The biotech sector closed above short-term resistance, as you can see in the above chart. Another sign of the bulls being in firm control is the reversal candle from Tuesday. As I mentioned in a previous post, the Biotech sector is quickly becoming a favorite of mine.

The overall strength seen in the sector has trickled down into smaller names within the industry. We continue to see small-cap and low float biotech names gap up and trade abnormal volume daily.

Yesterday’s flavor of the day was Infinity Pharmaceuticals (NASD: INFI). INFI closed up 61% yesterday and traded 172.5m shares. For a stock that has an average volume of 4.89m shares, that sure is impressive!

What is INFI?

Per Yahoo Finance, Infinity is a biopharmaceutical company that focuses on developing novel medicines for cancer patients. The company’s lead candidate is IPI-549, which is an orally administered clinical-stage immuno-oncology product candidate. It is in Phase 1/1b clinical trials to treat triple-negative breast cancer, solid tumors, and ovarian cancer.

INFI is up 15.57% year to date and 195.18% over a year. 

Market Cap: 238.92m

Float: 71.76m

ATR: 0.31

Short Interest: 6.18%

Average Volume: 4.89m

What has caused the recent volatility in INFI?

On July 27th, shares of INFI gapped down after reporting updated data from Bladder and Breast Cancer Trials and Q2 corporate earnings.

The company reported that its cash balance stood at $93.7m. INFI estimated their full-year 2021 net loss to be $40m – $50m, which indicates an increase of 11% Year over Year.

So what caused the sharp reversal and gap up yesterday?

Yesterday Wells Fargo upgraded INFI from equal-weight to overweight and raised the price target from $4 to $14! The company also topped revenue estimates. INFI posted revenues of $0.51m for the quarter ending June 2021, compared to revenues a year ago of $0.36m.

Key Levels:

Shares of INFI closed near the resistance of the downward trendline on the daily yesterday. For further upside in the stock, shares would need to break above $2.60 and hold firmly higher.

The next level of resistance would be around $3.50, which has stood firm as resistance for most of the year. Above those levels and the high of $5.98 would be the next area. 

The company does not have a micro float, and therefore you shouldn’t expect to see explosive moves to the upside occur sharply unless the volume of yesterday is sustained or even surpassed. 

Ideally, what you would want to see is the stock begin to base above $2.60 resistance and then trade higher and base over $3. This will signal that buyers are taking control, and the stock could soon reach other critical levels, as pointed out above.

Let’s Take A Closer Look:

In the short term and for today, you would not want the stock to spend time below yesterday’s low of $2.05. Specifically, you do not want the stock to close below the low and $2. 

It is usual for a stock to digest such a significant move and consolidate for a couple of days before breaking out again. If this happens, you would want the stock to digest the move and trade between support and resistance. Support from yesterday is $2, and resistance is $2.60.

Another critical level of support from yesterday is $2.20 because you can see that the stock spent midday consolidating at this level. Therefore, this will be another key area that needs to be supported.

If the stock manages to find support at these critical levels and then breakout above $2.60 on volume, $3 would be the next target.

One stock that I am keeping tabs on that is setting up for a potential breakout long is Xenetic Biosciences (NASD: XBIO)

MARKET CAP: 20.5m

FLOAT: 8.02m

ATR: 0.53

SHORT %: 4.83

AVG. VOLUME: 7.26m

What’s Happening In XBIO

Last week, the stock gapped up, broke the downward trendline on the daily, and traded up 116% to a high of $4.75. The stock then reversed and closed up slightly on the day at $2.52.

The following trading day, Monday, July 26th, the company announced a private placement of $12.5m at a premium to the market. The company also announced they issued warrants with an exercise price of $3.30 per share. The news was viewed as bullish by the market, and the stock closed at $3.03 on the day, compared to $2.52 the previous trading day.

Yesterday after a brief morning selloff, the stock recovered and closed the day higher than the previous day, at $3.17. Monday and Tuesday’s close was inside of Friday’s close.

Bull Flag on the Hourly Chart:

The hourly chart paints a bullish picture. Each time the stock has sold off, it has found support and held the bull flag’s support. Critical support is $2.50, and resistance is $3.60.

