Following the Bio-Path to Riches
Imagine the mixed emotions of long-term shareholders of Bio-Path Holdings (NSDQ: BPTH). Until recently, the stock had been an unmitigated disaster. Three years ago, it was trading above $500 after doubling in value in just six months. Last month, it was sitting at $2 and going nowhere fast.
Then, the miracle that all biotech investors pray for came true. Bio-Path released clinical trial data this week that showed positive results for one of its acute myeloid leukemia (AML) treatments. This quote from the company’s CEO was included in the press release making the announcement on March 7:
These updated interim data from Stage 1 of our Phase 2 study of prexigebersen in de novo AML patients give strong evidence of the safety and efficacy profile of our lead compound and underscore its potential to provide meaningful treatment improvement in this difficult-to-treat patient population. We were particularly pleased with these results, especially when you consider that the large percentage of these patients are secondary AML patients.
Shares of Bio-Path had already started running up in the days prior to the announcement, proving that insider trading is still alive and well on Wall Street. In the week leading up to the disclosure, BPTH went from a low price of $1.84 on February 27 to a high of $14.60 on March 6, the day before this news was made public. That’s a jump of 793%, the stuff of which investing legends are made.
But wait, there’s more! Once the press release hit the wires on March 7, BPTH jumped all the way to $73 before falling back below $40. From trough to peak, that’s a thirty-fold increase in just seven trading days. That means if you had the guts to put $10,000 in BPTH at its low, you could have sold it for $300,000 one week later.
Lottery Tickets with No Expiration Date
Twenty years ago, so-called “dot com” stocks were likened to lottery tickets. Buy only one, and your odds of making money were very small. Buy several of them and you only needed one to hit the jackpot for the entire investment to pay off. I think that’s where we are with the biotech sector these days.
However, unlike a lottery ticket that expires within a few days and then becomes worthless forever (assuming you didn’t win), a biotech stock can hang around for a long time before finally paying off. Some of them even go through bankruptcy and continue to hang around, hoping to find the miracle cure that suddenly reverses their fortune.
But mostly, biotech stocks tend to trundle along until either the U.S. Food and Drug Administration (FDA) approves one of its treatments or the company goes belly up first. Most of these companies are essentially research labs that burn through a lot of money while generating little or no revenue. That’s not exactly the recipe for a profitable business.
Own the Stocks, Not an ETF
In truth, the vast majority of biotech stocks never hit the big time. For that reason, owning an exchange-traded fund (ETF) that holds dozens of biotech stocks all but eliminates the possibility of a huge gain.
For example, the SPDR S&P Biotech ETF (XBI) has appreciated 65% over the past five years. That’s a solid result, but the SPDR S&P 500 ETF (SPY) has returned 63% over the same span with considerably less volatility (see chart below).
This is one of the few cases where it makes more sense to own a small portfolio of potential winners rather than a large portfolio that includes a lot of losers. If you want to play the biotech lottery, you need to know how to identify the companies that stand a better-than-average chance of beating the odds.
I don’t profess to know how to tell one biotech stock from another, but my colleague Genia Turanova sure does.
Genia Turanova is the chief investment strategist of the trading service Fast-Track Millionaire. Genia isn’t content with accepting 10% a year gains from stodgy blue chips. Instead, she looks for the emerging “disruptors” that are on the verge of upending the status quo… and crushing the stock market.
Genia has found an obscure biotech that’s a “rocket stock” poised for blast off. This Swiss-based company is using a revolutionary gene-editing tool that could wipe out a wide swath of deadly diseases. Shrewd investors are jumping aboard now, before the rest of the Wall Street herd finds out. Click here for details.