The set-up: Axovant Sciences Ltd. is a clinical-stage biopharma company with a Phase III trial coming out in September for treatment for Alzheimer’s Disease.
Why others are buying it: The stock is up more than 80 percent this year, and it is nearing its all-time peak of $31 per share; it has some room to run to get back to that level, especially if people wind up getting the good news they’re expecting on this trial.
From a trader’s perspective, this is a jumpy stock, the kind of thing that moves a lot on news; catalyst traders like that when there is news on the horizon.
Why I’m not: With Alzheimer’s Disease, any time there is news people really speculate on the upside. If the trial comes out positive, it’s close to a double, a binary event, but 90 percent of the time with these types of drugs, the news doesn’t pan out and the stock trades way down; the downside potential is more than 50 percent.
I’m like everyone else in hoping that we someday see a cure, but I’m not getting too excited because it’s hard to believe the data is going to be good; the science for these Alzheimer’s drugs just hasn’t paid out.
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 currently has no shares, options or open orders in AXON; he last owned the stock on June 7, when he played it as a day trade.