NEW YORK (
) -- BioRunUp trading is a form of swing trading designed to capitalize on biotech share price volatility that almost always takes place around widely known catalysts like FDA drug approvals and clinical trial results.
Explained simply, Biorunup trading involves first identifying a date (or date range) on which an important biotech stock event is expected to take place, then positioning trades (equities and options both work) to capture profits as share prices inevitably "run up" into the chosen event.
The most profitable BioRunUp trades usually involve FDA drug approval decision dates. These are often referred to in jargon shorthand as "PDUFA dates" for the Prescription Drug User Fee Act that sets the rules and timelines by which FDA reviews and approves new drug applications.
FDA-appointed PDUFA dates are a gift to BioRunUp traders. History shows that biotech share prices almost always rise -- "run up" -- as the FDA approval decision date nears because investors and traders place their bets on approval and the resulting benefits to the company. As the PDUFA date draws close, this increased trading activity can snowball as momentum, technical and day traders get involved, thus increasing the share price even more.
BioRunUp traders like myself try to stay well ahead of the pack when it comes to playing PDUFA dates, which are typically known six to 10 months in advance depending on the length of the FDA review. Paying attention to PDUFA dates well in advance allows for early entry into a trade and the opportunity to hold a long position in a stock for one to three months prior to the event. The goal of the BioRunUp trade is to profit from the increased visibility and trading activity that typically shines on a biotech stock prior to the actual FDA drug approval decision being announced.
If there is one cardinal rule in BioRunUp investing, it is this: Never hold a biotech stock trade through the FDA drug approval decision. Let me be extra clear, the goal of BioRunUp investing is to trade and book profits
before the event occurs
. I am not in the business of trying to predict if the FDA will approve or reject a drug. I leave that work to others.
[What goes up, must come down so swing trading in biotech stock does work in the opposite direction as well, but I'll leave discussion about "BioRunDown" trading for a future column.]
Let's put the BioRunUp trading strategy into action.
(DVAX - Get Report)
is seeking FDA approval for Heplisav, a vaccine to protect against hepatitis B infection in adults age 18-70. The assigned PDUFA date is Feb. 24th, 2013. While I consider this Dynavax PDUFA catalyst too far out on the calendar to trade effectively now, the FDA has also scheduled an advisory panel to review Heplisav on Nov. 14. This bumps Dynavax's tradable catalyst up by three months, and sets it up for a nice run up over the next two months.
Dynavax has a large cash position after completing a substantial share offering this May at $4.25 per share. The company's current share price is below the offering price. This financing should alleviate concerns over the possibility of dilution before the FDA advisory panel. [Biotech companies often take advantage of stock price run ups to bolster their cash reserves.]