The backstory: Axovant Sciences Ltd. (AXON) was a company I was avoiding last summer, but that I am looking at now. It’s a British pharmaceutical company that develops small-cell drugs to treat neurological disorders that was beaten down on bad news earlier this year. A lot of times when biotech stocks fall on negative data, it creates potential upside for traders if the company has other drugs and indications they’re testing for; I see it all the time, where a whiff of good news changes a big downtick into a big uptick.

The setup: On July 21, I noted that Axovant Sciences was up more than 80 percent in advance of a late-September data release on a Phase 3 trial of Intepirdine in Alzheimer’s disease. I called Axovant a “jumpy stock” that moves a lot on news, and suggested traders avoid holding it through the data event.

The stock was at $26 before the data and cratered to $6.70 after AXON reported ugly topline results. Since then it’s fallen even further, to roughly $5.50.

Kyle Dennis warned against holding AXON too long

Why it caught my eye: I’m looking at it now because you’re getting three shots on goal in January; two of those potential catalyst events are trials on Intepirdine — which didn’t turn out so well in the fall — and the third data readout is a Phase 2 trial for Nelotanserin, a different drug with applications in dementia cases.

How I’m playing it: On a technical basis, there is a big gap to fill on the upside. Any positive news — from any one of those three January readouts — could make shares skyrocket. I’m hoping to pick up shares close to $5, hopefully four to six weeks ahead of the catalyst events.

I’ll stop out below the 52-week low, at about $4.70 — I’ll keep a tight stop because two of those readouts are on a drug that previously failed — but my near-term target would be $7.50 to $8. I’ll be out by the time the catalyst events hit; you would have to be extra aggressive to hold through those events on a stock that has had some bad news in recent trials.

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Kyle Dennis runs BiotechBreakouts.com. He is an event-based trader, who prefers low-priced and small-cap biotech stocks. He has day-traded AXON, most recently on Sept. 14 for a loss, but had no shares, options or open orders in the stock at the time this article was published on RagingBull.com.

Author: Kyle Dennis

Straight outta college Kyle Dennis taught himself to trade, and then made over $7 million in trading profits by the time he was 28 years old. Kyle reveals how to find, track, and profit from lucrative trades for exceptional profits. Thousands of traders follow him every day to learn how to target these high probability trades.

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