An Insider Trade To Trade Following A Crash

Who doesn’t like a good sale? Many times, we guess what the motivations are for insiders’ buys. However, when corporate executives buy their stock after a crash, it can usually be attributed to bargain hunting. That appears to be the case with Frequency Therapeutics, Inc. (FREQ).

Frequency Therapeutics, a clinical-stage biotechnology company, focuses on harnessing the body’s innate biology to repair or reverse damage caused by a range of degenerative diseases. Its Progenitor Cell Activation approach uses combinations of small molecules to activate progenitor cells within the body to create functional tissue. The company’s lead product candidate is FX-322, which is in Phase 2a clinical trial to treat the underlying cause of sensorineural hearing loss. It is also developing medicines for patients across a range of degenerative conditions, including multiple sclerosis, and diseases of the muscle, gastrointestinal tract, skin, and bone.

On March 23, 2021, the company announced, “topline, day-90 data from its FX-322 Phase 2a study (FX-322-202). The interim results show that four weekly injections in subjects with mild to moderately severe sensorineural hearing loss (SNHL) did not demonstrate improvements in hearing measures versus placebo.” (1)

Bad news and biotechs don’t go well together. FREQ closed at $36.29 on March 22, 2021. Wall Street straight up abused the stock on the bad Phase 2a news with shares closing at $7.99 on March 23, 2020. It’s almost like the Frequency Therapeutics team knew the unwelcomed news was coming as they couldn’t unload the stock fast enough. They sold millions and millions and millions of dollars of FREQ all through 2020 and into 2021. (2)

Quentin McCubbin, the Chief Manufacturing Officer (CMO), must have seen enough red on the tape and bought 10,000 shares at $8.85 on May 17, 2021. (3) His only other FREQ activity was a pair of option awards. The question, is McCubbin’s buy a one off or will others at Frequency Therapeutics follow?

Either way, the biotech could have more upside than downside potential in the next year. Wall Street analysts have a one-year price target of $16 (4); shares closed trading on May 21, 2020 at $8.54. On the downside, the 52-week low is $7.34.

Investors have to view a situation like Frequency Therapeutics more from a trading versus investing perspective. FREQ has recently been as high as $12.19 post-crash. That’s a potential upside of $3.34 from its current price level. The stock would have to lose $1.20 to reach its low. You need to give it some wiggle room; so, we’d consider cutting losses if FREQ closed below $7, or $1.54 lower than where is as we type.

Simple math says that’s potentially a 2 to 1 reward to risk ratio. But there could be a lot more upside than $12.19. If FRQ were to close above $12.19, there is zero resistance all the way back to its pre-crash prices close to $32, the low achieved on March 19, 2021.

Outlook: Right now, Frequency Therapeutics, Inc. (FREQ) is a straight up trade with a favorable reward to risk profile. Quentin McCubbin’s purchase could signal that he believes the worst is behind for the biotech. It would be encouraging if other insider buys followed considering how they hammered the stock prior to FREQ’s crash.

For now, speculative investors looking for swing trade opportunities in this volatile market might consider Frequency Therapeutics, Inc. (FREQ) for its possible favorable reward to risk profile outlined above.

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