When it comes to speculation, there is no riskier asset than the biomedical and health care stocks. The volatility that can occur for investors/traders can really be a breathtaking and nerve wracking experience. The risk/reward levels are also exaggerated beyond what is normal for most equities. These are the kinds of stocks that deliver outlandish returns or devastating losses. The volatility usually revolves around a set of singular events that in themselves can set the tone and signal if a company is going to be successful or destined for much tougher times. Prime examples of such events are FDA rulings, a surprise secondary, failed clinical tests, lawsuits, takeovers, buyouts and reverse splits.
The question is how to invest with speculative stocks. There are several schools of thought, but one that seems most conservative is the diversification approach. Instead of buying just one stock, people will buy a basket of them to spread the risk. The thought process being that a few big winners will more than cover the cost of the losers and leave enough left over to juice your returns. Listed below are some equities that have that risk/reward level that offer the investor a decent chance for success and what catalysts to look for.
Antares Pharma (AIS): A small pharmaceutical company that focuses on self injection technologies and topical gel-based products. While the injection technology is fair well established it is the gel based product Anturol, for overactive bladders, which is the immediate catalyst. With 33 million adults in the United States suffering from overactive bladders, and a market which exceeds $1.8 billion, a FDA nod for the company to market the product would bring what is needed to move the stock from its current price. Look for the FDA to rule in early December 2011.
Geron (GERN): If one thinks stem cell medicine is the future then Geron is your choice. They are one of two companies, Advanced Cell Technology (ACTC.OB) being the other, that have FDA approval to complete clinical testing. Geron’s catalyst is the high profile spinal cord injury trials that are being conducted. Initial Phase I test results on the first patient were recently released and showed that safety and tolerability of the tests were well within the acceptable ranges. It basically boils down to see if the company can truly treat a spinal cord injury to a point where injuries are cured or at least partial addresses. Final results are still far out in the future but any positive near term results would make this stock a monster.
Keryx (KERX): Keryx has two products (Perifosine and Zerenex) that are being developed. Perifosine which is an oral anti-cancer drug which has shown good test results so far. KERX has the rights to promote Perifosine in the U.S., Canada, and Mexico. The drug will be used to treat advanced colorectal cancer and multiple myelomas. Zerenex is used to treat end stage renal disease. Both drugs have Phase 3 studies underway but we will not know the results for some time. The markets for these two products are very robust and if FDA accepts their use, KERX should have an explosive growth potential for the stock price.
Dendreon (DNDN): Even though DNDN has already had its major move in the past, I still consider the stock speculative based upon upcoming FDA decisions. Provenge, their prostate cancer drug, is generating good revenue numbers and DNDN is seeking FDA approval to expand the manufacturing capacity to a new facility in California. Dendreon is expecting to hear the FDA’s decision by late June 2011. Another manufacturing facility is also under construction in Georgia and we should hear from the FDA on their approval sometime in the late summer to early fall. If DNDN can get all these new plants up and online, the revenue they will generate should move the stock price to new heights.
Spectrum Pharmaceuticals (SPPI): Spectrum is currently firing on all cylinders and executing their business plan nicely. They posted a healthy net income for the first quarter and look to continue to do so depending on a few upcoming events. One event is the upcoming November FDA decision regarding their drug Zevalin. A positive decision by the FDA to shed the bioscan requirement during treatment might be just the ticket to get the ball rolling again for sales of the drug. Currently sales for Zevalin remain stagnant and show little improvement. The second event deals with their drug Fusilev which is currently filling the void left by a plant closure run by Teva (TEVA). Specualtion as to whether Teva will even restart production will have a dramatic effect on the price per share. Needless to say, the possibility exists that Teva could just end up acquiring SPPI at a much higher price than where it sits at now.
BioCryst Pharmaceuticals (BCRX): BCRX is one of the more interesting speculative stocks in the bunch. The main problem was the company and its drug, Peramivir, were thrust into the limelight during the influenza scare. Peramivir was approved for emergency use and the stock price appreciated at a rapid pace. Fortunately the predicted influenza epidemic never took hold but investors took a loss as the hype and stock price quickly faded. Today, final testing on Peramivir is still occurring. Initial results show the drug is very promising and has already been adopted for use overseas. Couple that with a new promising Gout drug, BCX4208, and BCRX might just find its footing once again.
BioSante Pharmaceuticals (BPAX): BioSante’s drug Bio-T-Gel is a once-daily transdermal testosterone gel in development for the treatment of male low testosterone levels. With a market in the U.S. over $1.2 billion and a license to Teva Pharmaceuticls, the company is one of the top speculative choices. A NDA is pending with the FDA having a date of November 14, 2011. Positive results from that event will definitely help BPAX move to the next level. Couple this event with three Phase III clinical studies for a new drug (LibiGel), and the potential rewards start to be recognized. An application (NDA) for LibiGel is planned to be submitted to the FDA in 2012.
In conclusion, the biomedical/healthcare sectors offer a wide variety of speculative stocks to choose from. The above 7 offer some great potential, but there are many more names that could also be considered. The risks are high but a successful outcome from just a handful could provide enough capital to fund further ventures down the road.
Disclosure: I am long DNDN, BCRX, KERX, AIS, SPPI. Most long positions above are held using calls or calendar spreads.