NEW YORK ( TheStreet) -- The most common way to trade biotech run-ups is to find a stock with an upcoming FDA drug approval. Having an exact date provides run-up traders with a tight timeline to exit a trade before FDA makes it decision public. It's also possible to use the biotech run-up strategy to trade in stocks with pending clinical trial results.
The key to trading around a clinical trial is to only choose stocks where management has given a narrow timelines for the release of data. This does limit run-up trading opportunities because many companies prefer to be rather vague about predicting the completion of clinical trials. Trying to execute a profitable run-up trade in a stock with a clinical trial expected to report top-line results in the "second half of the year" or even the "fourth quarter" is just too risky.
On Sept. 5, Acadia announced the completion of patient enrollment in a phase III study of pimavanserin as a treatment for Parkinson's disease psychosis. Included in Acadia's press release on that day was a gift to all acolytes of the BioRunUp trading strategy:"Top-line results from this trial are expected to be announced by the end of November 2012." Thank you! Acadia's pimavanserin phase III study is very much a binary event for the company and will have a dramatic impact on the stock price. Acadia shares could easily double to $5 or more on positive results; likewise, the stock could fall below $1 per share if pimavanserin fails.
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