Investors who have been around Wall Street long enough may remember the biotech bubble of the 1980s fuelled by the approval of a number of blockbuster drugs, including Amgen's (AMGN) Epogen and Aranesp anemia drugs. Unfortunately, not every biotech corporation had Amgen's success, most failed, turning investors away.
In recent years, several biotech companies have brought to market new drugs, luring investors back to the sector. The problem, however, is that picking the next winner is quite tricky, and any choice is highly speculative. That's why investors should spread their bets in several stocks.
Here we follow-up on three stocks we brought to the attention of investors back in March of 2012, Affymax and Acadia, which recommended as buys, and Dendreon, which we recommended as a sell.
Price as of 3/29/12
Price as of 1/11/13
Affymax, Inc., (AFFY). The company received FDA approval for its anemia drug OMONTYS, which is co-marketed with Takeda Pharmaceutical Company. This is a large market, as most people on dialysis eventually develop anemia. In essence, OMONTYS puts an end to Amgen's Epogen and Aranesp drugs.
The catalyst: A supply agreement for OMONTYS® (peginesatide) Injection with DSI Renal, one of the largest dialysis providers in the United States (US). This means that the drug begins to gain broad market acceptance.
Acadia Pharmaceuticals (ACAD). The company develops drugs for rare but devastating diseases like Parkinson's and glaucoma. Specifically, pimavanserin is in Phase III clinical development as a treatment for Parkinson's disease psychosis, AGN-XX/YY is in Phase III for chronic pain; and AC-262271 is in Phase I for glaucoma in collaboration with Allergan (AGN).
The catalyst: Promising data from phase 3 testing for its flagship product pimavanserin for the treatment of Parkinson's disease psychosis.
Dendreon (DNDN). Dendreon develops, manufactures and sells cancer drugs. One of the company's products, which have received FDA approval is Provenge, for the treatment of metastatic prostate cancer.
The problem, however, is that the drug is too expensive and its benefits too limited to accept broadly. That's why the company's performance, especially its revenues, has failed to stand up to analysts' expectations. The stock has been on a rough ride, trading in the low $40s two years ago when it received FDA approval, then down to the low single digits.
The catalyst: Dendreon sees a stronger growth of its flagship drug Provenge. On Friday, Sanford C. Bernstein upgraded Dendreon, raising its price target to $10 from $7. The market for prostate drugs is huge, and all the negative news may already be reflected in the price.
A few words of caution: Investing in speculative stocks (usually smaller stocks with higher betas) is always a risky venture for aggressive investors only. But with high risk comes high reward, especially when the timing is right.