Tiny Biotechs Dancing in the Bull Pen

A speculative fervor has gripped small-cap biotech stocks.

They're up, in some cases big. Tiny, high-risk biotech companies suffered crushing declines in the price of their shares last year. But today, investors (or perhaps just traders) are embracing many of these stocks.

OncoGenex Pharmaceuticals(OGXI) has gone from $4 to more than $13 in the last month. Hemispherx BioPharma(HEB) is up more than 50% since the beginning of May. Shares of Novogen(NVGN) more doubled this week alone.

Biocryst Pharmaceuticals(BCRX), Emisphere Technologies(EMIS) and Immunomedics(IMMU) are all also strongly higher in the past month.

It's hard to pinpoint one reason for the embrace of the small in the biotech sector, but the confluence of a few disparate events seemed to have put investors in a risk-taking mood.

First, the outbreak of the H1N1 virus sent investors looking for antiviral-related drug stocks. And, of course, many of these companies obliged by issuing press releases designed to highlight their influenza drug programs.

Then came the surprising approval of Vanda Pharmaceutical's(VNDA) schizophrenia drug Fanapt, which sent the once penny stock soaring 900%.

Last, the release of research abstracts for the upcoming annual meeting of the American Society of Clinical Oncology (ASCO) had investors scouring new breakthrough cancer treatments regardless of their odds for success.

Dan Rosenblum, a biotech trader and author of the Shark Biotech investment newsletter, believes traders and momentum investors are scouring biotech for the next Vanda.

"When people saw a penny stock like Vanda could move up 1000%, that created excitement for the next one. Traders are looking for the next Vanda, or at least they're hyping some of these stocks in the hope that someone believes they're the next Vanda," he says.