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Biotech's Hot Season: Get Ready

Adam Feuerstein

BOSTON -- I'm ready for summer to be over. It hasn't been a particularly restful period, not with credit crunches fueling crazy market volatility. The biotech sector -- my little corner of Wall Street -- has held up OK, but the summer months don't generate much news or investor interest.

I've circled Sept. 4 on my calendar, the day after Labor Day, as the day when investors get back to work and make the big push to the end of the year. Fall is a peppy time for biotech stocks, too. The summer doldrums fade in a flurry of investor conferences, medical meetings and stock-moving catalysts.

I want to be prepared for the fall rush, and I want you to be ready too. Below, I've gathered together all the information (lists of clinical trials, FDA decision dates, medical conference calendars) that, hopefully, gets you out of summer sloth mode and puts your brain back in gear.

I'll dig deeper into much of this in the coming weeks, but for now, let's start with an overview.

Back in June, I did some number-crunching to illustrate how biotech stocks tend to underperform in the summer (and consequently, why it's a good time to pick up quality stocks on sale.)

A similar analysis shows the biotech sector perks up in the fall. Once again, I tracked the performance of the Nasdaq Biotechnology Index during the Sept. 1-to-Nov. 30 time period.

In five of the last six years, the index rose during this three-month period. In the up years, the average rise was 9%. The year 2002 was a bit of an outlier, with a 21% jump. Excluding 2002, the index rose by an average of 5.5%.

(I also looked at the Sept. 1-Dec. 31 period for the past six years, and the results were essentially equivalent.)

One of the simplest explanations for why biotech stocks rise after summer is that investors are back from vacation and eager to put money to work. Investment banks, of course, are happy to facilitate by holding investment conferences.

The fall investment conference season kicks off in September, and while there are many venues for investors to check out biotech companies, I'll highlight three that tend to generate a lot of interest:

On Sept. 6, the industry trade magazine BioCentury and Thomson co-sponsor a one-day meet-up in New York called Newsmakers in the Biotech Industry. The next week, Sept. 10-11, Bear Stearns holds its annual fall health care conference. Lastly, UBS sponsors a large, four-day life-sciences investor conference Sept. 24-27.

If you're wondering where the management team of your favorite biotech firm is spending the month of September, the best bet is in New York.

Follow the FDA

I'm constantly stressing the importance of the calendar to biotech investors. To make money in this sector, you need to stay on top of when the FDA is expected to issue an approval decision, or in what time frame a biotech firm may release results from an important clinical trial.

Unfortunately, gathering this information isn't easy because there isn't a readily accessible data source that tracks it all. This is where I come in, I've tried to do much of the work for you.

Here's a handy calendar listing all the expected FDA drug approval decisions for the next few months:

Keeping track of reporting times for clinical trials isn't as easy. Biotech companies rarely disclose the exact date on which data will be released, mainly because they don't know. The following list compiles biotech companies with ongoing phase II and phase III clinical trials that should have data ready for release before the end of the year.

There are a lot of drugs and trials on this list with the potential to really move stocks. I've written about the importance of the coming telaprevir data to Vertex Pharmaceuticals(VRTX) here.

There will also be a lot of investor focus on Cardiome(CRME) this fall. Not only is it awaiting an FDA approval decision on the injectable form of its arrhythmia drug Vernakalant, but we could also get phase II data on the oral version of the drug, which addresses a much larger commercial market.

The other stocks on this list that really grab my attention for their potential as big movers are Sonus Pharmaceuticals(SNUS), United Therapeutics(UTHR), Medarex(MEDX) and Advanced Life Sciences(ADLS).

I mentioned earlier that the summer is often a good time to buy quality biotech stocks on sale. So far this summer, the Nasdaq Biotechnology Index is down about 5% since June 1, while the Amex Biotechnology Index (more heavily weighted in big-cap stocks) is down about 8%.

I previously ran a stock screen to identify biotech companies trading within 5% or so of their 52-week low. Now, many of the companies on the list probably deserve to be there, but others are just a positive data point or resurgent market away from a significant lift.

Big-cap biotech stocks Genentech(DNA), Amgen(AMGN) and Genzyme(GENZ) haven't performed well this summer, and they continue to trade near their year lows. But if the sector gets hot again, investors may revisit these stocks.

A word on merger and acquisition activity: Expect more deals. With Big Pharma still facing serious revenue shortfalls due to generic competition and many big-cap biotech facing similar problems and/or weak pipelines (Amgen, anyone?), it's not unreasonable to expect small- and mid-cap biotechs to be on the receiving end of attractive buyout offers.

Predicting when such deals may happen -- and with whom -- isn't easy, but generally speaking, the most attractive takeout targets are those companies with compelling technology platforms, novel and potentially lucrative new drug targets and rock-solid intellectual property protection.

Lastly, experienced biotech investors know that a lot of attention is paid to medical conferences, which provide a high-profile forum for companies to present new clinical data.

With that in mind, listed below is a calendar of significant medical conferences for the remainder of the year.

I hope this preview helps you prepare for the coming months. Biotech investing can be exciting and terrifying, but it's never boring.