After the move last week, the stock has spent a couple of days consolidating, and volume has dried up. The stock is digesting the action from Friday.

What you want to see is the stock begin to hold in the upper part of the bull flag, volume to increase, and a breakout over $3.60 to be supported by an increase in volume. If that occurs, it is possible the stock could trade over Friday’s high of $4.75 reasonably quickly.

If the bull flag fails to hold up and shares trade below $2.50, then there is no trade for me. However, if we break below $2.50 and then recover and hold over $3, that would signal a short trap and that the bull thesis is still intact.

Not only is the setup bullish, but the fundamentals are favorable as well. I like the float size of 8.02m. This means that the stock can make significant and volatile moves if volume comes into the name again. I also find it interesting that XBIO’s market cap is currently $20.5m, and they just completed an offering for $12.5m, thereby strengthening their balance sheet. 

The Bottom Line

As is the case with trading, it is all about risk: reward, and looking at where this stock came from and where it is now, I like the risk: reward to the long side. Of course, you need to wait for confirmation before thinking about going long. It would be best to remember the critical levels of support and resistance and always have a detailed trading plan written out.

Consequently, the biotech or pharmaceutical stock’s price gets pushed up.

Now, there’s one thing to keep in mind, you should not hold a stock into a catalyst event because it’s hazardous.

That said, let’s learn a little about how to trade biotech stocks around catalyst events. Included is an upcoming catalyst in ARDX that we’re watching.

How to Trade Biotech Stocks – Focus on Catalysts

Biotech Trading Tools

Before you get started learning how to trade biotech stocks, you’ll need some tools.

• BioPharmCatalyst.com is one tool that I find quite useful. Make sure you don’t go to BioPharmCatalyst though, I’ve made that mistake a few times. You can find upcoming events on BioPharmCatalyst.com, they have most upcoming events, but not all.
• FDAtracker.com is another website, but it does cost around $30 a month with some useful tools. However, if you’re just starting out, you should try to limit your costs, and BioPharmCatalyst.com should be enough.

• Company websites and presentations could provide useful information. Suppose you want to do some further analysis after you’ve found a potential catalyst on BioPharmCatalyst. In that case, you should refer to the company’s websites to get a better idea of the treatment.
• Seekingalpha.com also provides earnings call transcripts, which can also provide useful information.
• Biotech conferences, such as the ones conducted by JP Morgan, ASCO (typically a cancer conference) and ASH. The JP Morgan conference is usually at the beginning of the year, and some biotechs typically perform well during that time. Keep in mind, these aren’t the only conferences out there, I just wanted to give you an idea that these could also be potential catalysts.

• Seekingalpha.com also provides earnings call transcripts, which can also provide useful information.

• Biotech conferences, such as the ones conducted by JP Morgan, ASCO (typically a cancer conference) and ASH. The JP Morgan conference is usually at the beginning of the year, and some biotechs typically perform well during that time. Keep in mind, these aren’t the only conferences out there, I just wanted to give you an idea that these could also be potential catalysts.

How to Trade Biotech Stocks – Important Catalyst Events

Generally, I find that Phase I trials are not that tradable since it’s still early in the developmental stages.

However, if the company provides Phase I data indicating the treatment is relatively safe to use with well-defined side effects and dosage ranges, then it would move onto the next developmental stage, which is Phase II.

Thereafter, if it clears Phase II, the company would move onto a Phase III clinical trial.

Now, the Phase II and Phase III clinical trials are more tradable, in relation to the Phase I. If you recall, the Phase II stage, the treatment is given to a larger group of people with a specified condition or disease.

This stage involves gathering preliminary data regarding the efficacy or effectiveness of the drug and further assessing the treatment’s safety and “best” dosage.

After this stage, if the company has good data, it would move onto a Phase III clinical trial, which is conducted to confirm the effectiveness of the treatment.

In addition, the company would monitor the side effects and compare the treatment to other commonly used treatments for the specified condition or illness.

If it provides good data in the Phase III trial, it gets sent off to an FDA approval. It could move right onto the approval, or the U.S. FDA could ask an advisory committee (adcom) to vote on whether the treatment would be approved.

