I Love This Industry

You've got to love biotech. In what other industry can you routinely see double-digit single-day pops?

Yesterday it was Dyax's (Nasdaq: DYAX  ) and Santarus' (Nasdaq: SNTS  ) turn. Dyax ended up 21% on the day and Santarus was up as much as 36% before pulling back. Both had Food and Drug Administration approvals for their drugs -- the key step to success in this hyper-growth industry.

Dyax's drug Kalbitor was approved to treat attacks of hereditary angioedema (HAE), a rare disease that results in swelling, which can be life-threatening if it occurs near the airway. While the disease may be rare, treatments for it aren't. ViroPharma (Nasdaq: VPHM  ) already has a drug, Cinryze, on the market to prevent the attacks and CSL Behring's drug Berinert will compete directly with Kalbitor to treat the attacks. Kalbitor may have a slight advantage over Berinert, which is limited to treating attacks in the abdomen or face.

Santarus' bump was for an over-the-counter version of its heartburn medication Zegerid, which will be marketed by Merck (NYSE: MRK  ) . Getting the drug in easy reach of heart-burn sufferers should help sales which only amounted to $31.5 million last quarter for the prescription version of the drug. It'll have a lot of competition, though, from Procter & Gamble's (NYSE: PG  ) Prilosec, GlaxoSmithKline's (NYSE: GSK  ) Tagamet, and even Pepcid, which is sold by a joint venture between Merck and Johnson & Johnson (NYSE: JNJ  ) . Santarus will get a $20 million milestone payment from Merck for the approval and is due low double-digit royalties on sales of the product.

While biotech has plenty of ups, it's not without its risks. Hemispherx Biopharma plummeted 41% yesterday when the FDA turned down its treatment for chronic fatigue syndrome, but that was a long shot at best with its shaky phase 3 data. A little closer to home for yesterday's winners, Dyax is down today after partner Cubist Pharmaceuticals said it's ending enrollment early in two phase 2 trials early. The highest dose of Kalbitor appeared to be associated with increased deaths in one trial testing the drug's ability to prevent blood loss during heart surgery.

Still, if you pick your battles right, the rewards can sharply outweigh your risks.