For Biotech, 'Fail' is Making a Big Comeback

BOSTON ( TheStreet) --"Fail" is re-entering the lexicon of the biotech investor.

Biotech stocks seemed like they could do no wrong for awhile there, but all hot streaks come to an end eventually, witnessed by a recent string of disappointing clinical trial results and FDA rejections.

Monday, Tranzyme Pharma ( TZYM) announced the failure of a phase III study of ulimorelin, an experimental drug designed to accelerate the gastrointestinal recovery of patients after bowel surgery. Transyme shares plummeted 71% to $1.49 in early trading.

Late Friday, Anthera Pharmaceuticals ( ANTH) was forced to halt early a phase III study of its heart drug varespladib. The problem: Varespladib doesn't work. Anthera shares are trading down 55% to $2.81 in Monday pre-market session.

Also Friday, Peregrine Pharmaceuticals ( PPHM) released negative results from a phase II study of its lung cancer drug bavituximab, which was only able to delay tumor growth by 9 days over a control.

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These three drug blowups follow closely the setback for Oncothyreon's ( ONTY) lung cancer vaccine Stimuvax, which failed to show a significant benefit after a much-hyped interim analysis of a late-stage trial.

The FDA approved a new therapy to improve lung function of premature babies from Discovery Labs ( DSCO), but a short-lived pop in the company's stock price was quickly sold off. FDA also rejected drug applications from NeurogesX ( NGSX) and Astex Pharmaceuticals ( ASTX).

The Nasdaq Biotechnology Index is up 14% for the year and still outperforming the broader indices, but the gap is narrowing. What was an 11% margin in mid-February between the NBI and S&P 500 is now down to a 5% gap.

Investors are being reminded that drug development is risky, but they are also being bombarded with a glut of new stock issued by biotech and drug companies seeking to raise new cash on the sector's strength. Amylin Pharmaceuticals ( AMLN), Xoma ( XOMA) and Jazz Pharmaceuticals ( JAZZ) are among companies selling stock to raise cash in recent weeks.

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Adding insult to injury, Peregrine filed a new $150 million mixed shelf on the same day it announced the negative bavituximab data. Adventrx Pharmaceuticals ( ANX), a serial stock diluter with an abysmal drug development track record, signaled its intent to once again hit up investors for more cash. The company filed a $150 million mixed shelf Friday.

Meantime, the flurry of mergers and acquisition activity that began late last year and which launched the biotech sector into overdrive has slowed noticeably. Investors are still waiting to see whether hepatitis C developers Idenix Pharmaceuticals ( IDIX) and Achillion Pharmaceuticals ( ACHN) are taken out following similar deals for Pharmasset and Inhibitex.

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Where has all the good new in biotech gone?

--Written by Adam Feuerstein in Boston.

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Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.