A Biotech Turnaround?
by Michael Shulman
BiotechBlitz
Are biotech's turning around? They are certainly beating the market and, frankly, worrying about FDA decisions is easier now than worrying about how much toxic waste is hidden on a bank's balance sheet.
I have a good feel for the odds of whether Cell Genesys (CEGE) will get an approval in a couple of years GVAX, its prostate cancer treatment. I don't know the odds of Citigroup (C) writing down another $50 billion, rather than the $12 billion to $20 billion analysts are talking about this quarter.
Think of it this way: If Citigroup is as bad off as I believe it is (and as Meredith Whitney of Oppenheimer thinks it is -- she was the first analyst to say it would blow up and cut its dividend, and for her insightfulness received death threats), then the stock is going from $24 to $11.
If Cell Genesys doesn't get an approval in 2010, the stock is going from $3 to $1. The upside for Citigroup could be $40 in three years -- about a 60% gain. The upside for Cell Genesys is $80, a 25-fold increase.
Both stocks carry the same risk, i.e., we just don't know what is going to happen. So which one has a better risk/reward ratio -- a highly speculative biotech or Citigroup? Maybe, for the first time in the history of mankind the winner is the molecules, and not the money-center banks.
This kind of thinking may finally be occurring to speculators and traders. Why?
Many itty bitty biotech's are trading at historic lows, based on their available cash and the proximity of binary events that could catalyze the stock. The market is so down on these guys it is amazing!
A couple of weeks ago Spectrum (SPPI) got its first approval ever for a cancer drug, and the stock went essentially nowhere.
Cell Genesys cut a great deal with Takeda, eliminated the need to raise capital, got funding to finish its Phase III trials for GVAX and the stock popped a little bit, but a small move compared to what wold have happened three years ago.
Prana (PRAN) had very-strong Phase II results (my interpretation) for an Alzheimer's drug and the stock moved -- but not as much as it would have three years ago.
This indifference could be ending, and if it is there is huge upside in many smallish biotechs. So, if you have some extra cash from shorting the banks -- and you are thinking about your next speculative play, and I mean speculative -- get some coffee or some other biotech-based brewed liquids, and take a look at some very cheap smallish biotech's.
surf's up......crikey
