By now everyone has seen Dendreon's (NASDAQ:DNDN) ascent and decline. Like Halley's comet, it came and went and picked up lots of coverage when it was visable to the naked eye. At its peak, DNDN sported a market cap above $2billion and lots of promise, although skeptics were there the entire way up and down.
I am not writing whether DNDN is a good buy or sell at this level; what I think is that trading based on any fundamental news or hopes within biotech stocks is a losing game. The real potential is catching the hype and slams of the sector.
Take a look at nearly any troubled biotech stock, I mean the ones that have fallen 80% or more from their highs. They usually followed a similar pattern.
PHASE I: The hype: Company exits phase I or II studies and their product has promise. Stock goes into bullish mode leading to huge price appreciation.
PHASE II: Reality Check: Usually company announcements of "delays." Stock gaps down but enough "promise" exists so it holds it ground. This is usually followed by more complications, and antsy analysts start doubting the firm and the stock losses continue.
PHASE III: FDA Rejection: Stock dives anywhere between 35-75% and R.I.P. placards are being chiseled out. Firm still has plenty of cash so survive for a while. Company vows to carry on and do what it needs to do to resubmit their drug and make it successful.
PHASE IV: Rebirth: Stock trades pretty aimlessly for a while and than trades up sharply. Reasons could be buyout rumors, anticipation to resubmittal, prominent new director, or success at similar companies. Mostly, like the aforementioned Haley's comet, the stock has reappeared on peoples radars and therefore demand rises.
Here are some examples:
Antigenics, Inc. (NASDAQ:AGEN): Oncophage cancer vaccine results became unreliable leading to stock plunge to @ $1.75. Eventually it started to rally on DNDN news and they even threw in their own positive PR results. After topping above 5, the stock is back to 2.
La Jolla Pharmaceutical Company (NASDAQ:LJPC):This stock was above 40 in 2003 and than reached lows under 2 in 2005. It eventually found support at 3 and had several nice bounces above 4.5 and recently even got close to 9. They were smart did an offering and raised enough money to bounce around for a few more years.
Immunex: Forget the insider trading side story,FDA basically told them Enbrel is useful, but not really sure for what. That free fall turned into a huge winner for Carl Icahn.
This all brings us to what the next PHASE IV stock could be. Well, one could wait and see if $3 hold on LJPC again. Or one can purchase Hana Bioscienses (HNAB). Not your household name but it has the makings of a potential rebirth.
HNAB is a biotech company with a cancer treatment drugs. So far their candidates have lacked strong results and the stock has come in from highs of 12 in 2006 to a current 1.52. The latest decent was caused in Feb with a "delay" in their Zensana drug approval. Followed by a March announcement of further "delays" with Zensana and the outright stoppage of work on other drugs. The company released earnings this morning and still has a cash hoard of $27million, thus allowing for several more quarters of carrying on.
Rebirth will take hold if they can ever solve Zensana's delays, strike a partnership (as they are trying), or ever get approved or positive Phase I or II results from their other drugs.
Once again, fundamentally HNAB looks directed to the garbage heap, but with enough cash to churn out some more quarters, the biotech game is still very much alive.
HNAB 1-yr chart