Speculation runs rampant in biotech investing, and two stocks are enjoying sizable gains after finding themselves in the crosshairs of bullish sentiment today.
Shares of Celsion (NASDAQ:CLSN) led the sector higher today, closing with an impressive 17% gain. The catalyst wasn't the usual fare that can create sudden pops -- a press release or trial results, for instance -- but instead a bullish article posted on financial website Seeking Alpha.
Celsion's claim to fame is ThermoDox, a drug based on the company's Lysolipid Thermally Sensitive Liposomes (LTSL) platform being tested in a variety of cancers. This Seeking Alpha article focused on why, if trial results for ThermoDox in liver cancer are good, the stock will be off to the races. The results won't be released until early next year, so consider this the beginning of the speculative fury, with things only intensifying into January.
Make no mistake -- there is significant upside for investors if the liver cancer trial results are good, but the downside is equally massive if ThermoDox were to fail. And those who invest in Celsion while ignoring that risk wholesale do so at their own peril.
Similarly, Acadia Pharmaceuticals (NASDAQ:ACAD) is up 9% after hours on the eve of phase 3 trial results for its flagship drug candidate pimavanserin. Investors are taking it as a good sign that the company has already scheduled a conference call to discuss top-line results ahead of the data's release for the Parkinson's disease psychosis (PDP) treatment. But that's just a hunch.
Still holding worldwide rights to the first-in-class drug will be a feather in the company's cap if it looks for a buyer, or at least a way to raise the funds to launch the drug without diluting existing shareholders. But as is the case for Celsion, investors wanting to get in ahead of the binary event should weigh the risk that current sentiment is wrong. With no approved drugs, tonight's 9% gain could vanish in an instant if the results go the other way for Acadia.
Bottom line, understanding binary events as both of these stocks have in their near future is critical to making money in biotech. However, don't just follow the speculative hype. Understand what you are buying and, more importantly, what can go wrong.
David Williamson and The Motley Fool have no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.