Tuesday, July 19, 2011

Biotechnology High Risk Watch List

Yesterday I made up a new list of high-risk biotechnology stocks to watch and consider for investment.

The list is overdue. I did reasonably well with my first set of high-risk stocks, which included both information technology and biotechs. Anesiva (ANSV) bombed, went to zero, but I more than made up for that with Dendreon (DNDN), Dot Hill (HILL), Biogen Idec (BIIB) and Hansen Medical (HNSN).

My strategy is to sift through high risk stocks with high returns potential, based on my knowledge of science, technology, and business practicalities. Then I create a bundle, so that if one or more stocks tank, I can take that in stride. Say I choose 5 stocks and invest $1000 in each. A typical outcome might be that one tanks (Anesiva), one goes wild (Dendreon) and returns 10 for 1, and 3 do okay, lets say breaking even. My $5,000 has become $13,000. Typically my time horizon for the process is 3 years. In biotech in particular you need patience because of the long time needed to test therapies, get FDA approval, and bring them to market. In the case of Dendreon I had to wait 5 years to 10x my money.

I also balance risk by not having all my money in high-risk bundles. I typically have a number of medium and lower risk positions in my portfolio. At this point, for instance, I still retain some Dendreon stock, but I would classify it as medium, rather than high, risk. Of course even my low risk stocks take beatings at times, as in 2008 and last week with Microchip (MCHP).

The new list is currently:

I may add to or delete from the list as I go along. At this point I have not bought any of these stocks. I have not done any deep research on them. Typically before I buy a stock I do at least one analyst conference summary on the stock, so I have a baseline. Typically I nibble; having nibbled, I redouble my research efforts.

Anyway, here are the (high risk!) stocks for my possible new bundle, in no particular order:

KERX, Keryx Biopharmaceuticals
AEZS, AEterna Zentaris
ONTY, Oncothyreon
RNN, Rexahn Pharmaceuticals
RXII, RXi Pharmaceuticals
MITI, Micromet
INO, Inovio
DSCI, Derma Sciences

The list started somewhat longer, but I already eliminated a number of companies for a variety of reasons. Mostly it is companies with Phase II or Phase III products that have not yet generated significant income. Much of the risk is from the possibility that trial outcomes will be insufficient to gain FDA approval.

Of course you can watch this blog for my thoughts on these stocks as I do my research.

Keep diversified!

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