BST Position Update: February 12, 2014

| February 12, 2014

February 12, 2014

Position Update

Biotech Market Update:

The biotech sector put in an amazing performance in 2013.  One look at a chart of the SPDR S&P Biotech ETF (NYSE: XBI) makes that perfectly clear.



As you can see, the sector trended higher for most of the year.  It suffered a correction in June and another in October and November, but it finished the year just off the 52-week high.

All in all, XBI gained a whopping 49% in 2013.

What’s more, the sector began 2014 with a furious rally.  XBI surged to a new high of $161.55 on January 22nd and registered a stunning 22% gain for the year.

But then the market started to correct on worries about corporate earnings.

And biotech stocks followed suit.

After hitting that new record high, XBI began what would become a two-week downswing. In fact, the ETF gave up more than 12% before reversing course late last week.

At the moment, the sector is moving higher once again.  However, it’s too early to say if this is a resumption of the prior uptrend just yet.  Although it certainly looks like it is.

The point is… 

Due to the recent correction, each of our holdings has pulled back over the past couple of weeks… even our best performers that registered huge new peak gains as of our last update.

Rest assured that we’re monitoring the situation very closely.

With that said, we believe the recent downturn was just a long overdue correction of what has been a stunning uptrend for the biotech sector.  We’re confident biotech stocks will resume their upward trend as the year progresses.

Let’s now take a look at a few specific holdings…

. . . . Threshold Pharmaceuticals (NASDAQ: THLD) – Buy up to $4.80

THLD is the newest addition to the portfolio.  This exciting biotech is developing TH-302 for the treatment of several different kinds of cancer.

TH-302 is currently being studied in multiple clinical trials. 

The most advanced studies are two separate phase 3 trials.  These trials are evaluating the drug’s potential as a treatment for soft tissue sarcoma and pancreatic cancer.

In addition, TH-302 is also the subject of several early-stage studies.

Those trials are exploring the drug’s potential for treating other various forms of cancer. These other forms of cancer include advanced leukemias, multiple myeloma, and renal cell carcinoma just to name a few.

The near-term catalyst for Threshold is interim results from the phase 3 trial in soft tissue sarcoma.  That data is expected around mid-year 2014.

As you know, we’re anticipating THLD will trend higher going into the results.

The drug performed very well in a phase 2 trial that was conducted in 2011-12.  So that bodes well for the upcoming phase 3 results.

What’s more, we think many investors believe positive results from a late-stage study would validate TH-302’s potential as a treatment for other kinds of cancer as well.  Of course, if the drug is ultimately approved to treat multiple forms of cancer, it will have much greater revenue potential.

Don’t forget, TH-302 is being developed to address a cancer market that generates over $10 billion a year in drug sales.

Turning our attention to the stock itself…

It appears we timed our trade quite nicely.  THLD reversed a two-week downtrend last Friday, the same day our trade alert came out.  And since then, the stock has gained 8% in value.

That’s just what we like to see.

If you haven’t yet purchased your shares of THLD, you may not want to wait much longer. The stock is rapidly closing in on our maximum buy price of $4.80 per share.

. . . . Conatus (NASDAQ: CNAT) – Hold

CNAT has pulled back significantly after its big jump to start the year.  However, despite recent profit-taking, the position is up more than 50% from our entry point.

That’s a solid gain in less than two months.

What’s more, it appears CNAT may now be in the early stages of a new uptrend.  The stock has gained more than 20% since last Wednesday.  And as I write, it’s trading just under the $10 level.

Apparently, we’re not the only ones who think CNAT has a bright future ahead of it. Analysts with Piper Jaffray recently announced a price target of $16 per share for the stock

If that price target proves accurate, CNAT has over 60% upside from here.

Continue holding CNAT for greater gains.  The stock should trend higher going into the results of the phase 2b trial of emricasan in chronic liver disease.  Those results are expected in the first half of 2014.

. . . . Prana Biotechnology (NASDAQ: PRAN) – Hold

PRAN is another one of our high-fliers that has succumbed to gravity of late.  The stock has pulled back on a round of heavy profit taking inspired by the market correction and a negative article by one of our competitors.

But don’t worry…

We believe the stock will rebound from this sharp downturn ahead of the upcoming trials results.  The upside potential is just too huge to pass up.  In fact, it would not surprise us at all to see investors use the recent weakness as a buying opportunity.

With that in mind, we suggest you hang on to your shares for bigger profits.

. . . . Cyclacel Pharmaceuticals (NASDAQ: CYCC) – Buy up to $5.00

CYCC started the new year with a bang.  It continued the rally that began in mid-December and proceeded to climb to a high of $4.84 on January 9th.

But then it reversed course and moved down to test support at the $3.50 per share area in late January.  The stock even briefly fell to a low of $3.19 on January 27th before it recovering to $3.63 at the close.

Fortunately, the $3.50 support level held, and CYCC is now moving higher once again.

In fact, the stock busted through the $4.00 level yesterday and hit a high of $4.16 in the process.  Perhaps this will be the rally that propels CYCC through strong resistance at the $5.00 level.

The stock hit the skids following management’s presentation on January 13th about the company’s objectives for 2014.  The biggest disappointment is that results from the SEAMLESS trial are not likely to be released until early 2015.  They were originally expected by the end of 2014.

Why the delay?

The company has decided to expand the trial into Europe and at least double the number of enrolling sites.  As such, management doesn’t expect enrollment to be complete until the end of this year.

The good news is… 

Enrollment has been moving right along and is now 50% complete.  Plus, an independent Data Safety Monitoring Board recently recommended the trial continue as planned after finding no safety or efficacy concerns.

While we’re disappointed that our catalyst has been pushed into 2015, we still believe CYCC has terrific upside potential.  The key is to adjust your timeframe expectations for the trade and remain patient.

CYCC remains a good buy up to $5.00 per share.

. . . . Rockwell Medical (NASDAQ: RMTI) – Hold

Rockwell Medical announced earlier this month that it has completed the large-scale, long-term safety study of Triferic.  With the conclusion of this important trial, the phase 3 clinical program for Triferic is now complete.

The next step is to file the New Drug Application for Triferic with the FDA.

Management says it plans to file the NDA “in the near-term.”  Upon acceptance of the NDA, the FDA will set a target date (typically 10 months later) for issuing a decision.

CEO Robert Chioini had this to say about Triferic…

“This drug’s unique mode of action, its delivery via dialysate and efficient iron delivery directly to the bone marrow, enables it to be used immediately, like dietary iron, and maintain hemoglobin while significantly reducing the need for ESA. These clinical benefits highlight its potential to be the market-leading iron therapy treatment for CKD-HD patients.”

Management clearly remains convinced that Triferic will be approved and will become the standard iron therapy for patients with CKD-HD.  And remember, the addressable market is worth $600 million in the US and over $1 billion globally.

We think RMTI has significant upside potential from its current price of $10.54.  Continue holding these shares for greater gains.

Action To Take

  • None at this time.


Category: BST Update

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