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Biotech Stock Mailbag: Chelsea's FDA Panel, Ariad's Future, Bio-Bubble Update

Stocks in this article: CHTP ARIA AMRN CELG

Chelsea will no doubt remind the experts on the Jan. 14 panel about the positive vote of the previous panel. That 7-4 vote in Northera's favor should be a big help.

Let's take another look at the biotech stock bubble. IBB Chart IBB data by YCharts

I snapped this chart on Thursday afternoon at 1 p.m. EDT. The biotech sector's underperformance relative to the S&P 500 has magnified a bit since I last posted the same chart nine days ago.

Anecdotally, I still hear from many buyside investors who are taking risk off and selling winners into the end of the year.

Ariad Pharmaceuticals' (ARIA - Get Report) implosion has almost certainly hurt biotech sector sentiment. The temporary removal of Iclusig from the U.S. market reminds generalist investors that biotech risk can slap you in the face at any time. ARIA Chart ARIA data by YCharts

On a related note, WyanPL asks:

Do you think Iclusig will ever get back on the market? If it does, maybe Ariad is worth buying?

Ariad executives sounded very uncertain about Iclusig's future on Thursday's conference call, partly because the company doesn't yet know what the FDA intends to do, or what regulators will require before the leukemia drug is allowed to be marketed again. The possibility of FDA forcing Ariad to conduct another clinical trial as a prerequisite to Iclusig's return is even on the table.

The heavy selling in Ariad Thursday -- on top of a month of soul-crunching selling already -- reflects the uncertainty. When Ariad executives spend most of the time on a call saying "I don't know" or "Um...", investors tend to run for daylight.

Iclusig is a "dirty drug" with some scary toxicity, but then, patients with chronic myeloid leukemia (CML) unresponsive to all other therapies are going to die. My best guess is FDA allows Ariad to continue selling Iclusig but only as a last-ditch treatment for CML patients, most notably those with the T315i mutation.

I have no idea when Iclusig returns but it won't be an overnight decision. We could be looking at months.

I asked a hedge fund manager source to help me estimate the market potential for Iclusig if used only in T315i CML patients. Disclosure: This investor was short Ariad going into the Iclusig blow-up. In other words, he's incredibly smart.

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