This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Sweet Spot in Biotech Investing

There are many instances of stocks that have taken off during or after Phase II results, where investors made lots of money but then suffered losses when the drug failed in Phase III.

A few real world examples: My subscribers made money on Medivation (MDVN - Get Report) despite a disastrous Phase III trial that resulted in the stock plummeting.

Medivation had a drug for Alzheimer's called Dimebon. The Phase II results were outstanding. They showed a slower deterioration and fewer side effects than the existing therapies, including Pfizer's (PFE - Get Report) Aricept. Despite skeptics' doubts, the stock ran in anticipation of Phase III results. If the data was strong and the drug got approved, it would likely be an immediate blockbuster.

After the stock doubled, I recommended that subscribers take half of their profits off of the table. Note, this is not the usual Oxford Club philosophy, but with small-cap biotech stocks that can plummet on one piece of news, I often suggest readers take their risk capital off the table once the stock has risen 100 percent or more.

So with investors now playing with the "house's money" after taking their initial investment back, we waited for the Phase III results.

It turns out, the drug didn't work.

The stock got crushed, and we sold out our remaining position. But because we had sold half at a 100 percent profit, we still pocketed a 37 percent gain. Not bad for a failed drug.

There have been several other instances where something similar has occurred. We made 102 percent gains on Delcath Systems (DCTH - Get Report) and 42 percent gains on MELA Sciences (MELA), despite FDA rejections.

Although in these cases the Phase III trials were not deemed a failure, the FDA has rejected the applications for approval until more questions are answered.

Lastly, after positive Phase II results, you sometimes see the early investors and the venture capitalists exit the position. They've made their money and don't want to stick around for the risky Phase III. If the smart money is leaving, it may be a good idea to follow them out the door. At least with part of your investment.
3 of 4

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
DCTH $0.29 -9.30%
CVM $0.59 4.40%
MDVN $59.06 2.68%
MELA $0.91 -0.70%
MNKD $1.40 -5.10%


Chart of I:DJI
DOW 17,651.26 -99.65 -0.56%
S&P 500 2,051.12 -12.25 -0.59%
NASDAQ 4,725.6390 -37.5850 -0.79%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs