Trading undervalued pharma stocks with upcoming catalyst events and low outstanding shares can be very enticing to traders and lead to massive profits. Some stocks experience tremendous breakouts, sometimes in a 'blink of an eye.' To illustrate an example, back in 2009, when Somaxon, Inc. was a public traded company seeking regulatory approval for its insomnia (Silenor) drug, it was trading under $2 dollars, and it reached levels of over $4 within a week of trading. That scenario repeated itself several times in 2009, until it went over $10 after receiving approval. At the time, Somaxon was trading with a float of just under 23M and heading into key catalyst events.
In the past weeks this other small cap company has gained a lot of attention and interest. Venaxis, Inc. (APPY), with a float even smaller than that of Somaxon in its respective time, may find itself in a similar scenario. The company is expected to present FDA pivotal trial results in early fourth quarter for APPY 1 Test, a rapid, protein biomarker-based assay for identifying patients at low risk for appendicitis, and potentially submit a New Drug Application (NDA) to the FDA thereafter. Venaxis is an in vitro diagnostic company focused on the clinical development and commercialization of its CE Marked APPY1 Test, the Company's rapid, protein biomarker-based assay for appendicitis. The APPY1 Test is being developed initially for pediatric, adolescent and young adult patients with abdominal pain, as this population is at the highest risk for appendicitis and has the highest risk of long-term health effects associated with CT imaging.
A recent article published this week in a scientific journal concluded that reducing unnecessary CT scans in favor of other imaging or non-imaging approaches, if proven through research to be as effective, combined with effective radiation dose-reduction strategies, could dramatically reduce the number of radiation-induced cancers. In relation to the article’s finding, the President and CEO of Venaxis, commented that "[t]he findings of this large observational study are aligned with our focus - developing a blood-based APPY1 Test to aid physicians in identifying patients at low risk for acute appendicitis. We applaud the authors of the study for reporting these findings and for highlighting the urgent need for research to determine when the use of CT scans leads to improved health outcomes and when other imaging and non-imaging diagnostic techniques could be as effective. The APPY1 Test is designed to provide rapid, objective results and has demonstrated high negative predictive value for appendicitis in clinical studies. Venaxis' goal with the APPY1 Test is to provide physicians with an additional tool that may allow for more conservative patient management, including reducing the number of CT scans."
At this point, APPY shares are undervalued with 52 weeks low of $1.15 and 52 weeks high of $3.96. In yesterday's trading session, the price approached and met with a resistance point at $1.35 with volume surpassing the 50 day average daily volume. The charts continue to yield a bullish pattern where this resistance level may be taken out easily, and if broken, the share price may be in route to a major breakout level. More importantly, APPY is potentially forming a bottoming chart pattern that may be complete soon and signal the new uptrend direction.
Trading breakouts is a technique widely used on Wall Street. This strategy has been used by pro traders and they know that once a stock starts to break out above past resistance levels, and hold above those breakout prices, then it can easily trend significantly higher. Look for a sustained move or close above $1.42, the breakout level, with volume that registers near or above 50 day average daily volume of 700K shares. If that level is broken soon, it may be quickly setting up to trigger a major breakout trade above $1.77 to $2.12 a share.
Disclaimer: Readers are encouraged to do their own due diligence. Trading in securities is speculative and carries risks. Author had no positions in stocks mentioned at the time of publication but may initiate a position over the next 72 hours. This information is not to be construed as an offer to buy or sell any security. The author disclaims all liability whatsoever with regard to this information’s accuracy or completeness.