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by Andrew Vaino



Biotech is supposed to be insulated from the business cycle as a whole. Theoretically, biotech stock prices ought to reflect clinical success and failure, rather than trends in future economic expansion.

Looking at the Markets this week, both the AMEX biotech index ( ^BTK) and biotech ETF iShares Nasdaq Biotechnology (IBB) (more diversified than BBH) plunged in lockstep with the broader markets, even falling a bit extra. In the long run, stocks of biotech companies with good pipelines are insulated from movements in the Market as a whole. So, when a big decline in biotech stocks occurs for reasons beyond science it can be a good time to buy.

As “mere anarchy was loosened on to the world” this week I was watching for good biotech stocks to fall. Cardiome (CRME) a Canadian biotech I like, and wrote about last Canada Day, has taken an 11% dive since Tuesday (as of close Thursday: I will be traveling on Friday and unable to check prices). I don’t believe this is warranted.

I wrote in July that Cardiome had fallen due to the FDA rejecting their NDA filing for an IV form of their drug RSD1235, which treats atrial fibrillation. A paper in 2004 published in the Journal of the American College of Cardiology on a Phase 2 study of this drug was very encouraging. The rejection had nothing to do with the science but merely with careless paperwork. As well, they announced good clinical results for an oral formulation of this same drug in September. The stock had a good run after I mentioned it, going from $8 to $14 and is now below $11.

Cardiome announced two weeks ago that the problems with the NDA filing above have been resolved, and the FDA has accepted their application. Please note, this does not mean the drug has been approved, only that the application has been accepted. I think this stock fell too far for reasons having nothing to do with science, and that the stock is now undervalued.

To be clear, the so-called “fear index” (VIX) remains (as of close March 1) almost 50% higher than it was on Monday, and more trouble could be on the way. Once the dust settles I think CRME will be a good stock to buy.

I also like Amylin (AMLN) at theses prices, especially on news last week that the FDA will require further testing on Novartis’ (NVS) diabetes drug Galvus. Hopefully things will not fall apart, and the center will hold.



RELATED READING:
- A Closer Look at Five Biotech ETFs
- Best & Worst Healthcare and Biotech Mutual Funds
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