Keryx Biopharmaceuticals (KERX), Dynavax Technologies Corporation (DVAX): Biotech Investing for Beginners

3. Vicious volatility
Investing in any stock can be something of a roller coaster ride. However, few sectors display the vicious volatility of biotech. Beginners to biotech investing need to be prepared for a wild ride.

Keryx Biopharmaceuticals (NASDAQ:KERX) shot up 164% in a matter of a few days in January. By early February, the stock was down almost 30% from those highs. Dynavax Technologies Corporation (NASDAQ:DVAX) still hasn’t come back from the stock’s wipeout. As mentioned, Sarepta Therapeutics Inc (NASDAQ:SRPT) dropped more than 25% in April. However, shares are now up 28% from the low point.

Unfortunately, gaining FDA approval and commercializing a product don’t necessarily end a biotech’s volatility. Dendreon Corporation (NASDAQ:DNDN) received approval for prostate cancer drug Provenge in April 2010. JPMorgan estimated that peak annual sales for the drug could reach $3 to $4 billion. Those estimates failed to materialize. Disappointing sales for the drug have contributed to a stock collapse of more than 90% since the FDA approval.

Basics still apply
While some parts of conventional investing don’t fit well with clinical-stage biotech, many of the basic principles still apply. In fact, some are perhaps even more important.

Diversification, for one, is critical to handle the risks inherently associated with biotech. Buying for the long term potential of a biotech and its products makes sense with the wild swings commonly experienced with these stocks. And the old mantra of “bet on the jockey” applies to biotech like any other industry.

Biotech investing for beginners presents big challenges. The points I mentioned only scratch the surface of what you need to know. However, every person that has done well in biotech was once a beginner also. There’s no better time to begin than now.

The article Biotech Investing for Beginners originally appeared on Fool.com.

Fool contributor Keith Speights has no position in any stocks mentioned. The Motley Fool owns shares of Dendreon.

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