A lot of investors always make the same mistake with initial public offerings (IPOs). They get caught up in the media buzz and buy on the first day, cautions Michael Brush, a specialist in insider trading and editor of Brush Up on Stocks.
This is a bad move because most IPOs — even wildly successful companies like Facebook (FB) — turn into “busted IPOs” sooner or later, meaning they trade below their offering price. That’s the time to buy.
Consider the biotech name Design Therapeutics (DSGN). It came public in March, 2021 at $20 and traded up to $40-$50 range right away. It got a lot of attention because it’s in the popular genomic medicine space.
By July-November it was a decidedly busted IPO — trading well below $20 for months. That was the time to pick it up. I suggested Design Therapeutics in my stock letter on October 20, 2021 at $14.25. By the end of the year, we were up 50%. But the stock is still a buy because key catalysts have not even kicked in yet, and it checks the boxes in the biotech model I use in my stock letter. Let’s take a look, starting with a little background.
The company has a proprietary platform that helps it design therapeutic candidates for inherited diseases driven a specific type of DNA problem called nucleotide repeat expansion, which creates lots of excess repeats in mutant genes. This is the underlying cause of more than 40 debilitating diseases impacting millions of people.
The company’s proposed fix: Targeted chimeras (GeneTACs). GeneTACs bind to genetic repeat sequences and tweak gene expression to improve cellular health. Currently, there are no therapies that address the cause of any nucleotide repeat expansion diseases.
Design Therapeutics will take a big step toward changing that when it launches trials on a therapy for one called Friedreich ataxia in the first half of 2022. That will be a big catalyst. Next, the company is working to expand its pipeline into other therapies that handle unmet medical needs like Huntington disease, spinobulbar muscular atrophy, familial amyotrophic lateral sclerosis, frontotemporal dementia, and Fragile X syndrome.
The company may also post updates on its early research on a therapy for another genetic disorder called myotonic dystrophy type-1 (DM1). And we may learn of strategic collaborations which will bring in funds, provide outside verification of the GeneTAC platform, and draw investor attention if a big pharma name is involved.
Finally, improved biotech will help this stock. I believe biotech sentiment can pick up (it can’t get much worse) driven by M&A news, and the retreat of Covid-19 as an issue as less virulent variants like Omicron continue to dominate. Covid-19 has hurt biotech because it trimmed with sales travel.
It’s also hindered enrollment in trials because of patient reluctance to go into hospitals and testing sites for experimental therapies. As these issues fade, it should create more investor interest in promising biotech names like Design Therapeutics.
