Cures for Biotech Investors

If you were watching the stock of biotech firm Immune Response(IMNR Quote) 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), you'd better be prepared to roll up your sleeves. ...