Don't Get Burned by the Next Cell Genesys

Cell Genesys (CEGE Quote) is done. In the ashes of the biotech firm's blowup, however, there are important investing lessons to learn.

The end for Cell Genesys came Thursday after an independent futility analysis found the company's GVAX prostate cancer vaccine had little chance of success. Cell Genesys was forced to halt the GVAX prostate phase III study, the second such late-stage GVAX prostate cancer study shuttered in recent months.

Cell Genesys has stopped all clinical development of its GVAX cancer vaccine program and is laying off a majority of its employees. With little else on its plate, the company's future is bleak. The stock is now valued at pennies per share and shareholders have lost everything. Dendreon (DNDN Quote) is now the last company standing with a prostate cancer vaccine in clinical trials.

Biotech investors, especially those willing to make bets on unproven drugs and technologies, usually understand the risks involved. Still, disasters like Cell Genesys shock the system and can discourage even the most risk-tolerant investor from ever dipping their toe into biotech again.

I've never been a fan of Cell Genesys or its cancer vaccine technology. I've been warning folks off Cell Genesys for a long time, which, to borrow a phrase from my friend and former colleague Herb Greenberg, usually caused the Hostile-React-O-Meter to spin outta control!

I'm not here to gloat over being right. Instead, let's re-examine the red flags in the Cell Genesys story so that when the same issues rear their ugly head in another biotech story (and you know they will) you'll be better prepared.