Aug 27, 2010 10:04 AM PDT
Here's a quick look at the trends and companies biotech investors need to know about, and what biotech's 'on' switch has actually triggered.
Swine Flu
A couple of days after the swine flu breakout reached alarming levels, I published an op-ed piece explaining that jumping into a stock of a company that might be able to offer a swine flu treatment was a mistake.
Sure enough, Novavax (NVAX). BioCryst (BCRX), and Generex Biotech. (GNBT) - each of which surged the Monday following the weekend in which the swine flu outbreak surged - were all cut in half less than a week later. Translation? Most 'chasers' lost money making those bets.
That's not to say any of those companies can't or won't come up with a swine flu therapy, but none of them have yet.
The message? Though all stocks are inherently speculative - biotech in particular - it's way too easy to get caught up in the hype without ever asking whether or not a company's technology will ever make it to the market. Unfortunately, biotech can't be rushed, even though traders acted as if it could.
Just for the record, Sinovac Biotech (SVA) ended up winning the initial sprint race in terms of cranking out a reasonably effective swine flu treatment in worthwhile quantities. And, SVA shares - which didn't fully participate in the April 27th rally - have actually been one of the most rewarding stocks following the initial swine flu frenzy.
And what about effective fixes for the long haul? (We're not sure just how effective Sinovac's H1N1 vaccine will be.)
CEL-SCI Corp. (CVM) may ring a bell with you, as we've been following the company for years. The company's Phase III cancer treatment Multikine looks incredibly promising, so much so, that we'd forgotten about the company's LEAPS technology.... until the stock surged 77% on Friday following a presentation that highlighted how CEL-SCI's LEAPS (Ligand Epitope Antigen Presentation System) research also had implications in the fight against swine flu.
Bigger picture, now that the dust has settled from swine flu hysteria, we think it's safe to shopping...smartly. Swine flu should be one of the bigger biotech themes for the remainder of 2009, but there's no overnight fix.
Immune Therapy
We covered the bullish aftermath of this year's ASCO (America Society of Clinical Oncology) conference over the last couple of weeks, so we don't need to go into all the details again. However, a couple of things do need to be touched up.
About a month ago, Dendreon's prostate cancer made some waves in the biotech world, not so much because it was effective, but because it was an immune therapy.... a kind of vaccine treatment that induces a patient's own immune to fight cancerous cells on its own, rather than rely on a specific drug to do the work.
It was the first immune therapy treatment to clinically show an improvement over the alternatives, but it's hardly the only immune therapy project in the works.
A couple of weeks later - at this year's ASCO conference - we heard about Biovest International's (BVTI) cancer vaccine, Advaxis' (ADXS) cancer vaccine, and Generex Biotechnology's (GNBT) cancer vaccine, each of which was at various R&D stages.
Each of those stocks surged following the ASCO conference, rooted in the idea that immune therapy had finally been proven enough to become a mainstream treatment.
However, those stocks largely surged not based on the quality or efficacy of their drug, but because - you guessed it - they were present at the ASCO event.
The thing is, there are plenty of other cancer immune therapy R&D organizations out there. Many of them publicly-traded, and some of them a lot further down the development road than many of the companies getting lots of attention of late.
Though it's not the only example, CEL-SCI (yes, the same CEL-SCI working on a novel swine flu treatment) is actually prepping for Phase III trials for its head-and-neck cancer treatment Multikine. And, the results so far look fantastic.
There are others too, but none we're as familiar with as CEL-SCI (which we've been following for years).
The Litmus Test - Deal Making
With Johnson & Johnson's (JNJ) recent acquisition of Cougar Biotechnology (CGRB), I think it's reasonable to assume biotech mergers and acquisitions are coming back into vogue. I also think it's a sign of internal confidence regarding the future.
What's interesting about JNJ's purchase of Cougar is that they bought the company to get their hands on a prostate cancer drug that's not even been approved yet.
Then, just a few days later, Sanofi-Aventis teamed up with Exelixis to bring Exelixis' early-trial cancer drug into the fold.
Two unproven and/or unapproved cancer drugs purchased for what will end up likely being more than a couple billion dollars?
Though I don't think a potential acquisition alone is enough of a reason to bet on a company, I think it can once again safely be added to a list of decent reasons to own a biotech stock.
Bottom Line
Just to wrap up, I think there are going to be three big biotech themes that will keep the rally in motion plenty long enough to take advantage of.
- 1. Realistic and effective swine flu treatments
- 2. Immune therapy, now that it's been legitimized
- 3. The resurgence of M&A within the industry, specifically in the cancer arena
So far this year, the only industry trends I've cared to follow have been the strength in metals and miners, and the weakness of educational stocks. As of today, I'm adding biotech to my short list of 'bigger picture' bullish themes.
Look for more detailed coverage going forward, but in the meantime I also suggest you start looking for the undercovered companies that are aligned with these three themes.
Commentary and insight are great, but let's face it - they're irrelevant without specific, actionable ideas that take advantage of the information. If you want to turn these bigger-picture biotech themes into stock picks, complete with entries and exits, then sign up for our free e-newsletter. Just see the top of this web page.
