Still Want to Be the Next Dendreon?

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For the past year, we've heard claims from investors and even a few management teams that this biotech or that biotech is the next Dendreon (NAS: DNDN) . Who wouldn't want to go from under $3 to north of $55?

Since Wednesday afternoon's blowup, though, I haven't heard a single one.

That didn't keep cynical investors from lumping them all together. Yesterday was a brutal day on the market, for sure, but a few biotechs with recently launched drugs and those close to launch were hurt especially hard.

Company

Decrease on Thursday

Dendreon67.4%
Optimer Pharmaceuticals (NAS: OPTR) 10.2%
Human Genome Sciences (NAS: HGSI) 14.5%
Amarin (NAS: AMRN) 16.5%
AMEX Biotechnology Index (BTK)10.6%
 S&P 5004.7%

Source: Capital IQ, a division of Standard & Poor's.

Same problems?
Dendreon claims that its weak launch was caused by doctors who had to front a large amount of money for Provenge before insurers or Medicare reimbursed them. The cash-flow problem wouldn't seem to be an issue for Human Genome's Benlysta, which treats lupus, or Optimer's antibiotic Dificid, or Amarin's drug to treat high triglyceride levels.

Alternatively, Provenge's problem could come from a lack of patients, but since the drugs are in four different treatment areas, a lack of metastatic castration-resistant prostate cancer patients should affect the other markets.

As best I can tell, investors are worried that the lack of insight into the ramp-up in sales by Dendreon's management is a sign that other drugmakers might be too optimistic.

Guess what, Fools? Management teams are always optimistic. Sometimes they hit those goals. A lot of times they don't. Plan accordingly.

A little more confidence?
Not every company with a recently launched drug saw double-digit declines yesterday.

Vertex Pharmaceuticals' (NAS: VRTX) launch of Incivek was fairly strong, taking about 75% of the market versus Merck's (NYS: MRK) rival hepatitis C drug Victrelis. But we have data from only the first six weeks -- 10 if we do some extrapolations -- and Vertex fell 7.7% yesterday. It's a pretty sad day when that's considered a win.

Similarly, Acorda Therapeutics fell only 8.4% yesterday. Ampyra, its drug to help multiple sclerosis patients walk better, has been on the market for about a year, so investors have a little confidence in which way it's headed. Acorda fell just shy of making it into the black last quarter, with a net loss of just $0.3 million. Sales of Amypra were up 85% year over year.

I'm a little surprised AVANIR Pharmaceuticals (NAS: AVNR) was down only 6% yesterday. Its new treatment for pseudobulbar affect, Nuedexta, got off to a slow start. Maybe investors figured trading 30% off its post-approval highs was enough of a slap in the face. We'll know Monday, when AVANIR releases second-quarter numbers.

Buy the dips?
Biotech is risky. When volatility kicks in, the lows are always going to be lower than they are for large-cap companies in the S&P 500. When investors start freaking out, high-risk investments like biotechs are always the first to get sold.

For a little historical perspective, the AMEX biotech index fell 30% in less than a month in November 2000. Since then, the index has more than doubled. If you have the stomach for it and you're thinking long-term enough, you should be OK. Just realize there are no guarantees that biotechs couldn't go lower from here; following that awful month a decade ago, the index fell another 45% over the subsequent year and a half before turning higher for good.

Stay on top of drug launches for the biotechs you own or are thinking of buying by adding them to your watchlist.

At the time this article was published Fool contributor Brian Orelli holds no position in any company mentioned. Check out his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Vertex Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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