The Secret Strategy for Huge Gains in Biotech

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The biotech industry is known for extreme innovation that can frequently lead to huge gains for early investors.

Take Pfizer Inc. ( PFE ) for example. When the company released its groundbreaking cholesterol medicine Lipitor in 1996, the best-selling drug in the history of the pharmaceutical industry,shares proceeded to climb more than 300% in the following three years. Investors who knew Pfizer was on the cusp of a hot, new mega drug that made alot ofmoney in a very short amount of time.

Take a look at the incredible gains thestock saw...

But historically, finding the next hot thing in biotech and pharmaceuticals has been extremely difficult. Not only are there thousands of companies across the world pursuing thousands of new drugs and therapies, but most are subjected to strict regulatory standards that can delay or even prevent them from ever putting their drugs into themarket .

But thanks to a new program the Food and Drug Administration (FDA) just implemented, finding hot new drugs with high probability of reaching commercialization just became a lot easier.

The federal agency passed a new "breakthrough" product designation in July of 2012 that enables the most promising new drugs to move directly from Stage 1 testing to commercialization, allowing it to skip very time-consuming testing of Stages 2 and 3. "A breakthrough drug is one that mayoffer important new benefits for patients with serious or life-threatening disease who are especially in need of new safe and effective treatments," said Janet Woodcock, director of FDA's Center for Drug Evaluation and Research.

This new designationwill compliment three other programs the FDA has developed to speed promising new drugs to the market -- Fast Track, Priority Review and Accelerated Approval. Although each program is unique, each is designed to deliver groundbreaking therapies to patients who are most in need in a short period of time.

But make no mistake; this is a huge accomplishment in the biotech and health care industries. Not only is it great news for sick patients waiting for new therapies to cure life-threatening ailments, but it leads to a virtual cornucopia of hot new biotechstocks into the market. And that's an incredibly valuable resource for investors looking for the best stocks and drugs.

The FDA's program is already off to a fast start. Vartex Pharmaceuticals Inc. (Nasdaq: VRTX) announced in early January that two of its drugs for cystic fibrosis had earned the breakthrough designation. They gave the $9 billion biotech's share price a nice little pop, jumping more than 10% in the first week of the year as the Street absorbed the good news. Looking forward, Vartex still needs to achieve commercialization of its new medicines, but it's a very clear signal to the market that the company has a promising new drug with special communication channels into the FDA to help catalyze a potential approval and commercialization.

In some cases, the mere prospect of a drug being designated with the breakthrough status is enough to send share soaring. That's exactly what happened to Sarepta Therapeutics Inc. (Nasdaq: SRPT) . After the company revealed extremely promising results for a new muscular dystrophy therapy in early October 2012, shares more than tripled in just one day, surging above $45 from $15. Although Sarepta has since pulled back, shares are still up an amazing 175%, another great indication for the capacity of future gains should the company's drug receive breakthrough designation and commercialization.

Risks to Consider: Acceptance into the FDA's new "breakthrough" designation is noguarantee the drug will reach commercialization. The success of one drug in a company with many drugs can sometimes only represent a small amount of totalrevenue .

Action to Take --> The FDA's new "breakthrough" program is a great place for investors to find the hottest biotech stocks and drugs. Vartex Pharmaceuticals was the first company to be accepted into the program, giving shares a nice boost early in the year, while the merespeculation that Sarepta could earn the designation led to shares tripling in just one day. Although the program is in its early stages, it should serve as an excellent tool for finding great stocks in the ultra-competitive and technical field of advanced biotechnology.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Investing Ideas , Stocks

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