Wednesday, November 17, 2021
In recent weeks, I’ve shared two foolproof ways to time emerging technology investments.
After all, timing is everything when it comes to investing.
Too early or too late — and you’re likely to lose money, not make it.
So today, I’d like to share with you two ways to time biotech trades.
Especially since I expect this sector to come roaring back to life after months of consolidation.
So let’s get to it…
We all know that real estate investing is all about location, location, location.
Well, biotech investing can be boiled down to a similar maxim — it’s all about data, data, data.
First, data about safety. Next, data about efficacy. And finally, data about expanding to treat additional diseases.
Nail all three and you’re going to be holding onto a multi-billion-dollar biotech stock.
The thing is, you’re also likely to witness these compelling biotechs getting scooped up by Big Pharma companies.
Why? It's simple...
Acquirers would rather wait, and then pay up for certainty.
By that I mean, they won’t acquire small biotech companies before key clinical data is released.
Although such an approach might technically be cheaper, it’s too risky. If the data is bad, they get nothing in return for the acquisition.
Instead, pharmaceutical companies wait until after key data is released — after they can confirm the data is positive — before they make an offer.
Sure, this most often means paying hundreds of millions, if not billions, of dollars more. But again, it makes economic sense to buy a sure-thing blockbuster versus speculating and losing all their money on a “maybe.”
The thing is, this undeniable market dynamic sets up two trading opportunities for us...
The first opportunity comes by finding compelling early-stage biotechs that are about to report key clinical data.
Full disclosure: This is a riskier strategy, but potentially, it’s also more profitable.
We simply buy shortly ahead of key data reports, and then look to take profits on the immediate post-announcement rally.
So many of these opportunities exist that I have an entire premium research advisory, Biotech Breakout Alert (BBA), dedicated to this strategy.
The second opportunity is more conservative. It comes by constantly monitoring data readouts from biotechs and focusing on the ones with the strongest data, as well as a platform or large pipeline of other drugs.
Why? Because these companies naturally represent the most likely takeover targets for big pharma. Yet these takeovers don’t happen immediately.
Instead, a window of time usually exists between strong data readouts and rallies and takeover offers.
In other words, we can use pharmaceutical companies’ willingness to wait and pay up for certainty to our ultimate advantage and profit.
Aclaris Therapeutics, Inc. (ACRS) represents an excellent example of this…
I recommended this small biotech around $6 in mid-December 2020 to BBA subscribers.
Shortly after, the company reported amazing Phase 2a data for ATI-450, for the treatment of moderate to severe rheumatoid arthritis (RA).
The result? Shares immediately soared more than 100% before peaking some 200% higher in the months after the positive data.
Since then, though, the stock has settled into a trading range.
Right on cue, genuine takeover interest materialized, as evidenced by the rumored hiring of multiple bankers.
Now it’s just a matter of time before an offer materializes. Especially since Aclaris continues to report strong, positive data for other drugs in its pipeline. (Hint, hint.)
Ahead of the tape,