Biotech 101: Valuing Binary Events

Sarepta Therapeutics, Revance Therapeutics, and Cytokinetics saw big moves recently; MannKind and Orexigen could be next.

May 5, 2014 at 6:18PM

Binary events are the lifeblood of investing in biotech companies. A clinical trial result or Food and Drug Administration decision can send the company's value up or down considerably. And not necessarily the same amount in either direction; the magnitude of the move is ultimately based on the expected outcome. If it goes against consensus, you'll see a bigger movement.

Recently we saw a couple of big moves. Sarepta Therapeutics (NASDAQ:SRPT) moved up dramatically after announcing that the FDA was willing to assess Sarepta's Duchenne muscular dystrophy drug, eteplirsen, for an accelerated approval. Revance Therapeutics (NASDAQ:RVNC) also went up on positive results from a phase 1/2 study for RT002 as a treatment for moderate-to-severe frown lines. Investors were impressed with the duration of response -- more than seven months -- for Revance Therapeutics cosmetic drug. Finally, Cytokinetics (NASDAQ:CYTK) was the loser of the group when tirasemtiv failed a phase 2b clinical trial in ALS. Part of Cytokinetics' steep decline in might be because the company doesn't have much else in its pipeline. Cytokinetics does have another phase 2b drug in development, but it's partnered with Amgen.

In the video below, senior biotech specialist Brian Orelli and health-care analyst David Williamson discuss how investors should value binary events and preview MannKind (NASDAQ:MNKD) and Orexigen (NASDAQ:OREX), which are facing FDA decisions for their drugs in the coming months. MannKind is developing an inhaled insulin called Afrezza, while Orexigen is looking for approval of its obesity drug Contrave.

Warren Buffett doesn't need binary events
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Brian Orelli, David Williamson, and The Motley Fool have no position in any of the stocks mentioned. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

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Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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.

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