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Gamblers, psychics, speculators and coin-flippers: Mark your calendars, one and all, for a date likely to be the most spectacular one-day investment event in the first half of 2007.

On May 15, a week and a half from today, years of scientific research, venture investment, hope and prayer will result in an up-or-down vote from federal drug regulators on a prostate-cancer therapy developed by



, a small Seattle biotech company.

If the answer is yes, Dendreon can begin marketing a drug that could bring in as much as $1 billion a year, and the company's shares will soar. If the answer is no, then the company will be sent back to the drawing board with a big, smokin' hole in its pocket and shares down 90%. Hero or goat, in the blink of an eye.

The binary nature of the U.S. Food and Drug Administration decision -- heads you win, tails you die -- is typical of the crazy world of biotechnology, a market sector more suitable for Las Vegas than for Wall Street. The odds of winning at roulette are probably better than the odds of winning with biotech companies. It's the lure of the quick, gigantic buck that lures folks into both.

Warning: May Cause Undue Optimism

The game has gained heightened allure recently, as Dendreon shares tripled in a day of trading last month after a positive decision from a panel that investigated the therapy. Shares of


( MEDI), a veteran biotech company focused on respiratory disease and cancer vaccines, jumped 80% last month when it received a buyout offer from


(AZN) - Get Report


These flashy advances resonate with novice investors, as they make biotech look like easy money. But they truly are as rare as a moment of silence at a casino. Just look at the biggest, most powerful names in the industry:


( DNA),


( GENZ) and


(AMGN) - Get Report

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have sat out the broad market's entire 20% rally from last summer's lows, sinking 1%, 4% and 8%, respectively, though they're up a bit lately.

The grave problem with biotech investing is that it appeals as much to your heart as your mind. It appeals to your optimism, to your spirit as a buoyant, can-do capitalist. Biotech investors who do their homework always feel they have logical reasons for what they consider intelligent wagers on pharmaceutical science, and that is why the sector appeals to many bright people.

But the reality is that most fatal illnesses remain as stubbornly resistant to attack today as in the days of Hippocrates. For every therapy that the FDA approves for human consumption -- creating billion-dollar companies and millionaire shareholders -- there are hundreds that it rejects, creating unending pain and tremendous losses.

At this moment in time, there are 116 public biotech companies whose shares are up at least 1% in the past 12 months. Yet there are 165 more that have suffered losses in the past year. That's sad but not tragic. Where it gets ugly is at the extremes, as there are 20 that have suffered losses of 40% or worse in the past year. Just eight have gone the other direction and doubled, and most of those are already well off their highs.

Conflicting Results

Dendreon is the poster child for what's wrong with biotech investing for most sensible people with limited investment funds: Its researchers have tackled a terrible disease, which kills 27,000 men a year, in an innovative, seemingly brilliant way. Its lead product candidate, called Sipuleucel-T by scientists and called Provenge by the marketing department, is designed to stimulate a patient's own immune system to battle advanced metastatic prostate cancer.

This is an awesome idea because, unlike conventional chemotherapy and radiation treatment, it's not a highly toxic compound that makes patients sick while they try to recover. Moreover, patients don't have a lot of choices. The most common treatment, a drug called Taxotere from


(SNY) - Get Report

, doesn't work so well and causes miserable side effects such as nausea, hair loss and mouth sores.

The problem is that while Provenge has been found to prolong the lives of patients with advanced prostate cancer by four months, in one clinical study reviewed by a company-sponsored panel of scientists, it didn't meet its primary goal of slowing the spread of the disease. There are also questions about whether the trial was lengthy enough or included enough patients.

Though regulators are usually sympathetic to drugs that help people live a little longer, they don't usually approve therapies that don't actually meet their goals. Dendreon has told investors that a more comprehensive trial now under way, gauging the survival of 500 men with advanced prostate cancer, will not be concluded until 2010.

I'm not a scientist, but my own guess is that the FDA may balk at the investigative panel's findings in part because two clinical trials provided conflicting results that even a company consultant called "less than perfect." The first three members of the 17-person investigative panel last month voted against approval, but then the FDA changed its definition of effectiveness for the drug -- lowering the bar to help it pass.

Skeptics believe the panel, whose members are chosen in large part by the company, was biased and does not reflect the FDA's point of view. They point out that Dendreon's chief executive sold 200,000 shares of stock soon after the panel's decision, suggesting he did so with the understanding that FDA approval was no slam-dunk. They say the only way the company will be able to prove that Provenge demonstrates a true "survival benefit" will come at the conclusion of the 2010 trial.

Still stinging from its misjudgments on the recalled


(MRK) - Get Report

pain medication Vioxx, the FDA does not want to rush to judgment on a drug that is not without risks. Although three years sounds like an eternity to investors who have already seen Dendreon burn through almost $400 million in research funds, it's really a short time to wait to determine whether the therapy works well enough to justify its costs and potential dangers.

It all amounts to a fascinating dilemma: Should the FDA approve the drug because it appears to have met its "secondary" goal of prolonging a patient's life by a few months, or should it reject the drug because it failed its primary objective of blunting the disease? In most similar cancer-drug cases, the FDA has rejected the drugs, but optimists believe it could take a new path with Provenge because the drug's unusual attempt to harness the immune system to fight disease may justify a different regulatory approach.

A Speculative Last Resort

These sorts of intractable, almost metaphysical issues play out all the time in biotech-land, which is what makes the sector such fun for speculators and often a nightmare for investors.

Personally, I recognize the limits of my ability to make these calls and stay as far away from the group as possible. But if you want to have some fun with it, here's a suggestion from veteran options trader Terry Bedford: Strictly play May 15 as a high-volatility event, and don't try to call the direction.

To do so, buy an equal number of at-the-money Dendreon calls and puts, which are highly leveraged bullish and bearish bets. On Tuesday, the $15 May call cost $5.30, while the $15 May put cost $4.60. When the stock breaks in one of the two directions after the FDA decision, immediately close the losing side. You will typically make more on the winning side than you lose on the failing side, and will collect the difference as profit.

At the time of publication, Jon Markman did not own or control shares of any companies mentioned in this column.

Jon D. Markman is editor of the independent investment newsletter The Daily Advantage. While Markman cannot provide personalized investment advice or recommendations, he appreciates your feedback;

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