Cyclacel Pharmaceuticals Inc (CYCC): Don’t Believe the Hype

Cyclacel Pharmaceuticals Inc (NASDAQ:CYCC) hasn’t exactly had a bad year — CYCC stock was up 15.5% for the year through Friday. That’s plenty enough to celebrate considering the iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB) was off 14.2% during the same time.

Cyclacel Pharmaceuticals Inc: Don't Believe the CYCC Stock HypeHowever, those who left the party early might as well have never came at all, as Cyclacel stock is now up 50% for the year … but those who extend their stay may soon wish they cut out earlier.

Here’s why.

Today’s near-40% gain comes after Tang Capital Partners revealed a 9.6% stake in CYCC after the close Friday.

Important to note: Securities and Exchange Commission form 13G is a mandatory filing for passive owners of between 5% and 20% of a company, and it does not preempt a buyout or other major management change. Rather, the gains in CYCC stock are due to investors following the trail of breadcrumbs laid by Tang’s sizable stake.

Caution Is Needed With CYCC

Kevin Tang, the managing director of Tang Capital Management (a general partner of Tang Capital Partners), has bet big on small, unprofitable biotechs before. Back on September 14, 2015, Tang ordered 80,000 shares of a company he presided over as chairman — La Jolla Pharmaceuticals Company (NASDAQ:LJPC). Initially a bullish event, LJPC has since lost 53% in value.

Like La Jolla, CYCC stock is hampered with massive expectations as the 12-month price target sits at $60 a share. To get there, Cyclacel stock will have to gain some 530%. 

Back when Tang poured more of his money into LJPC stock at $38 per share, some analysts were expecting shares to top $43.58. It’s trading around $19 a year later, and its price target is still a hopeful $40.

That said, take Tang’s investment and the $60 price target with a grain of salt. There’s just a single analyst covering CYCC stock (with a “buy” rating, naturally) and the Relative Strength Index is veering into overbought territory as shares heat up way above their 20- and 50-day moving averages.

I’d wait until shares cool off while keeping an eye on the trials of its acute myeloid leukemia treatment, sapacitabine, before diving into this risky biotech.

As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.

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