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The setup: Cempra, Inc. (CEMP) is a clinical-stage pharmaceutical company that develops differentiated anti-infective drugs. It has two lead products in advanced clinical trials, solithromycin — which met objectives against community-acquired bacterial pneumonia in two Phase 3 trials — and Taksta (fusidic acid), which will present Phase 2-3 trial results in December. This antibiotic has been used in Europe for years, so I like the catalyst.

The back story: Cempra announced plans to merge with another anti-infective drug developer, Melinta Therapeutics, giving them a much wider portfolio of products. It looks like a great move for both companies. Melinta got FDA approval in June for Baxdela, a novel antibiotic, in treatment of acute bacterial skin and skin-structure infections, including MRSA. Baxdela is in Phase 3 trials for bacterial pneumonia; a trial against urinary tract infections is planned.

How I’m playing it: I went long on CEMP on Oct. 2, buying 1,000 shares at $3.25. It’s undervalued and I’m looking to build a bigger position, but I want to see how the market reacts to the merger and see if it perceives the deal as a dilution.

Personally, I anticipate staying bullish on this name after the merger closes, which is expected this month, but I will watch the action before deciding if I can build a full position in the stock.

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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 bought 1,000 shares of CEMP at $3.25 on Oct. 2. He sold his 1,000-share position in MNOV Oct. 2 for a 25 percent gain, as described above.

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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