As we watch shares of Amarin (NASDAQ:AMRN) slip down to the $7 mark and investors contemplate whether it's time to buy or whether it's worth waiting for an even more significant slide, it might be worth taking the opportunity to point out a few key factors about the biotech sector a whole, as they relate to Amarin.
It doesn't take long for investors of the sector to realize that it's one full of uncertainty and volatility, but also one that can return huge gains in a short period of time.
Case-in-point is AMRN's rise from a mere buck and a quarter over the past 12 months, reaching highs in the nine dollar range before slipping to the current seven dollar level.
On the flip side, however, while the opportunities often arise to realize very significant price gains, this sector can also make those gains disappear in the blink of an eye.
Additionally, the huge percentage spikes and dips are not always attributed to news relating to a company itself. Often times outside factors, or opinions by mass-media outlets, can effect the performance of a stock, so a biotech investor ends up having to have the finger on the buy/sell trigger each and every day.
Sure, there's something to be said for buying and holding through the entire developmental phase of a drug's progression to be along for the ride if it pays off; those who held through the Provenge story ended up very well rewarded, but since the statistics say that most experimental drugs do not ever make it to market, another approach may be more prudent.
The smart play, in my opinion, is to use the common sense approach and have a handful of trading shares on hand to sell into any significant spikes should they materialize, and Amarin is a perfect example why.
The biotech investor often waits years for a return, following the progress of a developmental drug every step of the way. Along that way, it's only prudent for an investor to reward his or her own patience pull some profits from the table should the opportunity present itself.
The late-2010 spike in the AMRN share price came on early and positive results of the AMR-101 Phase III MARINE trial which identified the product as a "first in class" treatment for high triglycerides. That news was followed up with an update that another ongoing trial for AMR-101 would also be completed ahead of schedule.
While there is still no certainty that the product will ever make it to market because it still must get through the FDA approval process, although the approval chances look pretty good right now, the price nearly reached ten dollars in anticipation.
The "buy and hold" investor will sit through the spike while waiting for potentially higher gains after the final outcome of the AMR-101 approval process, but the investor choosing to sell a few trading shares into that large spike is effectively taking out insurance - and covering any potential losses - by taking advantage of the trading shares, even though the whole story still might not be over.
Amarin is a case-in-point that the rising biotech stock is often set up for a quick decline before a potential rebound will be in order. Shorts are just as much as a part of this market as the longs, and that fact alone should keep investors of a volatile market grasping onto those trading shares.
Dendreon experienced spikes and dips more extreme than the Cyclone on Coney Island before finally settling in the $30 range. Titan, after a slew of bad news a few years ago, actually became a true penny stock before rebounding along with Vanda when Vanda's schizophrenia drug Fanapt finally garnered FDA approval.
BioDelivery Sciences (NASDAQ:BDSI) is another one in the sector that demonstrates the volatility of the sector. Shares of BDSI reached the eight dollar mark before the approval of Onsolis, only to quickly slide after the positive FDA outcome.
That stock has still not yet recovered.
Mannkind (NASDAQ:MNKD) is another one that's been plagued by less-than-stellar news, lawsuits and FDA delays, but the recent downturn in the MNKD share price could easily be reversed with the right news event, although it will most likely take the near-completion of additional trials for that to occur.
And let's not leave out Human Genome Sciences (HGSI), a stock now trading for nearly thirty bucks after having traded for under a dollar not too long ago.
What does it all mean? The biotech investor needs to be on his or her game at all times.
Sure it's nice to follow a story and stick around until fruition, but don't forget to reward yourself with a little profit should the opportunity present itself.
The volatility in the sector rules the day, especially when the global markets are so influenced by foreign events.
Amarin may slide some more as investors await additional news, as many believe that most of the positives are already priced in, but don't forget that many of the slides in the sector offer patient investors the opportunity to buy back in, reload, and wait for the next major news event.
Such is the volatility of the biotech sector.
Disclosure: I am long TTNP.OB, BDSI.