Understanding biotech stocks trading catalyst events and when they are likely to occur is essential for any newcomers to biotech stock trading. Biotech stocks are highly susceptible to news events. These catalyst events can cause the value of biotech stocks to rise or fall by more than 50% before. Such dramatic potential fluctuations make familiarizing yourself with catalyst events and how you can predict them essential for any biotech stock trader.
- What Is a Biotech Catalyst?
- Spotting Catalyst Events
- How to Find Stock-Moving Catalysts
- What to Do After Finding Biotech Stocks Trading Success
Biotech Stocks Trading – What Is a Biotech Catalyst?
A biotech catalyst is any event that can move biotech stocks. Biotech catalysts can encourage people to buy biotech stocks or sell their existing stocks. The release of Phase I, II, and III data biotechnology companies report are examples of biotech catalysts. Approval dates from the U.S. Food and Drug Administration (FDA) and Prescription Drug User Fee Act (PDUFA) dates are also biotech catalysts. When you’re trading biotech stocks, it pays to know whether an upcoming catalyst event is approaching. Catalysts make biotech stocks so volatile and, therefore, make trading them so exciting.
Biotech Stocks Trading – Spotting Catalyst Events
There is a wealth of free information available for biotech stock traders. For example, Finviz offers a great screener to filter for biotech stocks. You could assess technicals, fundamentals, and descriptive statistics.
Imagine you want to filter for biotech stocks with a market cap of more than $300M, average daily trading volume of over 1M, and a short interest of over 20%.
You would see something like this.
If you see a chart pattern you like, you might want to put it on your watch list.
Once you’ve done this, you could start searching for upcoming catalysts. Generally, biotech stocks run up into a stock catalyst event. I use Finviz to find patterns signaling a stock could potentially run. After that, I would check if the stock has a data release.
You could either use BioPharmCatalyst or FDA Tracker. Keep in mind, it costs around $30 a month to use FDA Tracker while BioPharmCatalyst is free. BioPharmCatalyst has an FDA calendar and a PDUFA calendar.
Some catalyst events are more important than others. Considering that, here’s how to spot a catalyst event that could potentially move a stock.
Biotech Stocks Trading – How to Find Stock-Moving Catalysts
Depending on the treatment and data, catalyst biotech stocks may move a lot or not at all. For example, generally, biotech stocks move a lot on Phase II and Phase III data release, but not as much on Phase I data releases.
The FDA calendar showed TG Therapeutics Inc (TGTX) had a catalyst event last year. The company was expected to report Phase 3 top-line data by the end of the summer for a drug intended to treat Chronic Lymphocytic Leukemia (CLL) and non-Hodgkin’s Lymphoma (NHL).
This stock was expected to run up into the catalyst event, following the trend for treatments for cancer and other life-threatening illnesses. Here’s the chart around the time the company was expected to release the data.
Spectrum Pharmaceuticals Inc (SPPI) is another biotech stock with an upcoming catalyst event around the same time. The company was expected to release Phase II abstracted noted ORR 58%; PFS 5.6 months and further data was presented. The data release was for its non-small cell lung cancer treatment. Given its focus on life-saving treatment, this stock was also expected to run up into the event and move after it.
Biotech Stocks Trade – What to Do After Finding Biotech Stocks Trading Catalyst Events
Finding upcoming catalyst events is relatively simple. However, you should research the treatments and the disorder they’re designed to help. If there’s a significant need for the treatment, such as rare types of cancer, then the catalyst stock could move significantly.
Many successful traders get results buying biotech stocks months before a catalyst event when stocks are often strategically priced. As the event nears, interest in the stock should increase, encouraging more people to buy. This helps the stock’s value rise. Savvy traders then sell the stock just before the event occurs for a profit.
Holding stock into a catalyst event is extremely risky as the value could drop dramatically if things don’t work out the way the company hopes. For example, while the FDA could approve a drug on the catalyst event, it might also reject it and send the company’s stocks into free fall. If you already have biotech stock with an upcoming catalyst event, you should also consider selling it before the event.
Once you’ve found biotech stocks with upcoming catalyst events, put them on a watchlist. These are some of the events I developed a watchlist to observe.
Here’s an example of how to create a watchlist.
New Catalyst Swing Names (1-4 week holds) That I am Watching
EyePoint Pharmaceuticals (EYPT)
Catalyst Dates: FDA approval date of November 5th
Buy Zone: $2.15 to $2.30
Profit Zone: $2.65 or higher
Stop Zone: $1.90 or below
AVEO Pharmaceuticals (AVEO)
Catalyst Dates: Updated Phase II data due out mid-October and Phase III data due in the Fourth Quarter. Also, could get a press release on news of their completed Phase III trial.
Buy Zone: $2.55 to $2.75
Profit Zone: $2.95 or higher
Stop Zone: $2.50 or below
Catalyst Dates: Phase II 52-week data due in Fourth Quarter
Buy Zone: $12.00 to $13.00
Profit Zone: $14.00 or higher
Stop Zone: $11.25 or below
Once you’ve developed a watchlist, you should execute and follow your plan. 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.
Biotech Stocks Trading Catalyst Events – Bottom Line
Once you understand how to spot catalyst events, trading biotech stocks becomes easier. If you know when traders and investors expect a catalyst event, you could potentially trade biotech stocks for the run-up into the event. Knowing how to spot biotech stocks trading catalyst events doesn’t make you a trading expert overnight, however. You must build upon your foundation and understand how to take advantage of the volatility of biotech stocks. Listen to our podcasts to increase your knowledge and become a better trader.