Investors who have been around Wall Street long enough may remember the biotech bubble of the 1980s propelled by the approval of several blockbuster drugs, including Amgen's (AMGN) Epogen and Aranesp anemia drugs. Unfortunately, not every biotech corporation had Amgen's success. Most went under, scaring investors away.
In recent years, a number of biotech companies have scored their own successes with new drugs, bringing investors back to the sector. The problem, however, is that picking the next winner is quite tricky, and any choice is highly speculative. Here we have identified four stocks aggressive investors may want to consider -- three to buy and one to sell.
Affymax, Inc., (AFFY) at $14.31 is the first stock to buy. On Tuesday, the company received FDA approval for its anemia drug OMONTYS, which is co-marketed with Takeda Pharmaceutical Company. This is a large market, as most people on dialysis eventually develop anemia. In essence, OMONTYS puts an end to Amgen's Epogen and Aranesp drugs.
Acadia Pharmaceuticals (ACAD) at $2.20 is the second stock to buy. The company develops drugs for rare but devastating diseases like Parkinson's and glaucoma. Specifically, pimavanserin is in Phase III clinical development as a treatment for Parkinson's disease psychosis, AGN-XX/YY is in Phase II for chronic pain; and AC-262271 is in Phase I for glaucoma in collaboration with Allergan (AGN).
BioSante Pharmaceuticals (BPAX) at $0.90 is the third stock to buy. BioSante Pharmaceuticals is a pharmaceutical company developing cancer treatments, especially vaccines for rare forms of cancer that have received orphan drug designation (which increases patent protection). So far, the company has had several misses. That's why the stock has tumbled from $10, in 2005, down to $0.90 recently. However, the company has made progress in some areas, like the development of a pancreatic therapy that increases survival rates in early clinical trials, as reported last month.
Dendreon (DNDN) at $12 is a stock to sell. Dedreon is a biotechnology company that develops, manufactures and sells cancer drugs. One of the company's products that has received FDA approval is Provenge, for the treatment of metastatic prostate cancer. The problem, however, is that the drug is too expensive and its benefits too limited to accept broadly. That's why the company's performance, especially its revenues, have failed to stand up to analysts' expectations. The stock has been on a rough ride, trading in the low $40s two years ago when it received FDA approval then down to the low teens recently.
The bottom line: Investing in speculative stocks (usually smaller stocks with higher betas) is always a risky venture. That's why speculative investing is a game for aggressive investors only. But with high risk comes high reward, especially when the timing is right.