NEW BULLISH Plays
Sarepta Therapeutics - SRPT - close: 27.01 change: +0.82
Stop Loss: 24.85
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on June -- at $---.--
Listed on June 09, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.2 million
New Positions: Yes, see below
Often biotech stocks can turn into a binary trade. You win big or lose big based on the company's clinical trials and success or failure with the FDA. SRPT is one such stock. Shares have seen some tremendous, gut-wrenching moves, both up and down, over the last couple of years.
If you're not familiar with SRPT they are a biotech stock (part of the healthcare sector). According to the company, "Sarepta Therapeutics is a biopharmaceutical company focused on the discovery and development of unique RNA-targeted therapeutics for the treatment of rare, infectious and other diseases. The Company is primarily focused on rapidly advancing the development of its potentially disease-modifying DMD drug candidates, including its lead DMD product candidate, eteplirsen, designed to skip exon 51. Sarepta is also developing therapeutics for the treatment of drug-resistant bacteria and infectious, rare and other human diseases."
SRPT does not have any products on the market, which is another reason they might be viewed as a binary trade. If they don't succeed with their Eteplirsen treatment for Duchenne Muscular Dystrophy (DMD) then its stock could collapse. DMD is a very rare disease. Only about 20,000 people a year are diagnosed with it in the U.S. It can be fatal by age 30.
SRPT made headlines on May 20th and the stock surged almost $10 with a +60% move to new eight-month highs. The reason behind the pop in the stock was the company's plan to submit a rolling New Drug Application (NDA) with the FDA for its Eteplirsen. This is a big deal. SRPT tried to get FDA approval to file an NDA back in 2013 but the regulators rejected their application saying they needed more data.
Now that SRPT can start the NDA process they should be able to meet with an advisory committee in the fourth quarter of this year, which could really generate a lot of volatility based on the committee's decision.
It's important to note that SRPT is facing competition from larger biotech firm BioMarin Pharmaceuticals (BMRN) who is working on a treatment for the same disease. If BMRN's treatment gets approved first it could send SRPT shares crashing.
Canaccord Genuity's analyst, Adam Walsh, issued an opinion on this SRPT news and multiple news outlets quoted him. According to Walsh,
"Looking forward, we see two potential catalysts to drive shares higher: 1) FDA acceptance of the NDA filing (60 days post-filing â€” est. late third quarter 2015); and 2) FDA announcement of Adcom to review the eteplirsen NDA. On the first, we fully expect FDA to accept the filing for review, given its blessing to submit the NDA. On the second, we believe an Adcom would allow for powerful testimony from DMD patients, parents, and advocacy groups in support of eteplirsen, which could sway committee members toward recommending approval. Thus, while we acknowledge that significant approval risks still remain, we would expect Sarepta shares to trend higher into an expected fourth quarter of 2015 Adcom."
The advisory panel is a major event for SRPT. One analyst suggested that if SRPT won approval their stock could shoot into the $40s. A different analysts said approval could launch SRPT's stock toward $100. Both said that another FDA rejection could send SRPT shares toward $10.
Part of the reason behind SRPT's big move in May was short covering. The most recent data listed short interest at 33% of the relatively small 35.8 million share float. Currently shares of SRPT are consolidating in a bullish pattern with resistance near $27.00-27.50. A breakout here could spark another wave of short covering.
There has been some speculation that SRPT is a buyout target although I did not see a lot of discussion about any potential suitors.
We are suggesting a trigger to launch small bullish positions at $27.65. We want to limit our position size because SRPT can be very volatile. I would consider this a higher-risk, more aggressive trade.
Trigger @ $27.65 *small positions to limit risk*
- Suggested Positions -
Buy SRPT stock @ $27.65
- (or for more adventurous traders, try this option) -
Buy the AUG $30 CALL (SRPT150821C30) current ask $2.75
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike