2 Biotechs' Very Bad Day


The biotech week kicked off with a bang, not because of any macro factors like a new Federal Reserve program of monetary stimulus, or economic data emanating from Europe. However, two different biotechs had big moves today for company-specific reasons. Let's dive into these stories and highlight key investor takeaways.

Threshold Pharmaceuticals (NAS: THLD) investors lost a fifth of their investment this morning, but considering shares are up more than 600% in 2012, many probably see the sell-off as a chance to get into one of biotech's hottest stocks. And the data from the midstage trial wasn't all bad. TH-302 significantly increased the median overall survival for pancreatic cancer patients by 2.3 months when taken with Lilly's Gemzar versus Gemzar alone. However, those inspiring results didn't show up in the overall survival data as it reduced the risk of death by a mere 4.5%. As expected, Threshold and its partner Merck KGaA will advance the drug into late-stage trials.

Investors may worry that today's results could raise some red flags with the FDA if they play out in the larger phase 3 trial. However, if Threshold is correct that the control-arm patients skewed the results after switching to TH-302, then this may be a classic market overreaction. However, with plenty of competitors in the waiting in the wings, including Celgene's (NAS: CELG) abraxane and Peregrine's (NAS: PPHM) bavituximab, Threshold needs its only drug to produce excellent results if it's to beat deep-pocketed rivals.

Targacept (NAS: TRGT) , like Threshold, is suffering from a major trial disappointment. Its ADHD drug TC-5619 didn't meet its phase 2 trial primary endpoint for efficacy. It's been a rough 12 months for Targacept, with shares down 70% as antidepressant TC-5214 failed in phase 3 trials, AstraZenca (NYS: AZN) dropped its development, and Targacept's CEO resigned shortly thereafter. The company will halve its staff as it searches for a new CEO to lead the company. Despite AstraZeneca's involvement in TC-1734 and TC-6683, with so much uncertainty surrounding the stock, investors would probably be best served staying away.

Investors are attracted to biotechs like Threshold and Targacept since they hold the allure of substantial short-term gains. But there's more than one approach to building long-term wealth and retiring well. In our free report "3 Stocks That Will Help You Retire Rich," we reveal some stocks that could help you as well as some winning wealth-building strategies. Click here to keep reading.

The article 2 Biotechs' Very Bad Day originally appeared on Fool.com.

David Williamsonholds no position in any company mentioned. Check out hisholdings and a short bio. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Originally published