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TheStreet Open House

Biotech Breakouts: How to Trade Agios Pharma

DELAFIELD, Wis. (Stockpickr) -- The market is struggling to find buyers after key economic data was released that showed new-home sales plunged in March by 14.5%. The March data missed expectations, since most economists were looking for a bump up in new-home sales from February.

>>Hedge Funds Love These 5 Health Care Stocks -- but Should You?

Despite the weak action in the market off that terrible new-home-sales data, there are still plenty of stocks that are showing up on my scans that have favorable technical setups and aren't going down with the rest of the market today. Some of these stocks also have a lot of shorts involved in the names, and if the bears can't gain any traction on down days, then you could have a stock that's in high demand with buyers.

One stock that recently had some strong fundamental news and is not going down today is biopharmaceutical player Agios Pharmaceutical (AGIO), which focuses on the development and commercialization of therapeutics in the field of cancer metabolism and inborn errors of metabolism in the U.S. Agios Pharmaceutical has a market cap of $1.5 billion and an enterprise value of 1.1 billion. This company has over $190 million in cash on its balance sheet and zero debt. This stock has been on a tear so far in 2014, with shares up huge by over 100%.

Agios Pharmaceutical recently released some bullish drug trial data, after the company reported that its blood cancer drug, AG-221, showed promising clinical activity for the treatment of cancers with the IDH2 mutation. Agios' trial only showed data from seven patients with acute myeloid leukemia, but six of those patients responded well to AG-221, and three of them had zero traces of cancer in their blood after 28 days on the drug. Wall Street celebrated the results earlier this month, and the stock closed up over 27% on big volume the day of the announcement.

>>3 Biotech Stocks Under $10 in Breakout Territory

These early trial results for AG-221 are just that: early. But Agios could be on to something big here if it can show positive cancer treatment data in larger trials. If that happens, then this stock could trend significantly higher from current levels. The reasons investors are so excited about AG-221 is due to those three patients that showed no cancer in their blood. That's the type of data that makes Wall Street sit up and listen. Complete remission with a cancer drug is the golden goose for biotech investors and traders.

This company recently announced a number of stock offerings that aimed to raise over $75 million in cash. Those offerings are being done so Agios Pharmaceutical can fund its clinical and research development activities for its cancer metabolism drugs AG-221, AG-120 and AG-348. Investors should celebrate the offerings since they haven't hurt the stock price that much and the overall float for the stock is still very small, so they have not been that dilutive. A small float is important to keeping shares of AGIO attractive if demand for this equity can continue to go up. It's just simple supply and demand: If more people want in and there's little supply in the market, then shares can make giant spikes higher -- especially off any positive cancer drug trials, like we saw earlier this month for Agios Pharmaceutical.

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