Small Biotech Name Hits Radar With Promising Hair Loss Play

Higher interest rates continue to drive two-tiered market action. The Roundhill Magnificent Seven ETF (MAGS) is trading up close to 1% as the big AI names are viewed as immune to interest rate issues and a safe place to park cash. On the other side of the trade, the iShares Russell 2000 ETF (IWM) is down about 0.4%, and overall market breadth is running poorly at around 37% positive. It is a feast for big-cap AI and famine for almost everything else.

The obvious play is to go with the flow. I’ve added to my position in SpaceX (SPCX), which is moving strongly out of a solid base. I think it has a good shot at strong momentum through the end of the year, and I’ll look for opportunities to ramp up my position.

I also continue to build a position in Amazon (AMZN). Amazon doesn’t have a great chart right now, but it has found support at $245 or so, and I’m looking for it to work higher into its next earnings report.

I ran quite a few scans looking for attractive technical setups in small stocks and found very little that I want to buy right now. There are some bottoms forming, but it is premature to put much cash to work in those names.

Hair Loss Play in Biotechnology

One interesting chart I found was Absci Corporation (ABSI), and it comes with a clear catalyst. Absci uses artificial intelligence to design antibody drugs, and its lead drug, ABS-201, is an injection for common hair loss that may only need to be given two or three times over six months. The first results showing whether it grows hair in people are due this quarter, and the stock has been climbing as that date approaches.

The standard treatments today for hair loss is a foam applied every day or a pill taken every day that has side effects. A shot a few times a year that regrows hair would be an attractive alternative.

The early evidence has been encouraging. In human scalp tissue samples, the drug activated the stem cells that drive hair growth, and it produced strong regrowth in monkeys. In people, the 32-participant Phase 1 safety study reported in June showed no serious adverse events. The drug also stays in the body long enough that half of it is still there after at least 65 days, which is what makes such infrequent dosing possible. What we don’t have yet is solid proof that it grows hair on a human head. That is the answer this quarter’s data will provide.

Second Use

Hair loss is a large market, but ABS-201 has a second large opportunity in endometriosis, a disease that affects about 9 million women in the U.S. and causes chronic pain. Absci says the hormone prolactin fuels the growth of the lesions and makes pain nerves more sensitive, so blocking it could address both problems at once. Current treatments work by suppressing estrogen, which limits how long women can stay on them. Management sees peak sales of more than $4 billion in endometriosis. That is a best case, and the mid-stage trial starting this quarter won’t report until the second half of 2027, so this part of the story is a long way off.

What the Market Is Paying for

Absci has a market cap of about $1.9 billion, and roughly $200 million of that is cash. That leaves investors valuing the drug pipeline at about $1.7 billion, which is well under half of what management thinks endometriosis alone could bring in each year at peak sales. That suggests the program is getting little credit at today’s price.

The balance sheet removes a common biotech worry. Eli Lilly (LLY) was among the buyers in a $100 million stock offering this summer, and the cash lasts into 2028, so there is no pressure to sell more stock at a bad time.

Chart and the Plan

After a decent run off its lows in late 2023 and early 2024, ABSI spent the next two years in a persistent downtrend, a channel of lower highs and lower lows. It broke above that descending resistance in April. Buyers followed through strongly over the next couple of months, and the stock began digesting those gains in July. Since then, it has been flagging, drifting in a tight range after turning lower from near-term resistance, and that pause could be building toward a test of clear resistance at $12.

This is a catalyst trade. Stocks like this tend to run up in anticipation of the data, which leaves them exposed to a sell-the-news reaction, where shares drop even on good results because the buying has already been done.

I bought some ABSI and will watch it closely for further positive price action before adding more.

At the time of publication, DePorre was long SPCX, AMZN and ABSI.