Positive Clinical Trial Results Equal Big Profits!
No area of the market captures investors’ imagination like the biotech sector. These fascinating companies are pushing the frontiers of technology and medicine on a daily basis. Every one of them is searching for a better treatment or an outright cure for horrible diseases.
And a good number of them have made their shareholders big piles of money.
Take industry heavyweight Amgen (AMGN) for example. The grand-daddy of the industry has been developing biotech drugs since 1980. Over the past 31 years, the company has gone from tiny start-up with $17 million in capital to market behemoth valued at nearly $50 billion.
And at the stock’s peak in September 2005, Amgen sported a stunning market cap of over $76 billion!
But the best part about the Amgen story is that the company blazed a trail for others to follow. The industry has grown from just a handful of companies in the early 1980s to more than 1,000 today. And the industry boasts a collective market cap of over $1.2 TRILLION.
Now that’s a growth industry!
While long term investors have certainly cashed in on the biotech industry’s mammoth rise, they’re not the only ones. Many investors are having success trading biotech stocks on a short term basis. The speculative nature of the industry often creates big swings in biotech share prices.
But not everyone makes money in biotech stocks. You can’t just buy any biotech at any price and wait for the profits to roll in. You’ve got to have a strategy.
One strategy that has worked well for me over the years is gaming the biotech clinical trial process.
You see, biotechs are required to conduct extensive clinical trials on human volunteers before the FDA will even consider approving an experimental drug. They start with a small number of volunteers at first. If the trials meet their goals, the company is then allowed to study the drug’s effects on larger groups, often numbering in the thousands.
The whole process can take up to a decade to complete.
Along the way, however, the savvy investor has multiple opportunities to rake in huge profits. After each study is completed, the company publishes the results of the trial. If the results show the drug is safely and effectively treating the target disease, the biotech’s shares usually soar in value.
So, how can you trade biotechs for profit around these trial results?
First, you have to identify those biotechs developing drugs with big profit potential. You’ll often see these stocks soar when they report positive trial data. Next, you need to figure out when the critical trial data is expected to be released. Finally, look for an opportunity to snap up shares at cheap prices ahead of the upcoming results.
Here’s a perfect example…
Yesterday, Medivation (MDVN) announced interim results from a late-stage clinical trial of their experimental drug for prostate cancer. The results showed patients taking the drug lived five months longer on average than those taking a placebo.
These are very impressive results.
The stock surged from the prior day’s closing price of $16.53 to $39.75. That’s a stunning one-day gain of 140%! It’s the stuff dreams are made of.
Let me put that another way. If you had invested $10,000 in MDVN on Wednesday, you’d be sitting on over $24,000 at yesterday’s close.
And the shares are continuing to move higher today. As I write, MDVN is trading for more than $42 per share!
No question about it, you can make big money trading biotech stocks around clinical trial results. But you’ve got to do your homework.
Scour the news for quality biotechs. Look for companies with potential cash cows expected to release trial results in the months ahead. Then, grab your shares on a pullback and hang on for the ride. You just might end up doubling, tripling, or even quadrupling your money in short order!
Category: Stocks
