Biotech Stocks and the ASCO-Effect

by: Michael Becker

Investors are hoping that the spark that could reignite investor enthusiasm for biotech stocks is taking place right now. Approximately 30,000 participants are gathering from May 29-June 2, 2009, in Orlando, Florida, for the year’s largest cancer conference. Attendees of the 45th Annual Meeting of the American Society of Clinical Oncology (ASCO) will exchange ideas and hear about the latest breakthroughs in cancer therapeutics and diagnostics from over 4,000 scientific abstract presentations during the four day event.

It is no wonder that ASCO is closely watched by biotechnology industry observers. According to the Pharmaceutical Research and Manufacturers of America (PhRMA), there are 633 medicines and vaccines developed through biotechnology in human clinical trials – the majority of them (254) for the treatment of cancer. Even more impressive, all of these products are either in human clinical trials or under review by the Food and Drug Administration (FDA).

The need for new cancer treatments and diagnostics is compelling. This year alone, the American Cancer Society estimates nearly 1.5 million new cases of cancer will be diagnosed with more than 562,000 Americans expected to die from the disease. Not only is cancer the second leading cause of death in the US (exceeded only by heart disease), the economic impact is massive. University of Chicago economists Kevin Murphy and Robert Topel reported that a permanent one percent reduction in mortality from cancer alone has a present value to current and future generations of Americans of nearly $500 billion and that a cure would be worth about $50 trillion.

For biotechnology companies working in the field of cancer, double or triple-digit stock price increases from the end of April through the ASCO meeting (usually held in late May or early June) are not unprecedented. I first dubbed this the “ASCO-effect” in May 2000 when I presented a review of the top five performing stocks from companies issuing ASCO-related news from 1996 through 1999. Ironically, more than a decade has passed, but some of the same companies are once again benefiting from the ASCO-effect.

For example, Peregrine Pharmaceuticals, Inc. (NASDAQ:PPHM), known as Techniclone Corporation at the time, saw its stock price nearly triple as a result of the ASCO-effect back in 1998. The stock, which was trading below $0.40 at the end of April 2009, recently traded as high as $1.13 on news that preliminary data from a Phase 2 clinical trial evaluating the company’s bavituximab in combination with docetaxel in advanced breast cancer patients would be the subject of an oral presentation at ASCO.

In addition, the stock of Poniard Pharmaceuticals (NASDAQ:PARD), known as NeoRx Corporation at the time, nearly doubled as a result of the ASCO-effect in 1998. The stock, which was trading around $3.00 at the end of April 2009, recently traded as high as $5.19 on news that data from two Phase 2 clinical trials evaluating the company’s picoplatin in metastatic prostate and colorectal cancer would be presented at ASCO.

Since there are over 4,000 scientific abstracts being presented during ASCO 2009, it would be impossible to detail all of them in this setting. However, following recent positive Phase 3 results from Dendreon Corporation (NASDAQ:DNDN) regarding its prostate cancer vaccine study it is not surprising that investors appear to be gravitating towards companies working in the field of prostate cancer treatment. This enthusiasm only increased when Johnson & Johnson (NYSE:JNJ) announced that it would acquire Cougar Biotechnology, Inc. (CGRB), a development stage company with an oral prostate cancer treatment being studied in two Phase 3 clinical trials, for approximately $1.0 billion.

With this in mind, OncoGenex Pharmaceuticals, Inc. (NASDAQ:OGXI) appears to be one of the early beneficiaries of the ASCO-effect in 2009. The company’s stock, which was trading around $6.00 at the end of April 2009, recently traded as high as $22.00 on news that the company will be presenting final results of a Phase 2 trial of its prostate cancer treatment at ASCO. On Monday, investors will react to the data presented over the weekend.

At the start of the year I provided a positive outlook for the biotechnology industry in 2009, citing the sector’s defensive characteristics, favorable technical aspects, and improving fundamentals, such as the number of new product approvals, products in clinical trials and the brisk pace of industry consolidation and licensing transactions. With these fundamental and technical characteristics intact, it is possible that this year’s ASCO meeting could be the spark that reignites investor enthusiasm for the sector.

Disclaimer: This article contains the author’s own opinions, and none of the information contained therein constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. To the extent any of the information contained in the article may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.

Disclosure: No positions

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