John writes:

I have yet to hear a reasonable explanation for the collapse in biotechs. We know it's not related to any single drug. Does the market believe that Congress has the power to dictate prices to the drug companies? I've heard that they don't. The rotation theory doesn't seem to hold water either. Why would anyone rotate out of a high-growth stock into one with lower growth assuming the same P/E? Is this simply stock manipulation by the big hedge funds attempting to shake out the small guy? Is this about leverage causing an avalanche effect? Is this about foreign ownership selling their shares? Please, I need answers to this madness.

Savvy market participants know Congress lacks the power to regulate drug prices -- today. The concern is more about what happens in the future if drug prices continue to climb and our collective ability to pay for drugs (and all healthcare expenses) can't keep pace. Gilead Sciences' (GILD) hepatitis C drug Sovaldi has become the whipping boy for this drug pricing and reimbursement debate recently -- unfairly, in my opinion. I'd like to see Congress bitch about Vanda Pharmaceuticals (VNDA) pricing a year's worth of me-too melatonin Hetlioz at $80,000!

Investors generally don't rotate out of high-growth stocks unless they're worried about the sustainability of that growth i.e. what happens if the "E" in forward-looking P/Es is about to fall. What's frustrating about biotech investing is fickle sentiment. One day, everyone is happy, focused on stellar, near-term growth -- high P/Es! The next day, investors panic about earnings in 2025, lower P/Es.  

Since the end of February, biotech large-cap P/Es have contracted by about 15% to an average of 19, which puts them on par with the P/E for pharma, according to ISI's Schoenebaum. That's remarkable.

March was a bad month for biotech stocks. No doubt. But April has started on a more positive note, so perhaps the correction or mini-bubble burst is played out. We'll see. Just remember fundamentals and valuation matter.

Lawson H. has a complaint:

When are you going to admit you are a pump and dump artist and take the honorable way our after harming so many people?

Pump and dumper? Me? I thought I was a hedge-fund stooge and biotech basher? Make up your mind!

I don't know. Six months is an arbitrary time period for Northwest Bio  (NWBO) because the only fundamental catalyst which matters -- the phase III study of DC-Vax in brain cancer -- is still enrolling patients (slowly) and won't be completed any time soon. I've explained at length already why DC-Vax is a weak cancer vaccine and won't work. It's in Northwest Bio's interest to extend the brain cancer study as long as possible but failure can't be stalled forever.

Northwest Bio is developing a second cancer immunotherapy -- DCVax-Direct -- which is even more farfetched than the "regular" DC-Vax. Here's how the company describes DCVax-Direct:

DCVax-Direct  is designed for situations in which the tumors are inoperable  where it is not feasible or not desirable for patients to have their tumors surgically removed. This includes situations in which patients have multiple metastases, or for other reasons cannot have their tumors removed. Like DCVax-L, DCVax-Direct also incorporates the full set of tumor antigens  but it does so in situ in the patients body rather than at the manufacturing facility. With DCVax Direct, the fresh, new dendritic cells are partially matured in a special (patent-protected) way so as to be ready to pick up antigens directly from tumor tissue in the patients body, and also communicate the information about those antigens to other agents of the immune system, such as T cells. The partially matured dendritic cells are then injected directly into the patients tumor(s). There, the dendritic cells pick up the antigens in situ rather than picking up the antigens from lysate in a lab dish at the manufacturing facility, as is done with DCVax-L.

Can I be blunt? This is a stupid idea. Cancer grows undetected by a person's immune system, in part, because tumor cells have mechanisms to remain invisible to dendritic cells. With DCVax-Direct, Northwest proposes to take additional dendritic cells and inject them into a tumor, hoping they magically pick up a full set of tumor antigens. This is like Spinal Tap's Nigel Tufnel believing his amp is louder because the volume dial goes to 11.

Northwest is conducting a small, open-label, phase I/II study of DCVax-Direct in patients with inoperable cancers. An abstract has been accepted for June's American Society of Clinical Oncology annual meeting. Undoubtedly, Northwest Bio will seek to hype this inconsequential study. The DCVax-Direct data will go largely unnoticed by the thousands of ASCO meeting attendees because they'll all be flocking to standing room only presentations of truly effective cancer immunotherapies like the checkpoint inhibitors.

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