Feuerstein's Biotech-Stock Mailbag - TheStreet

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Kevin C. writes: "I really enjoy the column and your insight has been very helpful. I'm looking to broaden my portfolio and was wondering if you'd be willing to divulge what biotechs you own. If not, and you were to invest in three more companies, which ones would you choose?"

Thanks, Kevin. I don't own any biotech stocks.

TheStreet.com

has fairly strict conflict-of-interest rules for company reporters and columnists like myself, barring us from owning individual stocks or investing in hedge funds or any other investment partnerships. I am allowed to invest in mutual funds, but still, it would be unethical for me to invest in a biotech-focused mutual fund, given the fact that I write exclusively about the sector.

With all this said, I approach my job here with the goal of writing about good biotech investment opportunities for readers. Alternatively, I try to highlight biotech stocks that should be avoided (or shorted, for those with the experience and risk tolerance to do so).

The simple answer to your question, then, is, "Read my columns to see which biotech companies I believe are good (and bad) investments." At the same time, don't feel that just because I haven't written about a biotech stock that means I have a negative opinion on it. The biotech universe is vast. I can't cover everything.

I do maintain a "play" or model biotech portfolio of my own, mainly to track the performance of many of the biotech stocks covered in my columns. Big-cap stocks in this portfolio include:

Mid-cap model portfolio stocks include:

  • Onyx Pharmaceuticals (ONXX)
  • Vertex Pharmaceuticals (VRTX) - Get Report
  • Pharmion (PHRM) (I like Thalomid's commercial potential in Europe although the upcoming Satraplatin advisory panel has me worried a bit.)

Readers like small-cap stocks, so I tend to focus a lot of time there. Among the small-cap names in my model portfolio:

(These may not seem like small-cap stocks from the perspective of market cap, but they are early stage in terms of drug development so I put them in this bucket.)

Altus Pharmaceuticals

(ALTU)

has been on my list for a long time (sadly, because the stock has not performed well). More recently, I added

YM BioSciences

(YMI)

and

Genelabs

(GNLB)

to the portfolio.

I wish I had

Elan

(ELN)

in my model portfolio to capture the mania over new Alzheimer's disease drugs, but it's not in there. I do, however, include Toronto-traded

Transition Therapeutics

(TTH.TO)

, which has done quite well because of its own Alzheimer's drug candidate that is partnered with Elan.

Of course, I have my share of duds and blowups. Altus, like I said, has been a dud so far.

Nuvelo

(NUVO)

was in the portfolio before the stock blew up. Ouch, that hurt. I was also an early believer in

Panacos

(PANC)

, so I experienced the pain (virtually) of its meltdown last December. (Panacos is a tempting stock to revisit and possibly put back in the portfolio, but I haven't yet -- the wound is only recently healed.)

I also use the model portfolio to track biotech stocks I

don't

like, which have included:

For the curious,

Dendreon

(DNDN)

was in the model portfolio, too, and as a long! (Shocked? Some of you surely are, since my

reputation of late -- undeserved -- is that I live to slap Dendreon around.)

Unfortunately, Dendreon wasn't a virtual moneymaker in the model. I "bought" a small amount late last year at $5.25 and "sold" it May 10 at $5.54. So, no, I didn't heed my own advice to take some profits when the stock soared in April. Duh.

Aside from the model portfolio, longtime readers know that I take a

fundamental approach to writing about the biotech sector. I believe drug development is a risky endeavor and that the failure rate is very high. The underlying science of biotech can be extremely complicated, which unfortunately, attracts to our little world hucksters and hype artists playing unsuspecting investors as suckers.

Therefore, my default mode is skepticism, sometimes to the extreme. I'm a glass-half-empty guy. I'm more than happy to see something positively -- in fact, I enjoy it -- but I want that optimism to be based on something tangible.

OK, I do also understand the temptation to invest on faith alone, or the willingness to take a flyer on a cheap stock based on a hunch. We all do it, but only in moderation, right? It's hard enough to be right in this sector with all the facts in front of you.

This is the last time I'm opening the Biotech-Stock Mailbag in San Francisco. As I wrote last week, I'm in the midst of a major family relocation to the East Coast. Boston will be my new home. I'm taking a couple of weeks off from mailbag duties to attend to the move and get myself unpacked and set up, but I will return.

A very sincere thanks to everyone who's spent a portion of their Saturdays reading the mailbag, and to those who have shared comments and questions with me. I started this column six months ago as an experiment, a way to be a bit more interactive with readers. I'm really happy with the way it's turned out, and much of the credit goes to you.

There is always room for improvement, so please let me know if there are stocks, topics or issues I'm missing completely. Are there things you would change about the way I write or format the mailbag? If so,

please send me an email

with your suggestions.

Thanks, again. I'll be back soon -- new city, same (fun) job.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Spectrum Pharmaceuticals, Array Biopharma, Altus Pharmaceuticals, YM BioSciences, Genelabs, Nuvelo, Panacos, Neurochem, Northfield Labs, Trimeris and Introgen to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

Adam Feuerstein writes regularly for RealMoney.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;

click here

to send him an email.