Now, if it provides good data in the Phase III trial, then it gets sent off to an FDA approval. It could move right onto the approval, or the U.S. FDA could ask an advisory committee (adcom) to vote on whether the treatment would be approved.

That said, let’s look at an example of how to use catalysts to trade biotech stocks.

How to Trade Biotech Stocks – Example

Ardelyx (ARDX) announced it had an FDA approval date on July 21, 2021. The firm is hoping to get the green light on Tenapanor, a serum phosphorus aimed at chronic kidney disease on dialysis.

Source: BioPharmCatalyst

The idea behind the strategy is rather straightforward. Find an area on the chart where you see support as a potential entry. In this case, look for a spot under $7 and above $6.50.

Get in 3-4 to weeks before the catalyst. As the event draws closer you’re hoping to see speculators jump in, betting for a positive result. If that does occur, it provides a chance to exit above the entry price.

If it doesn’t occur then the plan is to exit before the announcement date. Holding a biotech stock into its catalyst event is binary. Either it’s a big score or a monumental disaster. I prefer to avoid that type of volatility whenever possible.  

Final Thoughts

Learning about catalyst events is highly crucial if you want to get involved trading biotech stocks.

What Are the Best Biotech Penny Stocks?

To mitigate risk, stick to firms that have an established track record in marketing and product development. When you put your money in medical penny stocks, keep a close watch for factors that may impact value, such as a surge of new competition or high-profile product failure. Review the company’s financials regularly to get an early glimpse of potential red flags.

Favor companies that have various products in different stages of development, which increases the chance that one of their Phase II programs will successfully come to market. Partnerships with larger firms can also boost the value of pharmaceutical penny stocks. Innovative treatments and drugs are also a good indicator that a small company will succeed long-term.

Investors who want to profit from biotech penny stocks have to be ready to play the long game. Brand-new drugs can take a full decade to go through clinical testing and FDA approval so they can land on the drugstore shelves. In addition, between 85% and 95% of new medications never make it to market because they fail either FDA approval or clinical testing. If you can wait out the volatility, however, you may be able to take advantage of significant unexpected gains.

These hot biotech penny stocks are a good place to start for investors who want to explore the potential rewards of this industry.

1. Adamis Pharmaceuticals
2. Agenus
3. China Pharma Holdings
4. Curis
5. Galena Biopharma
6. Ignyta Inc.
7. Immune Pharmaceuticals
8. Neuralstem, Inc.
9. Novavax

1. Adamis Pharmaceuticals

Based in San Diego, Adamis Pharmaceuticals is currently seeking FDA endorsement for an epinephrine syringe formulated in a prefilled version to treat hypersensitivity reactions. Because the company’s main competitor, Mylan, is currently under investigation for increasing the price of its similar product by more than 450% to $600 since 2004, this may be a good time for Adamis to claim a share of the market. In light of this news, the penny stock‘s price jumped by 13%, resulting in a trade volume of 6.63 million shares.

In addition, Adamis received a recent U.S. patent for Taper DPI, a medical device designed to allow patients to inhale dry powder treatments. The product is also patented in Europe.

2. Agenus

This small immuno-oncology biotech firm specializes in innovative drugs, such as an immunization adjuvant in development in collaboration with pharma giant GlaxoSmithKline. However, most of Agenus’s medications are in the preclinical stage, though the company has the benefit of major partners such as Incyte and Merck. Current products in the pipeline include antibodies under investigation to treat intestinal illness and shingles. The former drug, Mosquirix, would be the first medication of its kind to treat intestinal sickness and has been endorsed by both the World Health Organization and the European Medicines Agency.

3. China Pharma Holdings

This Chinese biotech firm specializes in products and treatments for infectious diseases, neurological diseases, and cardiovascular issues. Most of its assets are currently receivables, so keep in mind that they may not necessarily collect the full value of those receivables when deciding whether to invest in China Pharma Holdings. However, many investors were pleased by the stock’s sharp breakout early in 2018 and hope that as the firm releases more drugs, the stock price will skyrocket again. If you are able to wait out the volatility, you may be able to take advantage of significant returns.
Be aware of geopolitical factors that could affect the stock price of China Pharma. Familiarize yourself with the close control of the Chinese government over firms based in the country.
Although this firm currently has low cash reserves, it’s expanding into several new markets, including health products. For example, at the end of 2018 they released Ararato, an alternative aging treatment made from noni enzyme, a popular ingredient in traditional Chinese medicine.

