Biotech Stock Mailbag: Health Discovery

BOSTON (TheStreet) -- This week's Biotech Stock Mailbag opens with an email from Edward M. with a question about Health Discovery Corp(HDVY.OB).

"Health Discovery Corp. recently received a bullish write-up by Biomedreports that said certain undisclosed actions would be taken very soon to implement the company's urine-based test for prostate cancer. Did you see this report and if so, what is your position? If Health Discovery Corp.'s urine-based test works it could become the gold standard for prostate cancer and replace PSA tests because those don't work at all and doctors want something else."

Health Discovery (HDC) is working on a urine-based genetic test for prostate cancer, along with partners that include Quest Diagnostics(DGX), Clarient(CLRT) and Abbott Labs(ABT). That much from Biomedreports' recent coverage of the company is true.

Unfortunately, more of what was reported by Biomedreports about HDC contained factual omissions and exaggerations that distort both the timeliness of the company's prostate cancer test as well its near-term commercial potential.

HDC's urine-based test doesn't appear to be close to clinical validation or commercialization, according to checks I made with HDC's partners. And even if a convenient and accurate urine-based gene test for prostate cancer was launched soon, it would not replace the widely used, if flawed, PSA blood test -- certainly not right away, according to cancer experts.

Trading in Health Discovery (HDC) surged on Jan. 29, triggered by a Biomedreports alert to its paying subscribers that morning:

"... speculation centers on news surrounding the company's new gene-based molecular diagnostic test for prostate cancer -- which has successfully completed its phase III double-blind clinical trial and is now ready for commercialization. The new prostate cancer test will be performed at Clarient's clinical laboratory in Aliso Viejo, Calif. HDC will receive 30% royalty on each test performed," the Biomedreports alert stated.

By the close of trading on Jan. 29, HDC's stock price rose 6 cents, or 27%, to 28 cents a share. The intraday high reached 31 cents. More than 12 million shares traded hands, 12 times the average daily trading volume in the stock.