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The Best Place to Speculate this Summer

By Larsen Kusick, analyst, Phase 1 Investor
Monday, June 13, 2011

Last week, while almost everyone was focused on the country's exploding debt levels, the "Super Bowl of cancer research" was kicking off.
The American Association of Clinical Oncology (ASCO) meeting is an annual showcase of "who's who" in the world of developing drugs to fight cancer.
I'm skeptical of the hype at these kinds of festivals. But the latest developments from this year's ASCO meeting offer investors big reasons to be bullish on the biotech sector. 
Last summer, I showed you how the boom in "gene sequencing" is one of the biggest trends in medicine. And as data presented at ASCO show, advances here are rapidly improving on traditional cancer therapies.
You see, by analyzing genetic data, doctors can figure out which specific treatment is most likely to work in certain patients. Last week, doctors from Memorial Sloan Kettering published results of a study on patients with advanced melanoma (skin cancer).
By looking for a mutation in a gene known as BRAF, the researchers were able to apply a targeted treatment that worked on 48% of these patients. That's more than nine times the success rate of the current standard skin cancer treatment.
The drug used in these revolutionary studies is known as vemurafenib. It's in the late stages of development by the pioneering biotech company Genentech, which was acquired two years ago by the Swiss pharmaceutical giant Roche.
A similar drug is in late-stage development at Pfizer. Known as crizotinib, results from clinical studies showed that the treatment increased life expectancy in lung cancer patients. Historically, only 12% of lung cancer patients in the study lived two years. Crizotinib increased this survival rate to 55%.
These advances are radically changing the drug industry. Even the FDA has taken note...
Speaking on the cancer industry, the director of the FDA's Center for Drug Evaluation and Research recently said, "We are on the tipping point of a whole new game in how we develop drugs." And last week, the Wall Street Journal noted the FDA is "working to change regulatory policies to help accommodate these scientific advances." That could mean an easier path for new drugs to make it to the market.
These breakthrough cancer treatments will see huge growth over the next five to 10 years. For example, the worldwide market for prostate cancer therapies is expected to grow from around $1 billion currently to $5 billion in 2015. That's a 50% annual growth rate over four years. That's a strong, long-term trend.
Even better, these companies are going to be selling their treatments into a market driven by big increases in health care spending.
For investors, big drugmakers like Pfizer (PFE), Novartis (NVS), and Sanofi-Aventis (SNY) remain the safest ways to profit from progress in cancer treatments. This long-term trend will help boost these companies' slowing growth rates. And right now, these companies are selling at super-cheap single-digit price-to-earnings multiples. Meanwhile, they offer dividend yields of 3% or more.
For successful speculators, the upside here is enormous. Take one of the "best case" scenarios in the cancer space: Shares of biotech company Dendreon (DNDN) rocketed more than 1,500% from March 2009 to April 2010, when its main cancer drug, Provenge, was approved by the FDA.
I expect to see more big gains from small- and mid-cap biotech companies that have cancer treatments in their pipelines. Start your research with Onyx Pharmaceuticals (ONXX), Incyte (INCY), Seattle Genetics (SGEN), Exelixis (EXEL), Ariad (ARIA), and Nektar Therapeutics (NKTR).
Remember, these names could fall 50% or more if their drugs fail in clinical trials. But the upside is huge. And speculators can cash in two ways: If the drugs make it to market or if a big drug company buys them out.
The biotech sector is one of the few places that can generate quadruple-digit returns in a short period. And with the biotech bull market just starting to take off, this summer could be a great time to speculate.
Good investing,

Further Reading:

"Using genetic analysis to target and treat diseases is a critical, unstoppable development for health care," Larsen told us last summer. Since then, two of his favorite biotech stocks have shot up double digits. Read his original recommendation here: A Giant Company You've Never Heard of Is Breaking Out.
Last month, Larsen introduced us to the "easiest one-stop shop" for the health care sector. Get the details here: Don't Miss Out on Your Piece of the Health Care Boondoggle.

In The Daily Crux
Market Notes
S&P 500 index posts sixth-straight week of losses... But it's still above the critical 1,250 level.
Commodity trend is going strong... Gold, silver, oil, and natural gas are all up at least 7% in 2011.
Health care is the best-performing sector so far this year... up 11% despite recent market pullback.
Big tech goes on sale... Microsoft, Google, and Cisco are all trading at six-month lows.
Market Watch
Symbol Price
S&P 500 1270.98 -1.4% +16.9%
Oil (USO) 39.07 -2.7% +12.4%
Gold (GLD) 149.24 -0.9% +25.4%
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Sector ETFs
Symbol Price
Oil Service (OIH) 146.28 -2.7% +51.0%
Basic Mat (IYM) 75.57 -1.3% +33.9%
Internet (HHH) 71.94 -1.6% +32.9%
Semis (PSI) 16.53 -0.7% +32.3%
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Industrials (IYJ) 66.65 -1.5% +24.8%
Health Care (IYH) 72.16 -1.8% +23.0%
Big Pharma (PPH) 69.79 -1.7% +22.2%
Big Tech (QQQQ) 54.64 -1.5% +22.2%
Biotech (PBE) 21.65 -2.5% +21.9%
Real Estate (IYR) 58.48 -2.4% +21.2%
Transportation (IYT) 91.96 -1.3% +20.4%
Consumer Svcs (IYC) 69.38 -1.7% +19.0%
Retail (PMR) 19.99 -2.2% +18.5%
Utilities (XLU) 32.97 -0.7% +17.8%
Media (PBS) 14.27 -2.3% +17.7%
Software (PSJ) 24.80 -1.6% +17.3%
Water (PHO) 18.45 -1.7% +16.8%
Defense (PPA) 19.23 -1.3% +14.7%
Insurance (PIC) 15.93 -1.3% +14.1%
Construction (PKB) 12.40 -2.5% +10.2%
Financials (IYF) 54.34 -0.9% +5.4%
Alt. Energy (PBW) 8.65 -1.1% +2.3%
Nanotech (PXN) 8.50 -3.5% -1.9%

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