The truth about OSIP
OSI Pharmaceuticals is the latest example of the resurgence of Biotech mania.
Late last year, OSIP was trading for around $4-$5/share. Then Biotech mania took hold, as the entire sector shot up. OSIP was no expectation, hitting a high of over $30/share. When investors got tired of biotechs in March, OSIP and the rest of the industry came crashing back to earth.
Of course, bag holders, being who they are, refused to sell for a loss so it never gave back all its gains.
Then came June and the resurgence of biotech mania (although on a smaller scale this time). OSIP jumped from $10 to $15 in about a week's time. Then came the real pump as they were the beneficiaries of having news to release at exactly the right time.
OSIP shot up by as much as 85%, but was the rise really warranted. Let's examine the facts to see:
Before the spike, OSIP had a market cap of approximately 400M. Biotech companies with a comparable level of ongoing research and sales had market caps of 250-350M, so OSIP was somewhat over priced at that time.
But more to the point, what does the new drug add in value to OSIP...
The facts:
Phase II trials have not yet begun
Phase II trials will not begin for roughly 4 months
Phase II trials will last at least 6 months
Getting approval for Phase III trials is not a guarantee by any means.
If they do get approval for Phase III trials, there will be approximately 6 months in between Phase II and Phase III trials.
Phase III trials would last approximately 2 years.
Upon the completion of Phase III trials, there is no guarantee of FDA approval
That would put trial completion some time in 2003, which is in complete agreement with the company's stated plan.
Is a three-year-off maybe worth 200M to you?
So OSIP is clearly overvalued, but that doesn't mean it will not continue to rise. However, technical analysis shows that it is ready to fall.
MOM turned negative at approximately 9:45am. (sell signal)
MACD peaked out at approximately 10:45 and has been heading down since then.
WAD turned negative at the open. (sell signal)
OSIP gapped up and then finished below the open price. This is known as an exhaustion gap and leads to further declines about 95% of the time.
ISLD shows roughly 4 times more sellers than buyers (during the run up, buyers out numbered sellers).
Conclusion:
3 day downward potential - 16
3 day upward potential - 24
risk reward -6.75/+1.25 (selling is roughly 5.5 times a better bet than buying) |