4. Curis

This biotech firm specializes in new cancer treatment medications, including research and development in collaboration with other major pharma companies. Its first drug with Food and Drug Administration approval, Erivedge, is prescribed to treat basal cell carcinoma in Europe, the United States, and several other nations. Fimepinostat, another drug, has been fast-tracked for clinical trials by the FDA.

With this investment, be aware of changes in stock price based on the results of drug trials and the FDA approval process. Although profits have been minimal because many of this firm’s products are still in the R&D phase, several new products are expected to hit the market soon, making this one of the best pharmaceutical penny stocks to set your sights on this year. Curis currently has two drugs in the pre-clinical phase and two in the clinical phase, in addition to those mentioned above.
Although Curis has displayed high volatility that may scare off risk-adverse investors, you can also take advantage of support levels to create a strong position. If you’re not sure, continue tracking the progress of the drugs currently in development from this firm.

5. Galena Biopharma

With a business sector cap of $240 million, Galena has one of the strongest showings among biotech penny stocks. Its innovative tumor immunization drug, NeuVax, is currently in phase 3 of clinical trials and is expected to gain a market share of at least $5 billion once it hits shelves. This company has proved its mettle as one of the biggest Russell 2000 gainers with an increase of 6.64% and nearly 2 million shares exchanged. The relative strength index (RSI) is 39.75, and the stock has an instability rating of 7.33% on a monthly basis.

6. Ignyta Inc.

With a $420 million market cap, Ignyta specializes in integrated diagnostic tests and treatments for oncology care. The firm gets attention for its streamlined basket model of clinical trials, which utilizes aggressive marketing and development, a large new product pipeline, and multiple points of data. Positive results on its recent products show significant promise for reducing the size of cancerous tumors. However, investors should be aware of the risk inherent in this company’s lack of liquidity.

7. Immune Pharmaceuticals

With a multifaceted program to develop immuno-oncology drugs to fight malignant tumors, Immune Pharmaceuticals boasts some of the most robust talent in the industry, including transfers from the Pfizer Oncology Research Unit. With aggressive pipeline growth, the company has gained note for Ceplene, which is used in Europe to treat regression in adults who have a poor prognosis with acute myeloid leukemia. This drug is currently in Phase 3 testing.

8. Neuralstem, Inc.

This biopharm organization specializes in focal sensory system treatments and has demonstrated significant clinical advancement with its main compound, NSI-189, which is currently in a second phase of testing. Neuralstem gained attention in 2016 when it earned $9.1 million from a private securities arrangement. The same year, the company restructed and refocused its methodology in order to streamline costs.

Early information on another compound by this firm, NSI-566, was presented at the annual meeting of the American Neurological Association in fall 2015. Eva Feldman, MD, PhD, Director of the A. Alfred Taubman Medical Research Institute and Director of Research of the ALS Clinic at the University of Michigan Health, is leading the clinical trials for this promising drug. A third compound, MDD, is currently in the second phase of clinical trials with about 225 test subjects.

9. Novavax

This hot pharmaceutical penny stock pick specializes in vaccines for individuals throughout the lifespan, including everyone from infants to the oldest seniors. Novavax is a smart choice for those concerned about investing in brand-new companies, since it was founded way back in 1987. Since then, the firm has introduced vaccines for prevention of various illnesses, including the Zika virus, the Ebola virus, and the seasonal flu.
Despite setbacks in the Novavax stock price in late 2017 and early 2018, this firm’s reputation is bolstered by the vaccines it currently has in development. For example, the company is currently working on a vaccine for respiratory syncytial virus (RSV), which is an often fatal illness affecting pediatric patients all over the world. Another product, the NanoFlu virus, is currently in the testing phase and shows promise, demonstrating that it is significantly more effective than the current flu vaccine and is well-tolerated by older adults.
As with all biotech penny stocks, keep an eye on clinical and FDA approval to get the full picture for this investment.