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Biotech Stocks Continue to See Share Prices Jump on Catalysts


But before getting involved in this sector, investors should remember that volatility is extremely high and proper diversification is critical.

The biotechnology industry is one of the most event-driven industries around, and so it is extremely important for investors to monitor their calendar for specific events and analyze their potential impact on the share price. The past week has seen some enormous news within the biotechnology industry, and investors continue to see dramatic price swings in these exciting but risky biotech stocks.

One of the biggest news stories last week revolved around Sarepta Therapeutics (NASDAQ:SRPT). On Wednesday, July 24, Sarepta announced its intention to file a New Drug Application to the FDA for its flagship drug Eteplirsen. Eteplirsen is Sarepta's lead exon-skipping compound currently in development for the treatment of patients with Duchenne Muscular Dystrophy. Investors had been eagerly anticipating news of a potential accelerated approval for this potential game-changing drug. When the news was first released, the stock traded as high as $65 per share in Wednesday's pre-market session. Unfortunately, after that initial spike, the exuberance tapered off as the stock ended up trading down almost 19% on the day's session. For investors who still believe in the company's long-term prospects, the company expects to file the NDA by the first half of 2014.

While Sarepta had a disappointing week, several other stocks saw their share prices soar. InterMune (NASDAQ:ITMN) saw its share price soar by more than 15% on July 25 after the company announced historic earnings. The company announced that sales of its flagship drug, Esbriet, came in at $14.4 million compared to the consensus of approximately $12 million. The company also announced full-year guidance of between $55 and $70 million. This was an upward revision in guidance from the previous range of $40 to $55 million. The company is still seeking FDA approval to sell Esbriet in the United States. Before approval can take place, the company is awaiting top-line results from the Phase III ASCEND study. InterMune expects to release these results during the second quarter of 2014.

Another company that had a positive news release last week was OncoSec Medical (OTCMKTS:ONCS). On Monday, July 22, OncoSec presented positive immune response data from its Phase II study at the 8th World Congress of Melanoma. The data showed that ImmunoPulse demonstrated a significant change in tumor immunity following treatment with DNA IL-12 and electroporation. The purpose of ImmunoPulse is to deliver a protein called DNA IL-12, which then stimulates the immune system to target and kill cancer cells. For this particular Phase II trial, there were a total of 25 enrolled patients with either stage III or IV cutaneous and in-transit metastatic melanoma. The trial was designed to determine the body's response after receiving treatment with DNA IL-12 and electroporation with a primary endpoint of 24 weeks. One of the primary and most important results from the trial was a significant decrease in the amount of exhausted T-cells. OncoSec was able to accomplish this by blocking PD-1, which is expressed in activated exhausted T-cells. Additionally, there was a noticeable increase in NK cell frequency and activation. These interim results demonstrate a lot of promise for OncoSec's platform. If the final results turn out to be as strong as or stronger than these interim results, shareholders should begin to see significant share price appreciation given the market for melanoma. Final results should be announced in the next six to nine months.

Lastly, Array Biopharma (NASDAQ:ARRY), had a week to remember. The shares finished last week up almost 18% on news that its Phase II trial for ARRY-502 met the primary endpoint. The trial evaluated an experimental drug used to treat mild to moderate persistent allergic asthma. The drug not only met its primary endpoint of improving pre-bronchodilator forced expiratory volume in one second, but it also met its secondary endpoints of reducing short-acting beta agonist use and symptom-free days during treatment. After the news, Piper Jaffray also boosted its price target on Array to $10.

Before investing in this sector, investors must perform due diligence on all potential stocks. As the above companies demonstrate, volatility is extremely high and proper diversification is of critical importance.

(See also: Best Stocks: Isis, Gilead, Celgene, and Regeneron Take Over the Top Ranks)

Editor's note: TM Meyer is a former equity derivatives market maker based out of Chicago. He currently manages his own personal portfolio using a combination of fundamental analysis, technical analysis, and event driven catalysts.
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