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Mid-cap Biotechs are the Best Bet

George Budwell
October 1, 2013

Wall Street has fallen in love with biotech. Over the past two years, the NASDAQ Biotechnology Index Fund (NASDAQ: ^NBI) is up 125%, trouncing both the Dow Jones Industrials and the S&P 500 in terms of return on investment (ROI). This sudden interest in biotechnology is certainly no accident. Drug approvals by the U.S. Food and Drug Administration (FDA) are at historically  high levels, due in part, to regulatory changes at the FDA leading to smoother drug reviews. In turn, this marked increase in drug approvals has given investors the confidence to speculate more freely on drugs still in the throes of risky clinical trials.

For example, investors have pushed the share price of Acadia Pharmaceuticals (NASDAQ: ACAD) up an astounding 985% over the past year, based solely on the belief that the company's flagship drug candidate for Parkinson's Disease Psychosis, pimavanserin, will ultimately be approved by the FDA. Even so, Acadia has announced that it will not even file a New Drug Application for pimavanserin until the end of 2014, suggesting that these prices are a tad overinflated for a company lacking any form of revenue, and still burning tons of cash.

In a similar manner, biotech investors jumped into MannKind Corp. (NASDAQ: MNKD) with both feet earlier this year in hopes that the company's pivotal Phase III data for its inhaled insulin product, Afrezza, would bring MannKind to the promised land of drug approvals. Since the company announced positive trial results in August, the stock has fallen back to Earth somewhat due to a number of questions surrounding the feasibility of successfully commercializing an inhaled insulin product. Whi