Newsletter Watch: Biotech bets
Biotechnology has been among the leaders of the market's latest upmove, and a trio of advisors are now looking at some speculative ideas in the small cap biotech space - a market niche that is known for its high risk and volatility.
Michael Ashbaugh, editor of MarketWatch's The Technical Indicator, sees a pair of small cap firms that he believes are poised for speculative gains. He notes, “Public since October 2005, NxStage Medical (Nasdaq: NXTM) is a small-cap maker of dialysis machines positioned to rise. It initially gapped higher in February, after the dialysis center chain DaVita Inc. bought a $20 million stake in the company.”
Meanwhile, over the past three weeks, Ashbaugh adds, the stock has established a tight range near its 52-week high, “positioning the shares to extend higher."
In addition, he says, “AVI BioPharma (Nasdaq: AVII) is a small-cap biopharmaceutical name positioned to rise. Earlier this month, it gapped above a five-month downtrend and its 50-day moving average. Since then, it's closely observed the 50-day as support, extending its gains."
Gregg Early also see upside opportunity in a speculative, small-cap biotech play -- pSivida Ltd. (Nasdaq: PSDV), an Australian biotech/nanotech company that is focusing on developing controlled drug delivery technologies. “The company has signed a big deal with Pfizer (NYSE: PFE),” Early says, “and it’s pretty darn big.”
According to the editor of The Real Nanotech Investor, the firm signed a $165 million exclusive worldwide research and licensing agreement with Pfizer for pSivida's drug delivery technologies in ophthalmic applications.
Early explains, “Pfizer has bought $5 million worth of pSivida stock off the Australian exchange and has also received a $9 million private placement of shares at a U.S. price of about $2.20 a share.”
In other words, he notes, “Pfizer, one of the world’s largest pharmaceutical companies, has bought an initial $14 million stake in pSivida.”
According to Early, Pfizer will fund the total cost of the joint research program aimed at developing products using pSivida's drug delivery technologies. In addition, he notes, pSivida will receive $155 million in development and sales related milestones.
The company in turn will use the proceeds from upfront payments, notes Early, to redeem what he describes as “a toxic $12 million convertible security debt” that was arranged by the company’s previous management. Once this debt overhang is gone, Early forecasts, the company will be in "very solid" financial shape.
Meanwhile, the advisor explains, pSivida remains free to license its drug delivery technologies for all non-ophthalmic applications, including products that are developed from this collaboration.
Longer term, Early concludes, “This is the kind of deal that will move a development-stage company into 'real company' territory.” The stock remains a buy recommendation in Early’s speculative model portfolio.
Meanwhile, for those with only the highest possible risk tolerance, David Nasser highlights a trio of volatile biotechs that have been subjects of drug approval and takeover rumors.
The editor of MarketWatch's Options Trader notes, “There has been quite a bit of small-cap speculation – with takeover rumors, FDA rumors, and the like.”
One of the “hottest” is Renovis (Nasdaq: RNVS), which Nasser says popped up on a number of traders' screens lately as it “generated some very interesting numbers.”
He explains, “The company renewed its working relationship with Pfizer (when some had thought that it might not be able to) and then raised earnings forecasts. That propelled the stock higher, and it broke out of a base that it had been trading in for nearly six months.”
Early adds, “Stock volume patterns were extraordinarily strong. Option prices shot higher, too, as implied volatility jumped substantially. Finally, call option volume was running at about 20 times normal.”
And while the advisor is not recommending Dendreon (Nasdaq: DNDN), which rose sharply in the wake of a recent favorable FDA ruling, he does note that Dendreon's activity spurred advances in Antigenetics (Nasdaq: AGEN).
He notes, “Antigenetics is working on a product similar to DNDN's -- and perceptions are that these types of products will now be approved by the FDA.”
Lastly, the advisor looks at Nuvelo (Nasdaq: NUVO). And while he cautions that the stock’s action is “less convincing,” Early points out that the company is rumored to be a takeover target of Bayer. He says, “It, too, broke upward out of a long basing area and gained nearly 75% in two days.”
Early adds, “It has pulled back since then, trying to gather itself. Stock volume patterns are extraordinarily strong here, too, and call option volume is extremely strong.”
Steven Halpern is the founder of “TheStockAdvisors.com - Steven Halpern's Guide to Financial Newsletters,” the first website to feature a daily overview of the investment newsletter world.
