NEW BULLISH Plays
NewLink Genetics - NLNK - close: 27.86 change: +0.49
Stop Loss: 25.85
Target(s): To Be Determined
Current Gain/Loss: unopened
Entry on July -- at $--.--
Listed on July 05, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 327 thousand
New Positions: Yes, see below
Why We Like It:
NLNK is a small-cap biotech company. They were founded in 1999. They are development cancer treatments with a focus on stimulating the human body to destroy its cancer cells. These cancer immunotherapies offer a lot of hope but there is still a lot of work to be done.
NLNK is developing two different pathways to conquer cancer. One is NLNK's HyperAcute immunotherapy and the other is IDO pathway inhibitions. The HyperAcute system is designed to stimulate the human body's immune system to recognize and then destroy cancer cells. Their best treatment so far, the algenpantucel-L, is currently in a critical Phase 3 IMPRESS trial for patients with resected pancreatic cancer. The trial began in September 2013 and remains in progress.
NLNK's second platform is IDO pathway inhibitors. The company is working with indoleamine 2,3-dioxygenase (IDO) inhibitors to develop small-molecule drugs that would target cancer tumors and turn off the tumors ability to evade the body's defenses. If successful, the body would target the tumor and destroy it. NLNK's best candidate in this field is Indoximod and is currently in trials for patients with melanoma, pancreas, prostate, breast and brain cancers.
I'm sure you noticed that shares of NLNK have been crushed from their February 2014 peak. The stock got ahead of itself and more than doubled from its early January lows to the February top. The broader market was suffering some profit taking in March. Nearly all of the high-growth and momentum stocks were punished during the March correction lower. The drop in NLNK was exaggerated.
NLNK's stock price drop in March was accelerated following news on its IMPRESS clinical trial for its HyperAcute therapy. The clinical trial was designed to provide interim analysis after the 222nd patient/event was hit. That threshold was reached in February and the analysis was released in March.
The good news is that they didn't see any new safety concerns with the treatment. The independent monitors running the IMPRESS trial suggested the trial proceed. That was the headline that sent shares of NLNK lower. Investors were hoping that the results would be so good that the monitors would stop the trial early due to better than expected success. What this means now is the HyperAcute clinical trial continues. The next thresholds are 333 patient events and if necessary 444 patient events. The next analysis on this trial is not expected until January 2015.
It looks like most of the weak-stomach investors might be out of the stock. NLNK's perilous drop from $50 to $19 in about six weeks completely erased its 2014 gains back in April. Traders bought NLNK on a pullback near $19 again back in early June. This has created a double bottom pattern. The last four weeks have seen shares of NLNK push through multiple layers of resistance including its 50-dma, its 200-dma, and most recently its 100-dma.
This should make the shorts nervous.
There are plenty of bears in this name. Short interest is about 25% of the very small 19.8 million share float. If this rally continues it could accelerate due to short covering. So why are so many investors short NLNK? One reason might be cash. NLNK is running out. They have virtually no revenues. Bullish investors are betting that NLNK will be successful and these clinical trials will eventually produce a product that can be sold. There is always a chance of failure. Unfortunately, clinical trials are not cheap. NLNK will likely end the year with $40 million in cash. They're going to burn through it fast with 100 employees and its current projects. There is a risk that NLNK could raise money by issuing more stock in a secondary offering. More stock dilutes current shareholders and the stock price tends to drop.
Bullish investors may want consider buying call options so you can limit your risk to the cost of the option.
Tonight we are suggesting a trigger to open bullish positions at $28.25. We will start with a stop loss at $25.85.
I do consider this an aggressive, higher-risk trade. Consider using smaller positions to limit risk.
Trigger @ $28.25 *small positions*
Suggested Position: buy NLNK stock @ (trigger)
- (or for more adventurous traders, try this option) -
Buy the Oct $30 call (NLNK141018c30) current ask $4.50
Option Format: symbol-year-month-day-call-strike