Don't Write Off ImClone Just Yet

Biotech stocks have started off the new year on unstable ground, particularly with news that ImClone's (IMCL Quote) problems with cancer-fighting drug Erbitux ran deeper than initially thought.

Details of the Food and Drug Administration's refusal-to-file letter were released in The Cancer Letter newsletter and when Wall Street caught wind of it, ImClone's share price plunged as one analyst after another downgraded the stock.

As it looks now, ImClone will conduct additional trials and delay its filing for Erbitux. Wall Street pumped and then dumped ImClone, but the company and its drug still have potential. First of all, common sense tells you that Bristol-Myers Squibb(BMY Quote) must have seen the medical data and the FDA filing for Erbitux before agreeing to its megadeal with ImClone last September. If so, it apparently didn't stop Bristol-Myers' desire to partner up with ImClone.

Then there's ImClone's presentation to the American Society of Clinical Oncology (ASCO) in May 2001, which added credibility to ImClone's science. ASCO is highly regarded in the scientific community, so all is not lost with Erbitux; it's simply traveling along a winding path with some roadblocks along the way.

Why would an investor want to consider a poorly-rated stock? Let's look at it this way: A highly-rated stock means a lot of people already like it. If you like it, too, you're just following the herd. This style of me-too investing may be OK, but it's better to get there first and blaze the trail. True value is added only if the investment opinion is different, counter-consensus and, of course, on the money.

As I mentioned last week, at some point in time, ImClone's share price will reach bottom. So watch the share price, volume and news to determine the time to act. Meanwhile, get to know the company inside and out. To succeed in biotech investing, an investor must have some patience and set guidelines, like the amount of risk you're willing to take. It's a waiting game, but a trained eye can spot an opportunity.

The high-profile story of ImClone has definitely added some spice to the biotech sector. And if this is any indication of how this sector will behave in 2002, the tempo is going to be fast and exhilarating.