If you'd like some more proof that investing in pharma and biotech stocks on the basis of pending FDA rulings is a strategy best suited for clowns, take a look at Dendreon. Remember them? Everyone's shoulda-bought-that stock from a few weeks ago, prostate cancer vaccine, unexpectedly favorable FDA panel ruling?
Well, now they've been handed the dread "approvable" letter by the agency, asking for more efficacy data. The stock. . .ah, the stock didn't take it well. If you look at the chart over the last couple of months, you find that on March 28, DNDN was at 5.22. On April 4, it broke 15, and on the 9th it closed at about 23 1/2. Champagne, waiter! It hovered between 15 and 20 after that, and as of last Tuesday was at a nice solid 17.74. Thursday's close, though, was 5.54, completing a spectacular hair-bleaching round trip in just over a month.
Not quite a round trip, actually. . .if you'd bought at the March 28th close, and held on through the whole power wash and spin cycle, after the onlookers pried your fingers out of the wallboard you'd have found yourself with what is still a very respectable return. No, I mean it - 5.54 versus 5.22 is just over 6 per cent, and six per cent per month would make you very, very rich were you able somehow to lock it in. It sure doesn't seem that way when you've just experienced four or five hundred per cent in a month, but it's true.
At any rate, my condolences to those who bought the stock in the double digits. You really had no business doing that, but I'm sorry for you, anyway. The problem is, most of the near-term gains (in case of an approval) were probably in the stock already, while the risk of what just happened was always there. It's worth repeating: betting on FDA rulings is rubber-nose, midget-car, rainbow-wig clown territory. No matter how tempting it looks. . .