Cures for Biotech Investors

If you were watching the stock of biotech firm Immune Response(IMNR Quote - Cramer on IMNR - Stock Picks) last Friday, you saw the terrible effect news can have on companies in this sector. The stock fell roughly 60%, from just under $5 to $2, when the company announced poor results in clinical trials of its AIDS treatment Remune.

Biotech stocks are particularly vulnerable to news because in many cases investors pin their valuations on the effectiveness of a single drug or treatment. And while revenues from a treatment can take 10 years or more to materialize, the expenses associated with developing and testing it along the way are horrendous -- often $1 billion or more. So if test results turn out poorly, Wall Street thinks worst case and takes no prisoners.

But what if you own a volatile stock such as Immune Response? Can you protect yourself? The answer is, maybe -- but only if you perform some fairly rigorous due diligence. Unless you want to put your money in any of 28 biotech mutual funds or in the exchange-traded fund Biotech HOLDRs(BBH Quote - Cramer on BBH - Stock Picks), you'd better be prepared to roll up your sleeves.

To really understand the opportunities in biotech it helps if you have a medical or scientific background, of course. But in lieu of that, I believe anyone can get a sense of the risks and rewards simply by plugging into the right information. So consider this an update of a Tools of the Trade column on biotech that appeared in the spring of 2000.

Testing and Retesting

All drugs, not just biotechs, must go through a lengthy series of trials before receiving approval from the Food and Drug Administration. The Pharmaceutical Research and Manufacturers of America publishes a detailed explanation of the complicated drug approval process.

When you feel like you understand all the official hurdles a drug must surmount to succeed, check out the Web site ClinicalTrials.gov, maintained by the National Institutes of Health. Here you can find out what trials are currently taking place for a drug. ClinicalTrials.gov is in part designed to help patients and their families locate possible treatment programs. Simply enter the name of the drug you're interested in and you'll receive a fairly detailed description of the studies that are either completed or ongoing.

As you read the study, look up any terms you don't understand at the Life Sciences Dictionary, maintained by the University of Texas. And if you want to follow up on any of these terms, go to the Web site PubMed, maintained by the National Library of Medicine. The site's search engine links to 4,300 medical journals, but unfortunately provides only abstracts of the articles. But these short summaries should give you a good idea of whether the studies or findings were favorable or not.

There are also other ways to track clinical trials. The Web site Biospace is a portal for the sector. It contains a search engine that lets you locate clinical trials by company name, drug name, indication (that is, the malady), and even by the testing phase you're interested in. The Biospace.com search engine privides only a brief summary of what the trials consist of, though, such as how many subjects are involved, their age groups, the trial's goals and so forth. You'll find more in-depth information at the aforementioned ClinicalTrials.gov. However, the Biospace.com search engine works better at cross-referencing companies to treatments or particular trial phases.

FDA Meetings and News

The other critical time biotechs react to news is when the FDA gives their products a thumbs up or down. Preliminary approvals allow a drug to proceed to the next phase of testing. Final approvals allow the drug to be sold to the public. Both are discussed at FDA meetings held around the country at various times. These meetings are announced in advance on the FDA's Web site (click on Meetings on the left-hand nav). However, the information on a meeting's actual agenda is sometimes vague. And there's no guarantee that a decision will be reached on the date specified.

You'll have a better chance of keeping up with the results of trials and FDA decisions if you tap into some of the excellent biotech newswires on the Web. Yahoo! maintains a daily headline news feed, as well as a selection of in-depth articles. But I particularly liked BusinessWire's no-frills listing of breaking biotech news.

The Web site Stockscape.com has a biotech page with headline news geared specifically to investors and traders. Also, the financial message board site Silicon Investor contains two threads devoted to biotech: Biotechnology & Drugs and Biotechnology.

Happy hunting.

Lighter Than Air

Last week's column on investing in alternative energy sources sparked quite a few emails. A couple of readers pointed out that a company called Energy Conversion Devices(ENER Quote - Cramer on ENER - Stock Picks) had also developed methods for storing hydrogen in the form of a metal hydride. In the column, I noted that the privately held firm Ergenics was developing similar technology.

The column also noted that storing hydrogen in solid form such as a metal hydride was a hot arena right now, because handling the fuel as a solid is far easier than dealing with a gas or deeply chilled liquid.

Another hot area now involves actually generating hydrogen for use in fuel cells. Chip Schroeder, President and CEO of Proton Energy Systems(PRTN Quote - Cramer on PRTN - Stock Picks), wrote to say that his company exploits essentially the same proton exchange membrane technology used in fuel cells to actually create hydrogen using electricity and water -- the byproduct being oxygen, of course. Meanwhile, the National Renewable Energy Lab and the University of California at Berkeley have developed a way to generate hydrogen using algae and sunlight.

Lastly, a reader named JW clarified my mention of the Hindenburg disaster as a way of illustrating the volatility of hydrogen maintained as a gas. The explosive flames seen in the world-famous film of the disaster were the result of a flammable coating on the dirigible, he says, and not the hydrogen itself, which does not produce a visible flame when burned. I stand corrected.