The key to find winning investments in biotech: focus on companies that can handily exceed the increasingly stringent restrictions placed on Phase II trials. As noted in today's look at falling stocks, troubling Phase II results are tripping up Geron (Nasdaq: GERN) this morning. On the flip side, Peregrine Pharmaceuticals is posting a nice 7.5% gain today precisely because Phase II results appear favorable. The company has been testing bavituximab (Bavi), in conjunction with docetaxel (a biotech analogue version of the drug taxol, which is now the gold standard of treatment for many cancer tumors).
In recent months, it has become increasingly apparent that Bavi was quite helpful in boosting the efficacy of docetaxel, boosting the stock from $0.50 in early July to above $4 in recent sessions. The company announced on Friday, Sept. 7, that the Bavi/docetaxel combo led to 11.1 months of survival, compared with 5.6 months for docetaxel alone. Shares are moving higher again today as management confirms what interim data had shown: that Bavi works quite well. "The statistically significant overall survival seen in that study is an obvious green light for us to begin plans to advance the program into Phase III and goes a long way toward validating the technology platform," noted the company in a press release.
Frankly, it's a bit hard to figure out where share go from here -- especially after rising nearly 50% in the last two trading sessions and nearly 800% in the third quarter. The company's market value now exceeds $500 million, which needs to be measured against the total market opportunity for Bavi. Peregrine has much work ahead of it, including the ability to line up marketing partners that can fund further clinical development, and equally important, the ability to prove that Bavi works well in Phase III clinical trials, where safety concerns are taken into greater account.
On Friday, Sept. 7, investors were treated to an 8.5% gain in Freeport McMoran (NYSE: FCX). Expectations have been building that looming action from the Federal Reserve will light a fire under commodity stocks, as has been the case with prior rounds of quantitative easing. (I have doubts that the commodity rally can last as economic troubles in China could erode demand.
Still, we can consider Friday to be "copper day" thanks to Freeport's strong one-day gain. And today is shaping up to be "aluminum day." Fed-induced hopes have pushed shares of Alcoa (NYSE: AA) above $9 for the first time since mid-May, and rival Century Aluminum is up an impressive 7% today.
As is the case with Alcoa, Century Aluminum has been working throughout 2012 to lower its cost structure. The company is expected to lose around $0.45 a share this year, assuming aluminum prices stay below 90 cents per pound (which appears to be the basis for many analysts' forecasts). Well, the spot price of aluminum just moved back up above 90 cents for the first time since mid-May, largely based on hopes for a fed boost to commodities. On a fundamental basis, there's actually little reason for aluminum -- or any other commodities to keep rising. So caution here is advised.
Action to Take --> Peregrine Pharma's strong recent gains suggest that long-term investors now sitting on a big profit may look to sell some of their positions. So it may be wiser to see if the stock consolidates lower in the near-term, giving you the chance to learn more about Bavi, and the size of the market opportunity it faces.
If you are looking at aluminum producers, then why not go with Alcoa, which in many respects is the industry's strongest operator, with the lowest-cost smelters and the most robust finished products business. Century Aluminum is a big gainer for today, but Alcoa is the class of the field.