Investing in biotechnology companies certainly isn't for the faint of heart, given that FDA decisions are the difference between stocks that shoot to the moon and those that don't even make it off the launchpad. One company that might survive the lunar trip is CancerVax
Picking biotech winners doesn't have to be all about gambling. One way to preserve the upside while lowering risk is to focus on companies that have a number of drugs in the pipeline and focus on finding cures for diseases that make FDA approval more likely. That's certainly one reason why Hidden Gems pick TranskaryoticTherapies
Now, I'll be honest, what initially attracted me to CancerVax was the company's name. (Well, that, and a few nice things our resident biotech expert Charly Travers said about the company back in April.) How can you not take a peek at a biotech whose very name implies that it's looking for a cancer cure?
Beyond the name, CancerVax might have what it takes to deliver, if not an outright cure for cancer, at least outsized gains for its investors. Last night, the company reported third-quarter 2004 results, and there didn't seem to be much to get excited about. Net losses for the quarter increased from $10 million a year ago to $15.7 million, slightly higher than analysts' estimates, mostly on research and development expenses. A recently filed $80 million shelf registration also merits a watchful eye. Finally, perhaps most disturbing is the lack of revenues to use as a base for a valuation.
But look under the surface, and there are some things to like. On the financial side, though the company is burning through cash, it still has a sizable amount left -- $65 million and no additional debt. Also, it recently completed the enrollment of more than 1,000 patients for one of its Phase 3 trials of front-runner melanoma drug Canvaxin and is two-thirds of the way enrolled in the second one. It should announce some concrete results in 2005.
There is no doubt that recent biotech IPOs, and especially this one, are speculative in nature. But for the aggressive portion of your portfolio, CancerVax's upside potential merits consideration.
Take a free trial to Motley Fool Hidden Gems today and see why Tom Gardner is beating the market. Or, if you'd like to get cutting-edge biotech updates from Charly Travers, take a gander at Motley Fool Rule Breakers.
Fool contributor Marko Djuranovic does not own shares in any companies mentioned in this article.