Our Top Biotech Stock Idea

Editor's note: This article is a stock pitch made by a member on CAPS, The Motley Fool's free investing community. The pitch is published UNEDITED and is the opinion of the CAPS member whose pitch it is, in this case: zzlangerhans.

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Company YM BioSciences (AMEX: YMI  )
Submitted By zzlangerhans
Member Rating 99.37
Submitted On 11/21/2011
Stock Price at Recommendation $1.50
YM BioSciences profile
Star Rating (out of 5) ****
Headquarters Mississauga, Ontario
Industry Biotechnology
Market Cap $172 million
Industry Peers Incyte (Nasdaq: INCY  )
Novartis (NYSE: NVS  )
Onyx Pharmaceuticals (Nasdaq: ONXX  )

Sources: S&P Capital IQ, Yahoo! Finance, and Motley Fool CAPS.

This Week's Pitch:

There's a move in baby biotech that I call the Sandbag, in honor of the original Indiana Jones movie Raiders of the Lost Ark. In the opening scene, Indiana braves numerous booby traps to reach his goal, the golden head of an Aztec god. Indy knows that removing the head from the pedestal will trigger the collapse of the temple so he has brought a bag of sand with him that approximates the weight of the head. He deftly knocks the head off the pedestal with the bag and leaves the bag in its place. For a moment he thinks he has succeeded in fooling the weight detection system, but then the pedestal starts to sink into the ground and all hell breaks loose.

As you might have guessed, the baby biotech Sandbag occurs when a company bumps a failing lead drug out of their PR statements and replaces it at the top with a new compound. The goal is to cushion or totally avoid the plunging share price that would be precipitated by abandoning the lead program by diverting investors' focus to a new area. If done poorly, the stock may collapse into the pennies like an Aztec temple (see CytRx, [Adventrx Pharmaceuticals]). On the other hand, companies like [Synta Pharmaceuticals (Nasdaq: SNTA  ) ] and [Neurocrine Biosciences (Nasdaq: NBIX  ) ] have been much more successful with the move.

After reading YMI's most recent earnings PR, I saw that they've completed the Sandbag maneuver they began about a year ago. The body of the statement features pipeline newcomer CYT387 prominently while former lead compound nimotuzumab has been relegated to the "About YMI" postscript, despite several late stage trials still in progress. Right now, YMI's pedestal seems to be quivering ominously.

I've learned not to count out a biotech because of the messy failure of a lead compound, so I'm keeping an open mind about CYT387. The drug was responsible for elevating the share price over 3.5 after the company reported encouraging response rates in myelofibrosis at ASCO, and the effects compare favorably to Incyte's ruxolitinib which was just approved for the same indication. Updated data from the ongoing phase II trial will be presented at ASH in early December, and strong results could have a very dramatic effect at the current depressed share price. YMI is looking like a potential real buy later this month as long as the world's economic cheese doesn't completely fall off its cracker.

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The Motley Fool is investors writing for investors. Dan Dzombak did not have a position in any of the companies mentioned in this article. Pitches must be compelling, made in the past 30 days, and be at least 400 words. Motley Fool newsletter services have recommended buying shares of Novartis. 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.


Read/Post Comments (1) | Recommend This Article (3)

Comments from our Foolish Readers

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  • Report this Comment On November 27, 2011, at 9:11 PM, shirlhinkle wrote:

    My plan is to get ahead of the game for once!

    I have more mortgage than house value.

    A large number of people lost jobs and houses in 2008 and 2009.

    Many had to declare bankruptcy.

    A portion of these people have been back to work for at least 1 year.

    They are in a good position to purchase a new home at discount prices.

    They will start qualifying for new mortgages 3 yrs after bankruptcy.

    That means these homes can get financed in 2012 and 2013.

    I'm getting on board with FNMA while it is a sleeper.

    It’s only going for 20¢!

    I don’t think the government will let it’s own property fail, do you?

    It jumped up to $1.00 last Feb 2011, so it has potential now.

    I think it is going to go far past this level - to $35 within 10 years.

    By betting $200 for 1000 shares I could lose my little investment.

    But, when it goes to $2 I make 10x my money, or $10,000.

    It was at $70 in 2008.

    When it goes to 10% of that amount or $7 that's 35x gain.

    For 1000 shares that's $35,000.

    I will use this benefit from FNMA to pay my mortgage down.

    Then I will have more house value than mortgage.

    That is the way life should be.

    It is definitely worth risking $200.

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