For Biotechs, Waiting Until All Data Are In Has Its Rewards
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NEW YORK (Dow Jones)--The old cliche of "buy the rumor, sell the news" may sometimes ring true, but in the biotech world the theme appears closer to "buy the headline, sell the data."
It is no surprise that the biotechnology stocks are event driven, with double or even triple-digit swings in either direction based on a study or FDA ruling. But there is also a more subtle trend in recent years with shares surging when positive initial data from a study is issued, usually in the form of a press release, but then showing a notable drop after the full data are released months later.
For investors who see a positive study as reason to buy one of these stocks, there may be an advantage to waiting until after the data are released to get in on the cheap.
"It is a common phenomenon," says analyst Steve Brozak with WBB Securities. "There is so little consistent positive news that takes place in this industry that you get into an environment where any news is rewarded."
The preliminary data usually cover the effectiveness of a given trial - sometimes with only minimal detail - and provide the first hint to investors of the overall outcome, with the full-data release having the intricate details.
Brozak notes that when the full data come out, the information provides a chance for a thorough analysis, because although data may be "statistically significant," there are other issues to determine whether the data are "clinically significant."
"There are quality of life issues and reimbursement issues, so it is hard to determine the real significance," he adds.
A notable example of the difference is the so-called Crystal study of ImClone Systems Inc.'s (IMCL) Erbitux cancer treatment earlier this year.
In January, the company said the study met its primary goal of increasing progression-free survival in colorectal cancer patients when used as a first-line treatment with chemotherapy - news that sent ImClone shares surging. But when the data were disclosed in June, it was revealed that the actual improvement was only modest, sending the stock lower.
Other recent examples include Onyx Pharmaceuticals Inc. (ONXX), which nearly doubled when data were released in February, but fell 13% in the 10 days after the full data came out in June.
Elsewhere, Acorda Therapeutics Inc. (ACOR) spiked almost four times its value a year ago on study news, but in May dropped 10% in the period after the full data were released.
Despite the information flow being controlled by the company, Robert Baird & Co. analyst Christopher Raymond doesn't think that companies are overselling the data in their releases.
He said long-term investors have no reason to worry about these moves.
"This is a short-term trading call, not a long-term fundamental call," he adds.
Options An Option
Indeed, traders are aware of the trend and look to make money by marking their calendars for FDA rulings, along with study and data releases from biotech companies, according to William Lefkowitz, chief options strategist at vFinance Investments Inc.
"If they come out and say positive things, it doesn't always seem to come true," Lefkowitz said. He notes that there are often traders buying put options on the days when companies surge on this type of news.
Put options are contracts that give traders the right to sell a stock at a fixed price in the future; accordingly, they rise in value as the stock falls below their exercise price.
Though investors need to look ahead and account for when the data are expected to be released, it is often a money-making maneuver.
"If you can pinpoint the date, you can definitely buy those puts, as the stock often comes down," he said.
In the meantime, investors are hungry for data following ImClone's 18% surge last week after positive news from its overseas marketing partner for Erbitux, Merck KGaA (MRK.XE). A study showed the drug increased survival in advanced non-small cell lung cancer patients when used with chemotherapy, but the actual details of study won't be seen until some point in the first half of 2008.
Similarly, Pharmion Corp. (PHRM) surged 58% in August after impressive top-line survival data for Vidaza showed that it prolonged survival in higher-risk patients with myelodysplastic syndrome, a blood disorder, compared with a collection of conventional care regimens.
But Raymond warns that the data presentation at December's meeting of the American Society of Hematology is critical as details of side effects and dosing become clearer as must it must show advantages as it competes commercially with MGI Pharma Inc.'s (MOGN) Dacogen.
Though he views Pharmion as attractive in the long term, he believes investors should wait for a better price.
Raymond suggests that investors that become interested in these stocks following positive top-line data may save some money by waiting until all the details are known.
"If you are interested in buying a high-quality name, and there is some data coming, you might want to wait until after the data," he adds. |
