It's Time to Trust Your Biotech Portfolio

Trying to make money on the wild gyrations of biotech stocks, however, has been difficult.

Last week, he did well by buying Amag Pharmaceuticals(AMAG Quote) when it hit $52, selling it at $58 just a couple of days later. [There was an 18% swing between AMAG's intraday low and high last week.] He also traded in and out of Omrix Biopharmaceuticals(OMRI Quote).

He thought about trying to trade around Myriad Genetics, but the volatility there was just too much.

"Some of this is scary to me," he says. "It's not easy to get me scared. The market is not acting normal, and good things usually don't come from that."

The liquidity crisis in the markets, if sustained, could hurt biotech companies in need of cash. Fund-raising isn't likely to dry up completely, but companies floating new stock, convertible debt offerings and initial public offerings might find demand from buyers on the light side.

While this list isn't comprehensive, a screen for biotech companies with cash reserves of a year or less at their current burn rates includes Osiris Therapeutics(OSIR Quote), Neurochem(NRMX Quote) and Emisphere Tech(EMIS Quote).

The best way for biotech companies to solve a cash crunch, of course, is to attract money from partnerships with larger drug companies. Several fund managers mentioned the possibility that merger and acquisition activity, as well as product partnership deals, could increase as we leave the summer months behind.

The fall is also the season where, historically, the biotech sector awakens from the summer doldrums, moving stock prices higher.

"It's only the beginning of August, and already so much has happened," said one biotech fund manager clearly in need of a few days at the beach. "I'm definitely ready for September."