Bio stocks can be a gamble. When they fall, companies in this particular industry can fall hard, especially if the news is really bad or expectations were hyped beyond reality. A few months ago, Peregrine Pharmaceuticals dropped 78% in one day after the company disclosed that its stellar Phase II data for lung cancer drug ‘bavituximab’ was not valid.
Does that mean bio stocks are a ‘no-go?’ Far from it, but in order to do invest effectively, one needs to remember there are a few steps you can take to increase your chances of making money and, more importantly, not losing it all after one press release hits the wires.
Spreading your bets is essential. It’s easy to be tempted to put money in just one or two names and dream of buying your own island in the Pacific after the company cures cancer. But unless you’re incredibly lucky, it doesn’t often work out that way. Picking five or even ten bio companies will reduce the damage to your portfolio should one go down as well as increase your chances of holding a winner.
Second, take the lead from big investors. Julian and Felix Baker manage money for the Tisch Family and invest primarily in biotech. One has a Ph.D. in immunology from Stanford, the other studied business at Harvard. They have had successful early positions in big winners like Seattle Genetics and Pharmasset – the latter was acquired by Gilead Sciences for $137 per share.
Finally, do your own research. Take the names that some analysts throw out and dig into the news. Here’s my top five, but again, see for yourself!
1.)
Biogen Idec Inc. (NASDAQ:BIIB)
Biogen Idec Inc. (NASDAQ:BIIB) is an established company with solid revenue. It already has multiple sclerosis drugs that are positioned as leaders in that market. Now, its new MS pill, Tecfidera, will be priced at a wholesale acquisition cost of $54,900 per patient per year. The medicine will distributed, stocked, and available to patients this month according to company spokespeople. This is going to blow sales sky-high as people have trusted the Biogen Idec Inc. (NASDAQ:BIIB) brand. Even before this news, shares were already up over 33% so far in 2013. Biogen Idec Inc. (NASDAQ:BIIB) also has some exciting drugs in the pipeline which include a Chronic Lymphocytic Leukemia and a Non-Hodgkin’s Lymphoma in phase 3 testing. The Chronic Lymphocytic Leukemia, is dominated only by 4 companies. With Ambit Biosciences bringing in an estimated $21,000 per patient annually. Biogen Idec Inc. (NASDAQ:BIIB)’s new more effective drug would be expected to bring in this amount per patient and with the druge being more effective this will cut into their competitors market share.
2.)
Likewise, Celgene Corporation (NASDAQ:CELG)’s Revlimid stands at the top in treating multiple myeloma and myelodysplastic syndromes. It is also counting on promising new drugs that have the potential to drive revenue even higher. Its revenue growth has slightly outpaced the industry average of 7.0%. Since the same quarter one year prior, revenue rose by 12.7%. A big drug that is in Phase 3 for Celgene Corporation (NASDAQ:CELG) is their Abraxane drug for pancreatic, metastatic melanoma, bladder, and ovarian cancers. This drug will have to compete in a market place again like Biogen Idec Inc. (NASDAQ:BIIB) with only a few competitors. With the already proven effectiveness for the drug for all of the listed cancers and the effectiveness being that on par or better than the competition we have a favorable setup. Market share will be taken with a pricing strategy to increase profits as other R&D and approval costs have already been accounted for with the release of the drug for breast cancer.
3.)
Arena Pharmaceuticals, Inc. (NASDAQ:ARNA)
Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) is set to make a major splash in the weight loss industry, which until very recently, seemed to be a dying industry. Arena Pharmaceuticals, Inc. (NASDAQ:ARNA)’s weight loss drug is Lorcaserin and it is well into Phase 3 clinical trials with promising results. Since this drug utilizes receptors in the brain to make a person feel full side effects are limited and unique in the industry. The patent would extend to 2023 which means no competition for at least a decade. With the market of people who need this is also ever growing. With 1/3 of Americans overweight the market base won’t disappear anytime soon. The drug is also unique in the sense since the drug deals with brain receptors and has limited side effects which their competitors can’t touch. With the market being $60 billion in size and growing yearly Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) will have excellent exposure to price themselves ahead of any competitors with the brain receptor edge.
4.)
Biosante Pharmaceuticals Inc (NASDAQ:BPAX)
Lastly, I’d look at Biosante Pharmaceuticals Inc (NASDAQ:BPAX) which focuses on the development of various products for female sexual health and oncology. It provides LibiGel, a transdermal testosterone gel that is in Phase III clinical development for the treatment of female sexual dysfunction; and male testosterone gel for the treatment of hypogonadism in men. LibiGel is unique as most bio firms target male sexual dysfunction and not female and seeks to reduce a women’s testosterone level safely. The sexual health industry for women makes up $2 billion worth of testosterone reduction product. The firm conducted an interview with doctors who prescribe testosterone reduction medication to pre-menopausal women and 96% said once LibiGel was approved they would switch their female patients to LibiGel. This would lead to an estimated $1 billion in revenue per year for Biosante Pharmaceuticals Inc (NASDAQ:BPAX) becoming the leader in the industry.
Moreover, a merger agreement with ANI Pharmaceuticals, announced last year will move Biosante Pharmaceuticals Inc (NASDAQ:BPAX) into a better position in the market overall with the portfolio of drugs both firms offer. Given the strong pipeline of both companies, the cash balances each have, and the speculation in small cap biotech stocks right now, there looks to be a lot of value here for investors.
Summary
When investing in bio stocks, investors should watch for companies researching ‘hot’ areas such as cancer, heart disease, neurological diseases, and other areas where there is a high degree of incidence in the population. Success (or sometimes even news of possible success) in these areas will ensure the company a faster return on their investment in R&D and licensing efforts.
The article 4 Bio Stocks to Buy Today originally appeared on Fool.com is written by Casey Walters.
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