Trading FDA, Clinical Trial Binary Events: $ABT $CXM $AIS $ARNA $OREX $VVUS $BDSI

A common strategy used by many investors is to buy a basket of several small or micro-cap companies (generally less than $1 billion market cap stocks) with pending binary events (e.g. FDA decision or clinical trial results) approximately 3-6 months ahead of the expected catalyst date and sell into the expected upward momentum in both stock price and trading volume.

The goal of this bio run-up strategy is to greatly reduce the risk of investment losses by taking profits ahead of the binary event by capitalizing on the expected increase in both stock price and volume as more short-term momentum and day traders become active, which typically occurs at about 2-3 weeks out from the catalyst date and results in extreme price volatility and intraday swings. Click on the preceding link for a website describing this strategy in greater detail and click here for a link to a YouTube video at my website outlining the same.

1.) Long-Term Hold, Get Paid to Wait: Abbott Labs (NYSE:ABT) ($47.56, $73.4 billion (B) market cap)

Some other financial and stock metrics for ABT include a 3.7% dividend yield, 52-week range of $43.45-56.79, trailing 12-month price to earnings (P/E) ratio of 14X, 1Q10 total sales = $7.7B (43% US, 57% rest-of-world) with 53% derived from pharmaceutical segment, 17% from nutrition, 12% from diagnostics and 10% from vascular / stents.

ABT derives the majority of its revenues from the pharmaceutical segment with key growth drivers that include niche products such as NIASPAN (cardiovascular / lipid disorders), biological agents such as HUMIRA, and recent collaborations / acquisitions focused on generic drugs in emerging markets such as India. ABT derives approximately 20% of its pharmaceutical sales (or about 10% of total sales) from emerging markets; so the recently announced Zydus collaboration and Piramal acquisition will leverage its established infrastructure in markets such as India with estimated 20% annual sales growth projected by ABT in that country.

ABT can be viewed as a proxy for the global healthcare sector, with the majority of its revenue derived from outside of the US, in addition to a diversified portfolio of business segments that that also include nutrition, diagnostics, and vascular disease/ stents. With ABT trading within 10% of its 52-week low, the Company’s dividend yield represents a 1.1% premium to the S&P 500 Index ETF (exchange-traded fund) (NYSE:SPY), which currently yields 2.6%.

Aside from the recent deals in key emerging markets such as India, ABT has several pending FDA decisions estimated to occur during late 3Q10 to early 4Q10, with no firm decision deadlines for medical devices / diagnostics.

ABT submitted a Pre-Market Approval (PMA) in January 2010 for the Architect HIV Ag/Ab Combo Assay (Diagnostic) to simultaneously detect the combined presence of HIV antigens (Ag) (proteins produced by the HIV virus) and antibodies (Ab) (proteins against HIV antigens).

In addition, ABT has submitted a pair of FDA 510(k)s, seeking marketing clearance for the Architect HE4 (human epididymis protein 4) (new automated diagnostic test for ovarian cancer based on immunoassay technology to detect know bio-markers) and the Urine NGAL (neutrophil gelatinase-associated lipocalin is an early bio-marker for acute kidney injury) Assay for use with ARCHITECT System