Biotech investors pay close attention to charts showing stock values dramatically rising and falling. These value spikes and free-falls are typically caused by catalysts, such as the release of data from clinical trials and U.S. Food and Drug Administration (FDA) approvals. Discover why the catalyst matters when you’re trading biotech stocks.
- What is a Catalyst?
- Examples of Catalyst Trades
- Final Thoughts
What is a Catalyst?
A catalyst is an event that can move the price of a stock or security up or down. Common catalysts include the release of company news, including the publishing of earnings, FDA approvals, analyst comments, or industry developments.
Following events, or catalysts, can help you uncover biotech catalyst stock trading opportunities. For example, when an important event is approaching, you might want to trade the catalyst pharmaceuticals stock in anticipation of its value falling once the buzz dies down.
With a positive biopharm catalyst, the stock should rise, while bad news could send the stock price falling fast. Approaching catalysts tend to increase a stock’s value as interest in the impending event encourages people to invest. However, it is more difficult to know how a catalyst will impact a stock, so many biotech stock traders sell their stocks just before the event, when interest is strong.
Visiting a website such as biopharmcatalyst.com is a good way to search for potential catalysts that could impact biotech and pharmaceutical stocks. Create a watch list for biotech stocks with approaching catalysts you are interested in invested in, such as Catalyst Pharmaceuticals Inc., also known as Catalyst Pharmaceuticals Partners.
Examples of Catalyst Trades
Observing how catalysts have impacted biotech stocks in the past can help you predict how they might affect stocks within this industry in future. Here are two examples of biotech stocks that saw dramatic value changes after catalysts.
On June 12, 2017, The FDA decided to reject Coherus BioSciences Inc.’s (CHRS) Biologics License Application for its drug candidate CHS-1701. This treatment was similar to a white-cell booster Neulasta, developed and marketed by Amgen Inc. (AMGN). In the complete response letter from the FDA, the government health organization requested a reanalysis of a subset of subject samples with a revised immunogenicity assay, along with other requests for certain additional manufacturing related process information.
The FDA’s response was a roadblock to Coherus BioSciences’ drug pipeline, adding a measure of uncertainty to the company’s future revenues and earning’s growth. Traders became nervous and sold their shares in droves, causing their value to plummet. The stock gapped down, but rebounded slightly to end the trading day down more than 20%.
Catalysts don’t always hurt biotech stocks though. Catalysts can also be forces for positive change, as with the case of Jazz Pharmaceuticals.
On June 6, 2017, Jazz Pharmaceuticals (JAZZ) provided an update on data from the Phase III study of one of its lead pipeline candidates, JZP-110. The company’s global multicenter study examined the drug’s effect on adult patients with excessive sleepiness, associated with obstructive sleep apnea and narcolepsy. The data indicated the treatment had positive effects on its sleepy subjects. Consequently, Jazz Pharmaceuticals’ stock increased in value by more than 4% the day after the data presentation.
Catalysts affect biotechnology stocks significantly. The cases here are two historic examples, but there are more cases nearly every day, creating a plethora of opportunities in biotech and pharma stocks. If you’re looking to trade in the sector, keep an eye open to catalysts to avoid surprises and get news working in your favor. For more information about what to look for when trading stocks, listen to our podcasts.