There is nothing more resounding in the world of investing than the crash of a biotech stock. Instead of negative earnings reports, layoffs, downgrades and losing key executives, biotechs encounter FDA rejections, trials that don't meet expectations and dilutions of stock to keep up with the cash burn. Despite lots of promise to combat cancer, curb obesity, cure disease and advance medicine, these negative events surrounding biotechs can also create openings to get in on the action at bargain prices. Finding the right stock that can rise from the rubble of investor backlash is the key to this form of bargain hunting.
In December of 2011, a hopeful trial by BioSante Pharmaceuticals BPAX) and Antares Pharma Inc (ATRS) for LibiGel did not prove to be any better than a placebo in two big phase III efficacy trials. This caused the stock of BioSante to plunge over 75%, its biggest decline since 1999. So many experts considered BioSante's success to be a foregone conclusion (70-80% estimated probability of approval), but curing female sexual dsyfunction and hypoactive sexual desire disorder in post-menopausal women is much more complex than ED in men. BioSante is left with Elestrin for female menopausal symptoms, Testosterone gel for men, The Pill-Plus Androgen birth control and GVAX cancer vaccines, the last two still in development. The cupboard is not bare but will the cash last is always the big question. Look for trading volume to exceed 500,000 if you consider jumping in.
Celsion (CLSN) was an over-hyped investor darling during 2012 with shares going from $1.76 on May 18 to $9.35 on January 15th of 2013. The great crash down 6.51 points to $1.51 on the close of January 31st was all due to trial results on its lead drug candidate, Thermodox. Phase III trial results with Thermodox failed to show any worthwhile improvement in treating hepatocellular carcinoma (HCC). The problem now for Celsion is that its pipeline is closely tied to the success of Thermodox and its failure spells impending doom for three other studies underway that combine Thermodox with other drugs. There might be a few outsiders chasing the current Celsion valuation, but to the investors who lost around $230 million overnight it will not be easy to return. Look for a company with a more diverse pipeline or better cash position and look past the bargain basement price this stock currently maintains.
Oncothyreon (ONTY) is another crasher with shares dropping from $4.50 on December 18, 2012 to close at $2.19 the next day. Oncothyreon got hit with a phase III trial failure with non-small cell lung cancer drug Stimuvax. Stimuvax or L-BLP25 is in a phase III trial conducted by German pharmaceutical company Merck (MRK) KGaA which licensed Stimuvax representing Oncothyreon's only phase III pipeline candidate. The company still has PX-866, a small molecule PI-3K kinase inhibitor and two other potential candidates in ONT-10 for combating cancer and ONT-701 for pan-inhibition of the B-cell lymphoma-2 family of anti-apoptotic proteins. After the stock's great fall, the stock has had a high of $2.35 and a low of $1.84. The risk is still high, but look for this stock to make a move after clearing resistance at the $2 level.
Another investor darling was Amarin pharmaceuticals (AMRN) which was valued at over $12 a share at the start of December, only to plummet to $7.68 by the 27th. Most of the damage was due to an announcement about a $100 million financing deal that meant Amarin was going to try and market Vascepa on its own or prepare to get bought out. Vascepa is Amarin's lead drug candidate that helps lower the levels of triglycerides in a market that has an estimated 70 million adults with high levels of triglycerides. The hope was that Amarin would partner with a bigger company to help market Vascepa. Amarin's current market cap of $1.24 billion could be low with such promise. Amarin has more in the pipeline and despite the "book problems", the takeover possibilities can only be a plus.
BioCryst pharmaceuticals (BCRX) withdrew an Investigational New Drug application in late October of last year and the stock which was over $4 a share took just two weeks to drop to $1.46. Leading drug candidate, BCX5191 was considered to be dangerous if administered in high enough doses necessary to combat hepatitis C. BioCryst has since scrapped the trials for BCX5191 and will focus its attention on three other prospective candidates in its pipeline. This negative news coupled with a failed Presidio Pharmaceuticals merger and suspension of a government-funded flu trial has kept this stock at depressed levels. At $1.26 per share right now, BioCryst might be a stock to watch barring no further negative news.
Making a move to purchase a biotech stock at a low valuation comes with the great risk of the company calling it quits or the stock even experiencing further decline. When you pick the right one, the payoff can be great for those playing short or staying long. Any positive news can have any of these stocks shooting up, but keep an eye on Amarin to possibly have some changes sooner than later.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.