Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
VR and Gaming Becomes the Metaverse - 7th Dec 21
How to Read Your Smart Meter - Economy 7, Day and Night Rate Readings SMETS2 EDF - 7th Dec 21
For Profit or for Loss: 4 Tips for Selling ASX Shares - 7th Dec 21
INTEL Bargain Teck Stocks Trading at 15.5% Discount Sale - 7th Dec 21
US Bonds Yield Curve is not currently an inflationist’s friend - 7th Dec 21
Omicron COVID Variant-Possible Strong Stock Market INDU & TRAN Rally - 7th Dec 21
The New Tech That Could Take Tesla To $2 Trillion - 7th Dec 21
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Cutting Through the Biotech Stocks Hype

Companies / BioTech Dec 04, 2013 - 05:39 PM GMT

By: Investment_U


Marc Lichtenfeld: When a woman, claiming to be the wife of a deceased general from Nigeria, writes to us saying she needs our help getting $10 million out of the country and in return we’ll get 20% of the money, most of us know that’s a load of bull.

But when the CEO of a publicly traded biotech company tells us his drug is the next great thing? How do we know if he’s being truthful, hopeful or just a plain scam artist?

All stocks, especially those in the biotech sector, are susceptible to overhype, which leads to disappointed investors.

I’ve had my share of winners and losers over the years and have dealt with all kinds of companies. As a result, I believe my B.S. detector is pretty sensitive. Let me help you fine-tune yours.

When evaluating biotech companies, consider:

1. What kind of language does the company use?
Do its press releases sound like hype? Most reputable, science-driven companies won’t use words like “stunning” or promote that something it accomplished has never been achieved before. Its language will be more guarded.

Additionally, what does the CEO say? When discussing the effectiveness of his company’s melanoma drug, Synta Pharmaceuticals (Nasdaq: SNTA) CEO Dr. Safi Bahcall once told me, “It’s either water or it’s not water. And we know it’s not water.”

He was right. It wasn’t water. But it wasn’t medicine, either. The Phase 3 trial was stopped early because the death rate among patients taking the drug was significantly higher than those who did not receive it.

I compare that to the conversations I’ve had with the management team from Compugen (Nasdaq: CGEN), whose stock spiked 45% in August on news of a collaboration with Bayer. It’s gained another 30% since.

I’ve spoken with management many times, and while Chairman Martin Gerstel is an enthusiastic supporter and spokesman for the company, I’ve never once heard him make a promise that his company’s technology will lead to marketable drugs.

He certainly thinks it will, but that’s a big difference between claiming it will and making sure investors understand there is still work to be done before anything is proven.

Additionally, Gerstel already made his fortune selling his former firm, Alza, to Johnson & Johnson (NYSE: JNJ) for $10.5 billion. He doesn’t need to spend his time and energy on making money. He’s in it to try to change the way medicine is developed.

Some quick research on an executive’s background may shed some light on their motivation for getting involved with a particular company.

2. Are trials placebo-controlled and double-blinded?
When a company runs late-stage clinical trials, particularly for cancer, you want the trials to be randomized, placebo-controlled, double-blinded trials. That means neither the patient nor the doctor knows if the experimental drug or placebo is being delivered. (In cancer cases, the placebo is whatever drugs are considered the standard of care, as it would be immoral to not treat a cancer patient.)

Not knowing which drug is being taken is important to avoid a placebo effect – where a patient might feel better or a doctor might look for data points that suggest the patient is recovering based on the belief that the new drug is effective.

Additionally, by comparing the drug being studied to a placebo or standard of care, the evidence of whether it is safe and effective should be clearer than when it is simply being studied alone.

Sometimes, for various reasons, a double-blinded, placebo-controlled study isn’t feasible. But usually it is. If a company is running a Phase 3 trial that is open label (everyone knows that the patient is receiving the drug) and you can’t find a valid reason for it – run, don’t walk, away from the stock.

3. How many patients?
Sometimes, a company will proudly announce the results of a clinical trial. In cancer drugs a 30% response rate can be enough to get approved by the FDA. But if, in a clinical trial, a company announces 12 out of 30 patients responded to the drug, that’s not exactly an impressive sample size.

Of course, if it’s an earlier stage study, the trial did exactly what it’s supposed to, which is to determine if the drug is worth being developed further. But a company that is hyping the results based on a small number of patients is more interested in promoting its stock than good science.

Not to pick on Synta again, but it recently issued a press release saying that four out of 15 breast cancer patients saw tumor shrinkage when taking its drug ganetespib. That’s great. The problem is the study was supposed to enroll 70 patients.

So why is the company releasing data on just 15? It’s not like all 15 had a response rate. That would have been newsworthy. The recent data was not. So why did it release it early?

4. Who is promoting the stock?
Do you ever get those promotions that tell you why a stock is going to skyrocket? If the company names the stock in the promotion, read the small print very carefully. There’s a good chance the firm hired a stock promoter – which is usually a pump and dumper.

A company can get a large amount of shares or cash (or both) in return for promoting the stock to retail investors. While those investors are buying, the promoter and company insiders are selling.

Never buy a stock that you learn about in a promotion if the fine print says that the promoter has been compensated for sending you the information.

Keep in mind that Investment U and The Oxford Club do not accept or receive compensation from companies for writing about individual stocks, funds or any other kind of investments.

Investing in biotech stocks can be incredibly rewarding. But because these stocks can fly so quickly, there are people out there trying to help them take off, whether the science justifies it or not. It’s in your best interest to be able to discern whether the CEO or other spokesperson is sensible or a hype artist.

Good investing,



Copyright © 1999 - 2013 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email:

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in