Investing in 2010: Five Biotechs Under $5

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As the year ends with markets staging a remarkable nine-month recovery, posting what may be the best yearly gains since 2003, some investors' appetites for risk may increase. And there's no better place to find that risk-reward potential than in the biotech sector. Recent dealmaking in that area, from acquisitions of small biotechs by Big Pharma to key licensing pacts, have put the spotlight on biotech, and that will probably continue, as Big Pharma tries to avoid losses from the fast-approaching "patent cliff."%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%% Capitalizing on this trend is risky, but it can be lucrative. Keep an eye on these five notable names, all of which now trade for less than five bucks.

SciClone Pharmaceuticals
(SCLN) is unique in the sector: It's actually profitable. Shares rallied an impressive 221% year-to-date. But after reaching a high of $5.33 in September, the shares fell to trade around $2.40 Thursday. With its $112 million market cap, SciClone's product portfolio includes therapies for cancer and infectious diseases, including Zadaxin, approved in China to treat hepatitis B, and granted "orphan drug" status in the U.S. for malignant melanoma; it may have potential as an H1N1 vaccine and a hepatitis C drug.

Analysts rate SciClone as a buy, and with a trailing P/E of 18 and a forward P/E of 23, the stock could offer a marginally more stable biotech play.

Vical (VICL) shares gained 132% year-to-date, peaking in September at $5.51 and trading on Thursday around $3.25. This vaccine-development biotech company, with a $165 million market cap, gained notoriety this year through to the H1N1 flu. Vical has patented DNA-delivery technologies for developing vaccines for cancer and for infectious disease, both for the general population and high-risk populations. A phase-3 trial in metastatic melanoma is underway, and Vical this week said it received a positive review on the study. Its partners include Sanofi-Aventis (SNY).

Analysts rate Vical as a buy, but it's a riskier play, because it's not a profitable company.

Novavax (NVAX), with a $245 million market cap, has seen its stock rise 38% this year, peaking in September above $7 and now trading at $2.60. This clinical-stage biotechnology company rose to fame on the strength of H1N1 this year, and its vaccines, using a proprietary virus-like-particle technology, address a broad range of infectious diseases including H1N1, HIV, and varicella-zoster virus. Novavax has formed a joint venture with Cadila Pharmaceuticals to develop and manufacture vaccines, biological therapeutics, and diagnostics in India.

Analysts rate Novavax as a hold, but if pandemic flu scares continue, and Novavax's methods prove themselves, this stock could be interesting.

Arena Pharmaceuticals (ARNA) has been struggling this year, as shares fell more than 16%. It's got a $323-million market cap but isn't profitable. Along with competitors Vivus (VVUS) and Orexigen (OREX), it's been racing to hit the market with a diet pill.

In late December, Arena filed with the Food and Drug Administration for approval of its obesity drug, and then announced Merck & Co.'s (MRK) decision to discontinue development of an investigational treatment of atherosclerosis after the Phase 2a clinical trial didn't show improved cholesterol levels, compared to a placebo.

Analysts rate this clinical-stage biopharmaceutical as a hold, but the potential market for its weight-management drug could propel it higher, if it gains market approval.

Celldex Therapeutics (CLDX) has also been having a rough year, with shares falling 42%, currently trading at $4.50 from a 52-week high of $14.19. Celldex is engaged in immunotherapy -- harnessing the body's immune system to fight cancer and inflammatory and infectious diseases. The company recently announced positive results from a Phase 2 study of its investigational compound used in advanced breast cancer. It's partnered with Pfizer (PFE) for a treatment of brain tumor.

Analysts rate this $144-million market-cap company as a strong buy -- but with its low volumes and high volatility, this one is strictly for those with a strong stomach.
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