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Biotech Stock Mailbag: Discovery Labs

I knew this, of course, but sometimes the mouth doesn't follow the brain, especially when you're shooting video. Regardless, I apologize for the mistake.

Peramivir is a legitimate albeit still experimental flu drug, and the company has an initial, small development contract with the U.S. government, which apparently wants to stockpile peramivir in case vaccines fail and this country is plunged into a flu emergency.

But peramivir must be given intravenously, which limits its use to the hospital. There is the possibility of the drug being given in a doctor's office, but primary care doctors are generally not equipped to administer I.V. drugs.

I wasn't trying to be a total Biocryst bear in my video, but was merely pointing out that the stock's run from $4 to $10 bakes in a good amount of whatever peramivir stockpiles the government may purchase. Profit taking by investors, therefore, wasn't a bad idea.

Traders are having a party when it comes to flu stocks. Heck, take a look at the insanity around Inovio Biomedical (INO - Get Report) this week for proof. But yes, I do think that a lot of this flu mania is hype, and that includes some of the more bullish estimates for the size and scope of peramivir stockpiling contracts that Biocryst bulls are betting on.

I won't be surprised to see the U.S. government buy some more peramivir as a "last line of defense" strategy to tackle whatever the flu delivers this winter. But peramivir has been around a long time -- still unapproved -- and I don't yet see the evidence that government officials see the drug as anything more than a minor part of their contingency plans.

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