If you’re trying to start trading biotech stocks, you’ll need to know when catalyst events. You’ve probably seen biotech stocks up or down over 50% before. Well, that’s probably because a catalyst caused that. Biotech stocks are highly susceptible to news events. Biotechnology companies often report Phase I, II and III data, which could move the stock. Moreover, biotech stocks will tend to move around U.S. Food and Drug Administration (FDA) FDA approval dates, as well as Prescription Drug User Fee Act (PDUFA) dates. When you’re trading biotech stocks, it pays to know whether there’s an upcoming catalyst event.
Biotech Stocks Trading – Spotting Catalyst Events
The good thing about trading biotech stocks is the fact there’s a wealth of free information out there. For example, Finviz offers a great screener to filter for biotech stocks. You could look at technicals, fundamentals and descriptive statistics.
Let’s say 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 watchlist.
Once you’ve done this, you could start looking for upcoming catalysts. Generally, biotech stocks run up into a catalyst event. I use Finviz to find patterns that signal a stock could potentially run. Thereafter, I would look at if the stock has a data release.
You could either use BioPharmCatalyst or FDA Tracker. Keep in mind FDA Tracker will run you around $30 a month to use their tool, while BioPharmCatalyst is free. BioPharmCatalyst has an FDA calendar, as well as a PDUFA calendar.
Now, some catalyst events are more important than others. That said, let’s take a look at 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 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 as Phase I data releases.
If you take a look at the FDA calendar, TG Therapeutics Inc (TGTX) had a catalyst event. The company is expected to report Phase 3 top-line data by the end of the summer. The drug is supposed to treat Chronic Lymphocytic Leukemia (CLL) and non-Hodgkin’s Lymphoma (NHL).
That in mind, this stock could potentially run up into the catalyst event. Here’s a look at the chart around when the company was expected to release the data.
Typically, biotech stocks with treatments for cancer and other life-threatening illnesses tend to move on catalyst dates.
So it helps to research the treatment once you know when the catalyst event is expected to be released.
Here’s a look at another biotech stocks with a catalyst event that could potentially move the stock.
Spectrum Pharmaceuticals Inc (SPPI) had an upcoming catalyst event. The company is expected to release Phase II abstracted noted ORR 58%; PFS 5.6 months and further data was being presented. The data release was for its non-small cell lung cancer treatment. This is one tell that the could could potentially run up into the event and move a lot after the event.
Once you’ve found biotech stocks with upcoming catalyst events, you should put it on a watchlist.
Biotech Stocks Trade – What to do After Finding Catalyst Events
It’s pretty simple to find upcoming catalyst events. However, you’ll need to research the treatments and the disorder. If there’s a significant need for the treatment, such as rare types of cancer, then the stock could move significantly. Moreover, if you’re already in a position in a stock with an upcoming event, you should look for the exit sign before the event. The last thing you want to do is a hold a stock into a catalyst event because it’s extremely risky.
For example, there are a plethora of events I was focused on and developed a watchlist.
Here’s a look at 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 2 data due out mid October and Phase 3 data due out in the Fourth Quarter. Also, could get a press release on news of their completed Phase 3 trial.
Buy Zone: $2.55 to $2.75
Profit Zone: $2.95 or higher
Stop Zone: $2.50 or below
Catalyst Swing Names (1-4 week holds) that I am watching
Catalyst Dates: Phase 2 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 need to execute and stick to 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’ve figured out how to spot catalyst events, it becomes a little easier to trade biotech stocks. If you know when traders and investors are expecting a catalyst event, you could potentially trade biotech stocks for the run up into the event. Now, keep in mind just because you know how to spot a catalyst event, it doesn’t mean you’ll become an expert in trading biotech stocks overnight. You need to build upon your foundation and understand how to take advantage of the volatility of biotech stocks.
Learn how this college student turned millionaire made his fortune trading biotech stocks by the time he was 26 using these simple and reliable strategies.
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.