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Biotech's Latest Hot-Money TrendBy Dr. George HuangFriday, June 26, 2009 Whether it's the fear of a worldwide pandemic or some hot technology on the evening news, you can bet at least three or four biotechs are scrambling to profit from the latest fad.
Last month, my colleague Rob Fannon warned you not to get suckered into the big swine flu trades...
When the swine flu panic reached a peak, a number of small biotechs – notably Novavax and BioCryst – cranked out press releases claiming their drug or technology will be indispensable in the coming crisis.
As Rob pointed out, these junk stocks won't see a dime from any swine flu-related spending, even if worldwide governments decide to pursue mass vaccination. (Actual vaccine producers like Novartis, Sanofi-Aventis, and Baxter will collect much of any windfall funding.)
But the press-release barrage produced the intended effect. Both the companies saw their left-for-dead stocks perk up. By now, though, the short-terms gains in these penny stocks have vanished. (They're both just under breakeven since Rob wrote about them, and down about 20% from their recent peaks.) Deft traders could have made a killing on the short-term boom and the inevitable crash.
Today, a new mania is taking hold of biotech's hot money... cancer vaccines.
Dendreon (DNDN) kicked off the craze in April, when it released positive data on its cancer vaccine, Provenge. Dendreon stock is up 450% year-to-date.
Such mouth-watering returns stirred day traders' imaginations and over the last few months, they've been anxiously digging for the next Dendreon. Pouncing on the opportunity, a handful of slick headline-chasers (Antigenics and Biovest are among the most prominent) are repackaging previously failed cancer vaccine data into something more attractive...
Earlier this month, they found the perfect setting to pitch such stories – the annual meeting of the American Society of Clinical Oncology. At this glitzy conference of top cancer docs, these companies chopped up and re-analyzed previously released data in a dozen ways.
They claim that with tens of millions in additional funding, their vaccines can surely win FDA approval. On the heels of triple-digit gains in Dendreon, sucker investors swallowed the story whole. These stocks have soared.
I'm tempted to short these junky penny biotechs right now. But I think it's too soon. We're not clear of the initial "boom" phase in the cancer vaccine fad. Investor frenzy can push stock prices to the stratosphere. Early short sellers can suffer substantial near-term losses, even if they are right.
Instead, I recommend taking a closer look at the company that started the cancer-vaccine boom – Dendreon. The company expects to file for FDA approval for Provenge later this year. An approval will almost certainly come by mid-2010. And I expect Dendreon to sign a lucrative European partnership later this year.
At about $25 per share, Dendreon isn't too expensive... but it's also not a bargain. A pullback below $20 will give you a better chance to ride the cancer vaccine mania to new highs.
Good investing,
George Huang
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