Last week, while biotech stocks across the board were getting creamed, Biomatrix ( BXM) managed to squeeze out a two-point intraday gain. The gain, which vanished in trading this week, resulted from the Food and Drug Administration's preliminary approval for the company's HylaSine product. Basically, HylaSine is a kind of goo doctors insert in your sinuses during surgery to minimize bleeding. Medicinal goos of any kind rarely trip people's triggers. Biomatrix's modest move last week, however, illustrates an important point. The entire biotechnology arena is full of arcane products such as HylaSine that'll never cure AIDS or cancer or even the flu. But they do make profits and move stocks. And if you want to be successful as a biotech investor, you'd best learn about them. That means going to the Web, unless you want to spend eight years and $100,000 on a full-blown medical school education. Unfortunately, you won't find a single, large, competently run Web site that's geared totally to biotech investors. So here's how you can at least get up and running with the hodgepodge of sites now out there.
Background From the Experts
The first place you should go is to Biotech 99 , Ernst and Young's 76-page annual report on the biotech industry. Then go to Access Excellence , a site run by the National Health Museum. If you know nothing about biotech except that the sector's stocks regularly go into spasms, the tutorials accessible from the home page are for you. Likewise, a search at familiar, old Scientific American magazine turned up 89 backgrounder articles on biotech -- enough to keep you busy the rest of the weekend. And BioMedNet.com publishes a daily online newsletter that keeps you up on scientific developments.
How can you find the next hot biotech company? One way is to follow the money. Make that the early money. Red Herring magazine, the Web site for the technology-finance magazine of the same name, has been giving a lot more coverage to biotechnology lately. It's here that you'll find out which venture capitalists and investment banks are backing biotech start-ups in their pre-IPO stages. The more impressive the lineup of backers, the more hype the IPO is liable to generate.
Tracking Clinical Trials
One way to ride along with a biotech stock is to track its products through the Food and Drug Administration approval process, which can take seven years or longer. Biotech stocks react to the FDA announcements along the way in the same manner that most companies move on whisper numbers and upgrades -- only more so. In a positive market environment, a biotech can move 60% to 80% if the FDA allows the drug to continue into the next phase of trials. The Web site for the Pharmaceutical Research and Manufacturers Association, or Phrma, explains the process in detail. Plus, you'll find news and updates on relevant international treaties and legislation, both of which can rattle these stocks. Another Web site, CenterWatch , tracks clinical trials in progress. And it will email you at the onset of a new research study that meets your area of interest. This site is intended mainly for patients who want to participate in the research themselves. Next, pay a visit to biotechnology megasite BioSpace.com , which lists biotech companies whose products are currently in some phase of clinical trials. Actually finding out when the FDA will render its verdict involves some further detective work, though. The FDA Web site publishes a list of upcoming meetings, along with contact phone numbers. Often, but not always, the agenda mentions specific companies whose products will be decided upon. But as with your city's planning and zoning boards, there's no guarantee a decision will be made at that meeting. Betting on FDA approval is a crapshoot in any event -- even for industry insiders. Wayne Hockmeyer, chief executive officer of MedImmune ( MEDI), told attendees at a recent investor conference that he once walked into an FDA advisory panel meeting certain that his company's pneumonia-treating drug, RespiGam, would get approved. But the panel voted unanimously against it. And, of course, MedImmune's stock choked.
So how can you hedge your bets when you invest in biotech? Again, the Web provides some help -- but not a lot. BioSpace.com is the closest thing to an investor's hub. The site dispenses a free daily newsletter and pulls up a list of the most active stocks in the sector, along with a list of mutual funds . Besides focusing on the progress of the company's research efforts, pay attention to news about alliances. News of an alliance can be good or bad for a biotech stock. It's good if the company's a high-burn-rate start-up and the alliance is with a big pharma mother ship that'll ensure a future supply of cash. The flip side is that alliances can cost a company future revenues. And the cash-rich partner often has the option of cutting the umbilical cord if certain milestones aren't met. BioWorld Online publishes pay-per-view analyses of biotech alliances. But the reports cost $300 each. If you want free trading advice, the pickings get a lot slimmer. Biofind provides a biotech chat site, plus opinion pieces from streetadvisor.com . For some basic investment advice on biotechs, try BioTech Navigator , a newsletter that costs $150 per year. But the site contains some good free tutorials. And you can look at back issues for free. Three other newsletters worth checking out are Beck on Biotech online (monthly, $150/year), the Medical Technology Stock Letter (biweekly, $320/year) and MedicInvestor (daily online commentary, $40 per quarter). It's not much to go on when you compare it to the wealth of other financial information on the Web. With so few places to go for good information, I'm guessing that a lot of biotech investors out there must be flying blind. The sector's wild gyrations are good evidence of that, which means a little bit of homework on your part could go a long way.