Good News Pays Off ... Eventually

By Michael Shulman

Things in the biotech world continue to grow more curious as events that, under more normal market conditions, would send a stock shooting upward are barely having an impact.

Last week, biopharmaceutical company Avant Immunotherapeutics (AVAN) cut what looks to be a spectacular deal with Pfizer (PFE):

• PFE will pay $40 million up front and invest another $10 million in return for the worldwide license to a brain-cancer vaccine candidate CDX-110.

• AVAN can earn another $390 million and double-digit royalties if CDX-110 and related treatments eventually get through the regulatory process and make it to market. The drug is currently in Phase II trials.

• A big upside for the company is PFE's statement saying that they want to develop CDX-110 for other cancers, such as ovarian, prostate, breast and colorectal. The deal gives PFE an exclusive for these other indications.

Avant shares roared immediately following the news, shooting up from $10 and change to north of $14, but then fizzled, falling back to $10. It is currently trading just shy of $11.

Professional money managers I speak with who focus on the biotech sector believe we are at a bottom in pricing for the little guys -- the microcaps and small-cap biotechs that capture the imagination and hope of many investors. However, they also think these stocks are not moving on news and positive catalysts as they have in the past.

I am not an advocate of AVAN, as I don't know enough about the company at the moment. But I do know that the deal with PFE is the kind of news that would typically propel a stock like AVAN.
Antigenics (AGEN) shares rose when it said it got approval for its immunotherapy in Russia (is Putin not feeling well?), although it has come back down.

Cell Genesys did not move much after it cut a deal a few weeks ago with Takeda, but is now up more than 50%.

Dendreon, the traders' great hope, has a much higher valuation, even though it has not been able to secure a partner and has a management team that, well, the aforementioned Putin could like based on their sensitivity to the common shareholder.

Am I recommending AVAN? No. But I did want to bring this to your attention: It is a pretty good deal when you get an upfront payment twice your market cap. And it could be a pretty good deal for investors when news like that does not move a stock. Is this a rejection of PFE -- the company with one blown trial and sales effort after another -- or are investors just shunning Phase II companies?

Either way, I do think that we are seeing a bottom in biotechs, and positive catalysts and headlines should eventually begin to move stocks again. That means the only thing left to do is find the biotechs at the right price that have a number of positive catalysts on the horizon and limited risk. Easier said than done you say? Well, that's why you have me.


This article has been reprinted from Michael's blog, Biotech Blitz. To read more, click here.

---

Michael Shulman is the editor of ChangeWave Biotech Investor. Do you want to miss Michael's next 10-bagger? Bet not! Click here to find out more.

---