Genta

(GNTA)

was one of the earliest winners for

InsiderInsights

. I first recommended it in my first issue, when Sept. 11 sent investors around the world fleeing. I reasoned then that a protracted battle with terrorists would not stop people from getting diseases that are targeted by several beaten-down biotechs, and agreed with insiders that they were good buys.

The position in GNTA rose from $8.57 when I recommended it to as high as $18 in the following weeks. Last December, however, the stock traded down sharply, and my recommendation was stopped out at $14 for a 63.4% gain.

After falling further, GNTA climbed back up to $18 just three months ago, and I lost interest in the stock as it seemed too high to chase. So I was certainly surprised to see Form 4s a couple weeks ago indicating that insiders were buying the stock for around $11.50. And even more surprised to see that GNTA had subsequently gapped down further.

I assumed by the stock's reaction that this biotech's main drug, Genasense, had been found to cause the plague. Instead, I found a good buying opportunity.

The Background

Genta was beaten up after announcing that it is expanding clinical trials and delaying the timeline for expected FDA approval for Genasense, which treats melanomas.

The decision to proceed this way stems from the current regulatory environment. A slew of drug applications have been shot down by the FDA because of clinical testing cycles that were deemed too short.

Genta's decision to take a go-slow approach was virtually mandated by its partner

Aventis

(AVE)

, a $53 billion (in market cap) drug giant. Aventis has signed a comprehensive agreement with Genta to develop and market Genasense. Aventis clearly has high hopes for the drug, as it has agreed to pay up to $480 million to Genta if all milestones are met.

But the agreement also pretty much puts Aventis in the driver's seat, and Aventis isn't overly concerned if its long-term plans put the hammer to Genta's short-term stock price performance.

And that's just what they did.

In the last two months, shares of Genta have plummeted from $18 to $7 on the heels of the regulatory delay. The selling comes even as a $72 million cash infusion from Aventis puts the small biotech on firmer financial footing.

Genta's CEO Raymond Warrell expressed a great deal of anger at the market's reaction. After the stock sold off, he spoke with various reporters and explained that the new game plan for Genasense will actually increase the likelihood that the drug gets approved, because the statistical sample will be larger.

Warrell did concede that Genta would probably not have expanded the trials were it not for Aventis' prodding. But he adds that Aventis' cash support helps him to be more patient. "When you are a smaller company, you need to take a somewhat higher level of risk than you would if money were not constrained," he told

Forbes.com

.

The Case for Buying Now

There's still a great deal of optimism for Genasense's approval. That's because there hasn't been a new treatment for melanoma in more than 25 years, and current treatments are only partially effective. Melanoma, a type of skin cancer, is one of the most commonly diagnosed diseases in the world. Diagnoses are also increasing at a faster clip, as previous eras of sun worshippers are now showing increasing signs of skin cancer.

After Genta announced the expanded regulatory trials, sell-side analysts hammered the stock, sending it from $10 to $7. They lowered their ratings simply because the stock no longer has near-term catalysts.

I agree. And that's fine. This is now a 2003 story. But I think that the stock, now trading some 30% below those analyst downgrades, is at a fine entry price for more forward-looking investors.

CEO Warrell presumably agrees, as he bought 3,000 shares back when they fetched $11.60. Doug Watson, a company director, bought 5,000 shares as well at around $11 on May 20. This was right around the time that Aventis and Genta expanded their far-reaching relationship. These executives clearly misread how the Street would handle the delays, but their long-term bullishness in the stock appears well-founded.

Shares may not spike sharply anytime soon, but they could build steadily as investors come to see just how cheap this biotech has become.

Jonathan Moreland is director of research and publisher of the weekly publication InsiderInsights and founder of the Web site InsiderInsights.com. At the time of publication, Moreland had no position in any of the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, Moreland invites you to send comments on his column to

jonathan@insiderinsights.com.