If imitation is the sincerest form of flattery, I'm going to give fellow Fool Rick Munarriz a big pat on the back by robbing him blind. Inspired by his creation of a promising but hair-raisingly risky portfolio of six stocks that could be bought for a total of less than $99, I'm going to try the same stunt in the biotech universe.
Now, let's keep a few ground rules in mind. This isn't necessarily a list of the six best biotech stocks out there. Rather, it is a collection of six interesting biotech ideas that all just happen to come in under $99 in total as of this writing. What's more, it is by nature a cursory review, so it's simply not possible to detail all of the risks and other salient facts about each company. That said, I see promise in each and every one of these ideas and believe that risk-tolerant Fools should look deeper on their own time.
I think it's also important to note that the companies listed below are a bit riskier than what I normally like to consider for my own investments. Although I generally prefer biotechs with either at least one phase 3 clinical candidate or multiple phase 2 candidates, some of these companies have only one or two legitimate candidates at present. Of course, that's the nature of the biotech investing game -- if you want to get in on the ground floor, you have to run the risk of that floor collapsing beneath you.
Without further ado, here's the dirty half-dozen:
Acadia
Pharmaceuticals
The mind is what matters for Acadia, and the nervous system is where it wants to make its home. Schizophrenia and Parkinson's disease can be debilitating for the many folks who suffer from those diseases. And while upwards of $14 billion is spent each year on drugs to combat them, many drugs prove unsatisfying because patients either do not respond or suffer significant side effects.
Acadia is hoping to rectify that situation with two phase 2 drugs: one targeted at Parkinson's and adjunctive therapy for schizophrenia, and the other targeted solely at schizophrenia. The company also has a development agreement with Allergan for drugs pertaining to neuropathic pain and glaucoma.
Alexion
Pharmaceuticals
Aggravated by inflammation? Alexion wants to help you. The company has several clinical programs under way that target high-profile problems like coronary bypass, heart attack, arthritis, and nephritis.
It's not all about the famous diseases, though. A successful phase 3 study in paroxysmal nocturnal hemoglobinuria (PNH) could result in $300 million a year in drug sales from eculizumab alone. If the pexelizumab bypass trial also succeeds, Alexion would be even more interesting for investors, as this too would have significant sales potential.
Arena Pharmaceuticals
Arena is hoping for fat profits from its G protein-coupled receptor drug technology. The company's most advanced drug, APD356, is targeting one of the most serious and rapidly growing health-care issues in the country -- obesity. In addition to this phase 2 study, the company has a phase 1 study under way in insomnia and potential candidates in diabetes, cardiology, and inflammation.
Crucell
NV
If there's a nasty infectious disease out there, Crucell wants to find a way to prevent it. Possessing three distinct high-potential technology platforms, the company has turned its attention to facilitating the development of vaccines for diseases like influenza, West Nile virus, Ebola virus, tuberculosis, and malaria. While none of its clinical programs are especially advanced, Crucell has more than a half-dozen partnerships with leading pharmaceutical firms. My brain tells me this stock is expensive, but my instincts tell me that if these vaccines work out, the long-term potential will be large indeed.
DOV Pharmaceutical
There are several product candidates here that could take flight for investors. The company has licensed out the rights for a new insomnia drug, indiplon, to NeurocrineBiosciences and Pfizer
And if that isn't enough to ease investors' pain, bicifadine could help. This drug has shown encouraging results in studies of acute post-surgical pain and chronic lower back pain and could be worth close to half a billion in sales in 2009 if development stays on track. Better still, a host of early-stage candidates for depression, anxiety, addiction, obesity, attention deficit, and angina round out the roster.
Millennium Pharmaceuticals
I won't be the least bit surprised if Millennium proves to be the most controversial of these six picks, even though it's the only one with an approved drug on the market (two, in fact). The trouble at Millennium is that sales of the Velcade cancer drug have flattened out, and many investors fear that follow-on studies designed to expand its labeling won't work. What's more, the company is in the midst of a restructuring effort designed to speed its path toward profitability.
One of the casualties of the restructuring would appear to be the company's research efforts in inflammatory diseases. While it seems that this move is targeted more at the discovery/basic research level and not the clinical pipeline, it still represents a shift in focus more toward oncology. Still, this is a biotech nearing profitability with more than a half-dozen clinical candidates in trials.
The bottom line
Although this six-pack is certainly risky, I'm willing to bet that at least two of the six will succeed in a big way over the next three to five years. By the way, I'm also willing to bet that at least one of them will incur crushing failure and be all but out of the picture by the fall of 2010. That's the allure of biotechnology investing -- a few grand slams mixed in with more than a few complete strikeouts. The key, as always, is to diversify your risk so that one clinical failure doesn't wreck your entire portfolio.
And by no means is this any sort of final word on promising biotechs. Charly Travers and the rest of the Motley Fool Rule Breakers team spend considerable time sleuthing out the promising new drug companies that others may have misunderstood or just missed entirely. (Indeed, the Rule Breakers team has recommended seven biotech stocks to subscribers -- one of which is up 115% since it was picked in February.) I myself have had good times in the biotech space, stretching back to when ICOS and Neurocrine were risky unknowns. For the patient, diligent, and risk-tolerant investor, a $99 portfolio of stocks could be the launching point for some major winners.
For more on the never-a-dull-moment world of biotech:
For a free peek at all the growth companies in our Motley Fool Rule Breakers portfolio (including the aforementioned seven biotechs), click here for a free 30-day trial. You'll enjoy full privileges -- two stock picks, access to all back issues and buy reports, mid-month updates, and dedicated discussion boards, where a team of Fools is keeping tabs on the market's movements.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares). Pfizer is a Motley Fool Inside Value recommendation. The Motley Fool has adisclosure policy.
