It's Time to Shop for Cheap Biotech Stocks

The lazy days of summer -- excluding earnings season -- are a good time to pick up biotech stocks on sale. But which stocks, specifically, are sitting in the bargain bin these days?

To begin to answer the question, I ran a CapitalIQ stock screen last week to generate a list of biotech and drug companies trading within 5% of their 52-week lows. I further winnowed the list by including only companies that trade on a major U.S. stock exchange.

This screen generated a list of 53 stocks. Some of the companies belong on a list of biotech laggards. More interestingly, however, are the companies that could -- or should -- trade higher if news or market conditions in the sector improve.

Last month, I ran some numbers showing how biotech stocks take a breather during the summer months. I found that in four of the past six years (including two of the last three years), the Nasdaq Biotechnology Index fell from June 1 through Sept. 30. In the down years, the average drop in the index was 14%.

In the same four down years, the 52-week low for the Nasdaq Biotech Index occurred in that June 1-to-Sept. 30 time period.

So far this year, the "biotech summer doldrums" have been more muted, with the Nasdaq Biotech Index down 2%. Of course, we haven't hit the dead calm of August yet.

As I said last month, the period from June though September isn't the best time to expect much performance from your biotech portfolio, but it can be a good time to pick up stocks on sale.

And one place to start looking for discounted biotech stocks is a list of companies trading at or near 52-week lows.

When I look at the list of stocks that my screen generated, three companies jump out at me: Genentech(DNA Quote), Amgen(AMGN Quote) and Genzyme(GENZ Quote). All three are big-cap biotechs -- diversified, profitable and with good track records. In years past, these stocks would more likely be on a highfliers list.

Amgen's problems this year with the anemia-drug franchise have been well documented, so maybe its inclusion here isn't so surprising.

But Genentech is a different story. The stock has slumped even further since my original screen and now trades less than 4% from its 52-week low. Investors are concerned that the hypergrowth posted by the company in recent years is beginning to slow.

Slower growth for Genentech, of course, means 30% earnings growth instead of 75%, so it's all relative. I've written previously about Genentech and the triggers that could get the stock moving again.

Among the other stocks worth researching on this 52-week low list:

Cardiome(CRME Quote), which was just 4% off its 52-week low, is a Canadian company developing (with partner Astellas) a new injectable cardiovascular drug for the treatment of cardiac arrhythmias. A Food and Drug Administration approval decision for the drug, Vernakalant, is coming up on Oct. 18. Just as important is an oral version of the drug still in clinical testing with a much larger commercial potential.

Zymogenetics(ZGEN Quote), another stock that has fallen even further since my screen, is developing a recombinant form of thrombin, used primarily by surgeons to stop bleeding during surgical procedures. An FDA approval decision is also expected on Oct. 18.

Human Genome Sciences(HGSI Quote), which was just over 2% from its 52-week low, is developing a new, long-acting version of interferon for the treatment of hepatitis C. Phase III studies are under way. The company's pipeline also includes drugs for lupus and cancer.

Rummaging in the Biotech Bargain Bin What looks good on a recent 52-week low list?
Company Name	Ticker	% Change from 52-Week Low (Calculated July 11)
Opko Health	OPK	5.36
Johnson & Johnson	JNJ	5.32
Amgen	AMGN	5.29
Pharmos	PARS	5.26
Cytokinetics	CYTK	5.19
Trimeris	TRMS	5.18
Genentech	DNA	5.01
GlaxoSmithKline	GSK	4.98
Questcor Pharmaceuticals	QSC	4.88
Lorus Therapeutics, Inc.	LOR	4.65
Infinity Pharmaceuticals	INFI	4.63
Nabi Biopharmaceuticals	NABI	4.37
Affymax, Inc.	AFFY	4.26
Advanced Life Sciences Holdings	ADLS	4.26
Cardiome Pharma	CRME	4.11
Hi Tech Pharmacal Co.	HITK	4.04
Amarin Corp.	AMRN	3.9
Encysive Pharmaceuticals	ENCY	3.8
Westaim	WED	3.7
Oncolytics Biotech	ONC	3.54
Zymogenetics	ZGEN	3.46
Callisto Pharmaceuticals	KAL	3.33
Eurand	EURX	3.3
Pharmacyclics	PCYC	3.25
Hollis-Eden Pharmaceuticals	HEPH	3.16
Synta Pharmaceuticals	SNTA	3.03
NeoPharm	NEOL	2.91
Immunicon Corp.	IMMC	2.81
Forbes Medi Tech	FMI	2.78
CuraGen	CRGN	2.75
Celera Group	CRA	2.58
Genzyme Corp.	GENZ	2.55
Luminex Corp.	LMNX	2.45
Human Genome Sciences	HGSI	2.44
Atherogenics, Inc.	AGIX	2.43
Northfield Laboratories, Inc.	NFLD	2.27
3SBio, Inc.	SSRX	1.99
Labopharm, Inc.	DDS	1.79
AEterna Zentaris	AEZ	1.76
Jazz Pharmaceuticals	JAZZ	1.74
MediciNova	MNOV	1.69
Sanofi-Aventis	SAN	1.66
Rigel Pharmaceuticals	RIGL	1.58
Acusphere, Inc.	ACUS	1.5
DUSA Pharmaceuticals	DUSA	1.09
Novadel Pharma	NVD	0.946
Novartis AG	NOVN	0.831
Hemispherx Biopharma	HEB	0.806
Idenix Pharmaceuticals	IDIX	0.537
Mylan Laboratories	MYL	0.453
Nektar Therapeutics	NKTR	0.33
Keryx Biopharmaceuticals, Inc.	KERX	0.324
Americare Health Scan	AMIT	0
Source: CapitalIQ