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By Hilary Kramer of InvestorPlace



) -- I am convinced that now is the time to invest in biotech. If you're familiar with biotech at all, you know it has traditionally been a risky sector to invest in -- shares of

Human Genome Sciences


recently plunged more than 10% in one day after the FDA questioned the effectiveness of its new Lupus drug. But as the industry develops and grows, it's becoming easier to minimize risk and identify the likely winners. And with the right strategy, you can make big profits in biotech.

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As such, I have been investing in select biotech stocks and am pleased with the money I've made. Here are two stocks you'll want in your portfolio in 2011, and if you don't buy them now, you'll end up paying more to get them later!

Finding Biotech Stocks to Buy -- Look for Takeover Targets

One of the very best ways to profit from the biotech sector right now is to buy companies that are likely targets for acquisition. Many of the big pharmaceutical companies are in a precarious position right now. They've cut costs as far as they can and many of their blockbuster drugs are going to go off patent in the next three years. The next logical step in big pharma's search for growth is to start going after biotechs with a drug or two in the pipeline.

Plus, as companies start to feel more confident in the new, more corporate-friendly environment in Washington, merger and acquisition activity is sure to pick up. I've got two biotech companies in particular that are both candidates for acquisition and just plain good buys right now.

Biotech Stock #1: Shire

The first stock I want to tell you about is



. I think it's almost a foregone conclusion that Shire, even with a $13 billion market cap, will eventually go to the highest bidder. But even if this acquisition doesn't come to fruition soon, Shire has other factors going for it that make it an appealing buy now.

Shire is a biopharmaceutical company based in Ireland, but U.S. investors can own shares by buying the American Depositary Receipts (ADRs). The company has two key business segments: best-in-class ADHD medications and "orphan drugs." These are drugs that treat diseases affecting fewer than 200,000 people, and the U.S. Orphan Drug Act of 1983 provides incentives to encourage development of these treatments that might otherwise be skipped over because of the relatively small number of patients who would benefit.

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Shire has a number of new drugs that should release clinical data or be rolled out of their pipeline during the fourth quarter. There are a total of 11 projects in full development of which eight are in Phase 2 or beyond. Many are expected to be approved and launched in the coming three years. Since most pharma companies have all their eggs in one or two baskets, this gives Shire breathing room in case any of these drugs fail to perform as expected or meet with delays.

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In the most recent quarter, earnings rose to $220.3 million from $89.2 million a year earlier, beating analysts' median estimates of $188 million. Shire reported a surge in its third-quarter profit, as manufacturing problems at rival

Genzyme Corporation


helped the sales of Fabry disease drug Replagal nearly double. Increased profit was also aided by higher sales of ADHD drugs Vyvanse (up 17%) and Adderall XR (up 41%), as prescription demand rose and the market for ADHD drugs expanded. Royalties from authorized generic versions of the medicine rose more than eightfold to $18 million.

Importantly, Shire raised its earnings forecast for the year, saying earnings, excluding some items, are expected to reach "up to $4.20" per share. The company previously said it expected EPS to be "trending toward $4."

Given its strength,

I recently raised my buy limit on SHPGY to $73.

If the company were acquired, I think it would be at a 25%+ premium to current prices. I'm going to stay conservative with our $85 target in the event Shire is not bought, but I think the stock is a good buy here.

Biotech Stock #2: Dendreon

In many ways, the second company I want to tell you about,



, is the poster child for game-changing biotech stocks. This company makes a prostate cancer treatment called Provenge, which is taken from the patient's cells and trains the body's immune system to fight the cancer. Provenge was approved by the FDA earlier this year to treat advanced prostate cancer, but the company is hopeful the technology will apply to other cancers as well in the future. Plus, Dendreon, a small company with a breakthrough treatment, is a perfect candidate to be bought out by a large pharmaceutical or biotech company.

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I've followed Dendreon's up-down-up story for some time, and I recommended it publicly on Feb. 3 on PBS'

Nightly Business Report

(it opened at $30.10 the next morning) and again on March 1 in an article in


(when it was at $31.38). I recommended cashing in on May 3 when the stock was at $55.43, and then got back in to the stock in August when I saw another opportunity to make some nice profits.

Provenge really does change the game when it comes to treating cancer. Doctors draw blood to produce a personalized dose of the vaccine. That vaccine is then dripped back into the patient's blood stream and,

according to a recent report in the

New England Journal of Medicine

, extended lives by 4.1 months in patients with advance prostate cancer. That's significant in the world of oncology treatments, and because the drug is made from the patient's cells, side effects are much less than standard chemotherapy treatment, resulting in a much better quality of life.

The drug delivered both good and bad news during its first quarter on the market.

The bad news is Provenge didn't bring in as much money as analysts had expected for the third quarter. Sales came to $20.2 million, which was $3.6 million less than analysts estimated as the company works to ramp up production. A little over 200 patients have been treated with Provenge, but more than 1,000 prescriptions have been written for it. Dendreon doesn't expect to be able to make enough Provenge to satisfy demand until its manufacturing facilities come fully online next year.

But here's the good news: Supplies have already ticked upward since the quarter ended, with sales amounting to $9.5 million for October, or about 100 patients' worth. Dendreon is on track to further boost production next March when the additional capacity at its New Jersey plant comes on line and again (likely midyear) when facilities in Atlanta and Los Angeles are set to start manufacturing the customized therapeutic treatment.

Altogether, the company estimates Provenge sales of $350 million to $400 million for 2011, with much of that coming in the fourth quarter when production is running on all cylinders. Those estimates are close to analysts' expectations of $401 million.

Dendreon is not yet an earnings story (although it's getting closer to being one), but the company did lose $56 million for the quarter. That was higher than expected and higher than a year ago because of launch costs associated with Provenge.

DNDN pulled back after its earnings release on Nov. 3, but there really wasn't much of a surprise here. We knew manufacturing capabilities were limited. It's a hard drug to make, and it wouldn't have made sense for Dendreon to start to ramp up production before final FDA approval. The selling is a classic "what have you done for me lately" mentality from impatient Wall Street and an overreaction.

Buy DNDN below $42.50.

DNDN and SHPGY are among Hilary Kramer's top GameChangers buys. For the stocks you should avoid , sign up now for a free copy of "The Dirty Dozen: 12 Big-Name Stocks to Sell." And to learn more about her GameChangers investing advisory, click here.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.