This is from my experience with biotechs.
Long-term wise, I definitely wouldn't go overweight with it. I'd probably only stay with companies that are well established like GSK, or Merck (MRK) for long term plays + dividends. Even then, you can find plenty of other stocks in other sectors that you'd probably be better off with.
Usually ones that are sub $10 are looking to get drugs in their pipelines approved. Without any approved drugs they don't really have revenue streams so they're speculative plays. They're ones that get hit hard if the market is in the crapper. Last summer was pretty bad for biotechs. Even when drugs got approved, there wasn't much money to be made. They'd get smashed by shorts right after the pop on good news.
I still think the markets are a little shakey so I'm really careful with which ones I chose to get in on. When the market is good, people are more willing to take chances on them. I try to only play the PDUFA dates. If the company has a PDUFA date with the FDA, that means whatever drug they're trying to get approved has been vetted through the phase trials, which cuts down on a lot of the risk. Even then, there's no guarantee they'll get approval. You can look at charts from a bunch of the sub $10 ones and see how risky they are. Here are a few I can think of off the top of my head: AEZS AVNR PLX ALXA ASTM NAVB FCSC TLON.
I try to limit the time I'm in on them. The less time you're in, the less chance you have of getting burned by them. I look for the catalysts to play. If they don't have any, I try to stay away. When they do, I decide how much I'm willing to put down based on the risk I personally perceive. Things like the market size of the drug they're trying to get approve, do they have a Service Protocol Agreements (SPA) with the FDA and have they received previous Complete Response Letters (CRLs). Just like I look to Lowtrade for technical analysis, I look to $heff for biotech fundamentals.
This is all from my experience. If anyone has anything they want to add, or dispute, feel free.
