How to Prep for the Biotech Bounce
Over the past few weeks, I’ve reiterated that biotech names will lead the way when the market bounces back.
The FDA continues to function as normal — creating a great space for us to snatch up some names when the time is right.
For now we’re waiting patiently for the right time to jump in…
But in the meantime, I’ve received a couple emails asking a variety of questions. From the most basic, like how to trade stocks, to why biotech stocks seem so volatile.
Today, we’re going to step back and go over the basics so you can prep yourself for the market snapback — with biotech names leading the way.
Let’s get started…
What’s a clinical trial, and why does it matter?
Every drug and medical device in the U.S. has to go through thorough testing before the FDA allows the public to buy it. Every stage in the process acts as a gate to the next. And results from one stage can make a company’s stock skyrocket to all-time highs or crater to new lows.
This set of phases and trials can be broken up into three distinct categories: preclinical research, clinical studies and NDA review.
The chart below maps out the process…
As you can see above, the three different gates are defined by the blue sections.
Preclinical research is the initial hypothesis, creation and animal testing process. After enough success in this section, a company can submit an Investigational New Drug Application (IND) to begin testing on humans.
Clinical testing is the next step and can be broken up into three phases.
Phase 1 testing is usually conducted by giving the drug to a small group of healthy people to test for safety and side effects. Phase 2 involves testing the treatment on people who have the condition to see if the drug or device improves their condition. And during Phase 3, the treatment is given to an even larger sample of patients with the disease, looking for further proof that it’s safe and works without causing any adverse interactions with other drugs the patients are taking.
In today’s environment, the FDA is granting “fast track” status to companies developing treatments and medical devices related to the elimination or treatment of COVID-19.
The final stage is filing paperwork with the FDA to allow the company to sell the drug. It’s called a New Drug Application (NDA).
The FDA has to approve or deny the application within 10 months.
Then, if approved, the public can use the drug.
The biggest catalysts in this process are each phase in the clinical trials and the approval of the NDA for public use.
And because no one knows how each trial will go ahead of time, it’s common for a company’s stock to experience huge swings in either direction depending on how effective the treatment or device is.
Why did [example biotech stock] go up or down today?
There are many points where a biotech trial can make waves either good or bad.
Let’s look at this morning’s example of Novavax (NASDAQ: NVAX).
Positive news released this morning about their latest experimental flu vaccine: NanoFlu.
This has sent the stock up over 30% at this time of writing — a huge increase.
Looking back on their history, though, one can see that NVAX used to be worth 10 times what it is today.
Biotech trials can give and they surely can take.
In 2016, Novavax’s experimental respiratory syncytial virus vaccine candidate flopped in a late-stage trial.
And the stock dropped over 80% overnight — wiping out $1.75 billion of its market cap.
That’s what I’m here to do for you — to find the best and most cutting-edge companies out there.
And potentially give you the best chance to find those companies that can make it to the finish line.
When the market snaps back and all of this is behind us…
Biotech is going to lead the way.
I hope I’ve answered some of your questions.
To a bright future,