to the company’s websites to get a better idea of the treatment.
  • Seekingalpha.com also provides earnings call transcripts, which can also provide useful information.
  • Biotech conferences, such as the ones conducted by JP Morgan, ASCO (typically a cancer conference) and ASH. The JP Morgan conference is usually at the beginning of the year, and some biotechs typically perform well during that time. Keep in mind, these aren’t the only conferences out there, I just wanted to give you an idea that these could also be potential catalysts.
  • Seekingalpha.com also provides earnings call transcripts, which can also provide useful information.
  • Biotech conferences, such as the ones conducted by JP Morgan, ASCO (typically a cancer conference) and ASH. The JP Morgan conference is usually at the beginning of the year, and some biotechs typically perform well during that time. Keep in mind, these aren’t the only conferences out there, I just wanted to give you an idea that these could also be potential catalysts.

 

 

How to Trade Biotech Stocks – Important Catalyst Events

 

Generally, I find that Phase I trials are not that tradable since it’s still early in the developmental stages.

However, if the company provides Phase I data indicating the treatment is relatively safe to use with well-defined side effects and dosage ranges, then it would move onto the next developmental stage, which is Phase II.

Thereafter, if it clears Phase II, the company would move onto a Phase III clinical trial.

Now, the Phase II and Phase III clinical trials are more tradable, in relation to the Phase I. If you recall, the Phase II stage, the treatment is given to a larger group of people with a specified condition or disease.

This stage involves gathering preliminary data regarding the efficacy or effectiveness of the drug and further assessing the treatment’s safety and “best” dosage.

After this stage, if the company has good data, it would move onto a Phase III clinical trial, which is conducted to confirm the effectiveness of the treatment.

In addition, the company would monitor the side effects and compare the treatment to other commonly used treatments for the specified condition or illness.

If it provides good data in the Phase III trial, it gets sent off to an FDA approval. It could move right onto the approval, or the U.S. FDA could ask an advisory committee (adcom) to vote on whether the treatment would be approved.

Now, if it provides good data in the Phase III trial, then it gets sent off to an FDA approval. It could move right onto the approval, or the U.S. FDA could ask an advisory committee (adcom) to vote on whether the treatment would be approved.

That said, let’s look at an example of how to use catalysts to trade biotech stocks.

How to Trade Biotech Stocks – Example

Ardelyx (ARDX) announced it had an FDA approval date on July 21, 2021. The firm is hoping to get the green light on Tenapanor, a serum phosphorus aimed at chronic kidney disease on dialysis.

 

 

Source: BioPharmCatalyst

The idea behind the strategy is rather straightforward. Find an area on the chart where you see support as a potential entry. In this case, look for a spot under $7 and above $6.50.

Get in 3-4 to weeks before the catalyst. As the event draws closer you’re hoping to see speculators jump in, betting for a positive result. If that does occur, it provides a chance to exit above the entry price.

If it doesn’t occur then the plan is to exit before the announcement date. Holding a biotech stock into its catalyst event is binary. Either it’s a big score or a monumental disaster. I prefer to avoid that type of volatility whenever possible.  

 

 

Final Thoughts

 

Learning about catalyst events is highly crucial if you want to get involved trading biotech stocks.

 

Author:
Jason Bond

4 Comments

  1. Hi Kyle I am new to trading and I am finding your example and explanation very easy to understand please continue with your teaching example. Thank you.

  2. Thank you Kyle. Love your easy to follow training and your pick of revelent subjects. I have done well with your teaching over the past year.

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