Biotech investors live for the binary event, when a single piece of news -- be it a trial result or an FDA decision -- can instantly double an investment. Take buyout candidate Theravance
But with the possibility of sudden riches comes big risks -- risks that new investors drawn to seemingly easy gains sometimes fail to grasp. Consider these three biotech bloodbaths from just this week a convenient reminder.
First up is the less-than-dynamic duo of Keryx Biopharmaceuticals
Perifosine's failure treating colorectal cancer hasn't doomed the drug to the waste bin -- yet. But the drug's phase 3 trial for multiple myeloma is in jeopardy as the management "carefully evaluates" it, citing recruitment difficulty. There was no word yet about its phase 2 trials treating several other cancers.
For investors holding on to an investment suddenly worth significantly less, there is a glimmer of hope. As usual, when a trial goes poorly, biotechs tend to focus on the positives. Both Keryx and AEterna touted other drugs in their pipelines. For Keryx, it's Zerenex in phase 3 trials, and for AEterna, its more robust pipeline includes AEZS-130 and AEZS 108 in phase 3 and phase 2 development. AVI management, gearing up for a phase 3 trial, is optimistic that over a longer regimen patients could see tangible results.
However, these companies live off hope, so don't just look at the sell-off and assume shares are cheap. Do your homework, understand the risks involved, and have a firm grasp on what you can afford to lose, if a binary event turns into a biotech bloodbath.
A better approach
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David Williamson holds no position in any company mentioned. Check out his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of GlaxoSmithKline. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.