Investing in biotech is different than investing in other sectors. Some hedge funds employ PhDs in biochemistry but still get it wrong as much as they get it right. How drugs/compounds actually do in actual trials is next to impossible to predict consistently. Anyone that says differently is selling something.
The sector calls for a different investing strategy. My philosophy is to take much smaller positions in a larger amount of selections than in other sectors. One must realize that there will be many misses within the biotech portion of your portfolio. However, this should be compensated for by the occasional five or ten bagger.
Here is an update on a couple of intriguing biotech plays I last highlighted in September that fit well into this investment approach that I call "Shotgun Investing".
Geron Corporation (GERN) is a biopharmaceutical company that develops biopharmaceuticals for the treatment of cancer and chronic degenerative diseases, including spinal cord injury, heart failure, and diabetes. I have been a bull on this stock for almost two years. Geron has gained over 150% in that time span.
It seems a good time to revisit Geron as the company just did an investor presentation on its compound imetelstat as well as released peer review data on its use for the treatment of myelofibrosis. Analysts are very impressed with the update and the shares are trading much higher in pre-market trading.
Needham upgraded the shares to "Buy" from "Hold" and slapped a $10 price target on the stock, ~80% above current price levels after these events. Needham's analyst cites imetelstat's " blockbuster potential as the first treatment with the potential to induce treatment response in myelofibrosis" as main driver of the upgrade. Piper Jaffray also had positive comments after the presentation and data.
I would look for further upgrades on Geron in the coming weeks. The stock is still a speculative play as it will generate little revenue until some compounds in development are approved. However, imetelstat has the potential to be a blockbuster and Geron could also generate acquisition interest from a larger player in biotech.
Navidea Biopharmaceuticals (NAVB) is a biopharmaceutical company, and focuses on the development and commercialization of precision diagnostics and radiopharmaceutical agents. Navidea has not seen the same stock performance as Geron but some positive catalysts are aligning that could boost the shares.
The company just received fast track approval for its compound Lymphoseek. This compound seeks to treat head and neck cancer. Insiders seem to believe in the long term potential of the company as they have been small but very frequent buyers of the stock all through 2013.
The shares trade for ~half of the mean price target of over ~$4 a share that the seven analysts that currently follow the company have on NAVB. In addition, Navidea should have sales of just under $10mm in FY2014 which would be an over 400% over this fiscal year.