Lots of good biotech tweets this week. A little volatility will do that.
As a reminder, tweet me at @BiologyFool if you see an educational or entertaining tweet that you think should be included in next week's roundup. Admittedly, I can't see every interesting tweet out there. Here are my top five for this week.
I have to admit, as nasty of a day as this is, there's not really anything I'm dying to jump in and buy. That's probably a bad sign.— Brad Loncar (@bradloncar) October 8, 2013
Talk about a sign of a bubble. Brad wrote that on Tuesday, when the Nasdaq Biotechnology Index fell more than 4%. Buying on dips is usually a good way to add to your portfolio, but if everything still seems overvalued even after a substantial drop, investors should take it as a sign that we're nearing the maximum capacity of a bubble. Prepare accordingly.
According to @BioCentury FDA had about $120m in carryover PDUFA fees as of 10/1, enough for about 2 months operations— Andrew G. (@BioDueDiligence) October 10, 2013
The Food and Drug Administration is still reviewing drugs during the government shutdown because part of the agency's budget is paid for by drugmakers as part of the Prescription Drug User Fee Act, or PDUFA for short.
But the agency isn't collecting any new PDUFA fees, so it'll eventually run out of money -- in about two months, according to trade journal BioCentury. Of course, if this shutdown goes on that long, investors will have a lot of bigger things to worry about than whether drugs are getting reviewed.
2010-2012 Drug discovery biotech IPOs-No clear relationship between year 1 insider sales and share price performance pic.twitter.com/bOBZ2gO6HQ— John Alan Tucker (@JohnTuckerPhD) October 10, 2013
This is a really interesting chart. If insider selling was a sign that they knew the company wouldn't perform well, you'd expect to see a trend down and to the right.
Instead, the best performer in this IPO class, Aegerion Pharmaceuticals (NASDAQ:AEGR), had heavy selling in the second year after its 2010 IPO. The funny thing is, most of Aegerion's returns have come in the last year, after the insiders sold. Aegerion is up 485% over the last year on the development and approval of its orphan drug Juxtapid.
You really have to look at why insiders are selling after the IPO. In many cases, its venture capital funds that need to return capital to their limited partners. The funds are typically established for a limited time, and aren't designed to be lifelong investments.
As $ARIA bombs with a marketed drug how does the sellside now feel attributing 80% and 100% success probabilities to early phase I projects?— Jacob Plieth (@JacobEPVantage) October 9, 2013
ARIAD Pharmaceuticals (NASDAQ:ARIA) crashed hard this week after highlighting the risk of blood clots with its blood cancer drug Iclusig. While the safety issue might not hurt sales of Iclusig when used as a treatment of last resort, it could hurt ARIAD's chances of getting the drug approved as a first-line treatment if ARIAD can't find a dose where the risk-benefit is in Iclusig's favor.
We usually think of the major risk for biotechs coming from their ability to pass clinical trials and get approved by regulatory agencies. But, as ARIAD highlights, even after biotechs have drugs on the market, their risk doesn't go to zero.
Lately, investors have been discounting the clinical trial and approval risk substantially, and ignoring the post-approval safety risk all together. I wonder how many more failures -- pre- and post-approval -- it'll take before investors wake up?
$GILD sign of the times- initial computer interpretation vs subsequent human judgment.— Brad Loncar (@bradloncar) October 9, 2013
Gilead Sciences (NASDAQ:GILD) initially dropped after the company issued a press release with the headline "Gilead to Stop Phase 3 Study 116 of Idelalisib in Chronic Lymphocytic Leukemia Early Because of Positive Risk-Benefit."
Stopping clinical trials early is often a sign of safety concerns, or lack of efficacy. Brad seems to be hypothesizing that high-frequency trading computers picked up on keywords -- stop, trial, early -- and sold positions automatically. I'd think the programmers would include fail-safe words like "positive" that would negate the trade. Maybe I'm giving them too much credit, but I'm guessing that it was fast-fingered human traders who didn't bother reading the entire headline before hitting the sell button.
Either way, the lesson is clear: Quick trades can get you in trouble. Investors eventually got it right after reading the entire release, and realizing that Gilead's idelalisib is working really well.
Fool contributor Brian Orelli has no position in any stocks mentioned. The Motley Fool recommends Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.