This High-Risk / High-Reward Stock Just Broke Out

We recently started a series called “Penny Stock of the Day”. These ideas are geared for traders with an extremely high risk appetite.

Our Penny Stock of the Day is chosen by screening for stocks under $5 and then applying technical analysis on the shortlisted set of penny stocks showing unusual volume. When making these trades, please make sure to pay vigilant attention to pricing moves and have a strict stop loss in place to avoid significant losses.

Penny Stock of the Day: Lexicon Pharmaceuticals, Inc. (NASDAQ: LXRX)

Today’s penny stock pick is the biopharmaceutical company, Lexicon Pharmaceuticals, Inc. (NASDAQ: LXRX).

Lexicon Pharmaceuticals, Inc. focuses on the discovery, development, and commercialization of pharmaceutical products.

Its drugs candidates include XERMELO (telotristat ethyl), an orally-delivered small molecule drug, in the United States for the treatment of carcinoid syndrome diarrhea in combination with somatostatin analog, or SSA, therapy in adults inadequately controlled by SSA therapy; Zynquista (sotagliflozin), an orally-delivered small molecule drug candidate, as a treatment for type 1 diabetes; sotagliflozin as a treatment for type 2 diabetes, heart failure, and chronic kidney disease; and LX9211, an orally-delivered small molecule drug candidate, as a treatment for neuropathic pain.

The company has a strategic collaboration and license agreements with Bristol-Myers Squibb Company, and Genentech, Inc.

Website:  www.lexpharma.com

Latest 10-k report:  https://sec.report/Document/0001062822-21-000013/

Analyst Consensus: According to TipRanks analytics, LXRX has an average rating of Hold, based on one Wall Street analysts offering ratings in the last 3 months. The analyst did not set any price target for LXRX.

Potential Catalysts / Reasons for the Hype:

• The news about 37% reduction with sotagliflozin from LXRX. This is a significant improvement compared to the latest data from Eli Lily’s Jardiance. The full results from the landmark EMPEROR-Preserved phase III trial demonstrated that Jardiance® (empagliflozin) showed a 21% relative risk reduction. In comparison, pooling data from 11,784 patients in SOLOIST-WHF and SCORED, the primary endpoint of cardiovascular (CV) death, heart failure (HF) hospitalization, and urgent HF visits was reduced 28% with sotagliflozin (HR 0.72; 95% CI 0.63-0.82). In the 739 patients with HFpEF, the reduction in the primary endpoint was 37% (HR 0.63; 95% CI 0.45-0.89).
• Upcoming LX9211 P2 Trials (RELIEF-DPN-1 and RELIEF-PHN1) results.
• News that a potential NDA will be seeking approval for sotagliflozin as a treatment to reduce the risk of cardiovascular death, hospitalization for heart failure, and urgent visits for heart failure in type II diabetes patients with either worsening heart failure or additional risk factors for heart failure.
• FDA allowing an additional hearing on SOTA for Type 1 Diabetics.

On analyzing the company’s stock charts, there seem to be multiple bullish indications…

Bullish Indications

#1 Downtrend Channel Breakout: The daily chart shows that the stock has broken out of a downtrend channel, which is shown as purple color lines. This is a possible bullish indication.

#2 Bullish ADX and DI: The ADX indicator shows bullishness as the +DI line and the ADX line are above the -DI line, and the ADX line has started to move higher from below the +DI and -DI lines.

#3 Price above MA: The stock is currently above its 50-day SMA, indicating that the bulls are currently in control.

#4 MACD above Signal Line: In the daily chart, the MACD (light blue color) is currently above the MACD signal line (orange color). This indicates a possible bullish setup.

#5 Bullish Stoch: The %K line is above the %D line of the stochastic in the daily chart, indicating possible bullishness.

#6 Above Support Area: The weekly chart shows that the stock is moving higher after taking support near a long-term support area. This is marked as a pink color dotted line. An upmove from this area looks like a bullish sign.

#7 Bullish Stoch: The weekly chart also shows that the %K line of the stochastic is currently above the %D line, and is also moving higher from oversold levels. This is a possible bullish setup.

Recommended Trade (based on the charts)

Buy Levels: If you want to get in on this trade, the ideal buy level for LXRX is above the price of $5.10.

Target Prices: Our first target price is $6.50. If it closes above that level, the second target price is $7.50.

Stop Loss: To limit risk, place a stop loss at $4.30. Note that the stop loss is on a closing basis.

Our target potential upside is 28% to 47%.

For a risk of $0.80, our first target reward is $1.40, and the second target reward is $2.40. This is a nearly 1:2 and 1:3 risk-reward trade.

In other words, this trade offers 2x to 3x more potential upside than downside.

Potential Risks / Red Flags:

1. The company has incurred net losses in each year since its inception and has an aggregate net loss of $49.0 million for the three years ended December 31, 2020. As of December 31, 2020, LXRX has an accumulated deficit of $1.4 billion.
   

   LXRX – Annual Report – Net Loss

2. The company has ongoing legal proceedings. On January 28, 2019, a purported securities class action complaint captioned Daniel Manopla v. Lexicon Pharmaceuticals, Inc., Lonnel Coats, Jeffrey L. Wade, and Pablo Lapuerta, M.D. was filed against LXRX in the U.S. District Court for the Southern District of Texas, Houston Division. The complaint alleges that the company violated federal securities laws by making materially false and misleading statements and/or omissions concerning data from our Phase 3 clinical trials of sotagliflozin in type 1 diabetes patients and the prospects of FDA approval of sotagliflozin for the treatment of type 1 diabetes.
3. Despite being a loss-making company, the company executives are being paid significant compensation.
   

   LXRX – Executive Compensation

4. Lexicon’s Sotagliflozin (Zynquista™), an oral dual inhibitor sodium-glucose co-transporter types 1 and 2 (SGLT1 and SGLT2), known to promote glucose regulation and intended for the treatment of Type I diabetes, was rejected by the FDA in 2019. Since the rejection was done owing to concerns about the drug’s safety, as late-stage clinical data showed an eight-fold increase in the risk of diabetic ketoacidosis, it may be difficult to get approval again. Another FDA rejection could cause the stock price to have a significant decline.
5. Sanofi (NASDAQ: SNY) had terminated the partnership with LXRX following the results from the late-stage studies testing Zynquista in patients with type 2 diabetes.

As you can see, today’s featured penny stock offers big upside potential… but it also comes with a number of risks and red flags. As always, when dealing with penny stocks, we advise caution before entering into such high-risk ventures. Remember to think before you trade… understand the risks… and if you decide to trade, stick to your stop-losses!

Happy Trading!

Trades of the Day Research Team

READ BEFORE TRADING PENNY STOCKS: The allure of penny stocks lies in their potential to deliver massive gains in a short period of time. However, in exchange for that opportunity, most penny stocks carry tremendous risk. They can be extremely volatile and are susceptible to “pump and dump” schemes and fraud.

Unlike regular stocks, the financial condition of most penny stock companies can be extremely difficult to analyze, as the majority of such stocks are traded on over-the-counter (OTC) exchanges, which are typically less transparent and less regulated than the major exchanges. In fact, in the penny stock space, it’s often easier to spot warning signs and red flags than it is to identify a sound investment. Nevertheless, we do our best to identify short-term trade opportunities in this exciting space because we know some of our readers are looking for high-risk, high-reward ideas. We just urge you to make sure you fully understand the risks before making any of these trades.

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