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Investing in Biotechnology Penny Stocks

Updated on November 14, 2009
VNDA takes off after their drug Fanapt is approved by the FDA.  Chart courtesy of Yahoo Business
VNDA takes off after their drug Fanapt is approved by the FDA. Chart courtesy of Yahoo Business

I am not a savvy investor. A good number of stocks that I have invested in didn’t do too well. I am also not a big investor. I don’t invest in a lot of stocks. Actually, in the past couple of years, I have been concentrating on bond funds on my online trading account.

However, I have had some winners. The first stock that I invested in was a biotechnology company called Alkermes (ALKS) which produces products for central nervous system disorders, addictions, and diabetes. This investment was purely a stroke of luck. I had just opened my online account and didn’t have a clue as to what companies to invest in. At first I was rather intimidated. I had deposited the money but was unwilling to take the plunge. Then, while watching one of the financial programs on one of the cable shows, an analyst picked ALKS as a good stock. Without doing any research of my own, I gambled and bought some shares. At the time, ALKS was at roughly four dollars a share. Apparently one of their major drugs had failed FDA approval, but right after I bought it the drug slowing gained approval in Europe. Within a year the stocked jumped to 14 dollars a share.

From this experience I have learned that investing in biotechnology companies can be very rewarding. The great thing about these companies is that you don’t have to do that much research to find them. Any of the financial news websites can be used but I have found Forbes to be the best. Simply type “drug rejection” in the search field of the website and see what comes up. Look for companies that are in the penny stock range, five dollars or less per share.

One of the most recent examples that I have seen is Vanda Pharmaceuticals (VNDA). I found the company while doing a search almost a year ago in November. Apparently their schizophrenia drug Fanapt had been rejected by the FDA. I even put the stock symbol on the stock widget on my computer where I could watch it everyday.

Unfortunately this may not have been a wise thing to do because at the time I didn’t want to invest any money. I had recently lost my job. Well, by early May the company’s drug Fanapt was finally approved by the FDA. In one day the stock rose from roughly one dollar to over eight dollars a share and topped 12 dollars the day after. Obviously I could have kicked myself for not investing something since a mere one hundred dollar investment would have turned into $1200 in only two days.

As with any stock investing method, there always is a risk. Another stock I was watching was Neurocrine Biosciences NBIX, but this stock has floundered since, when its sleep aid drug was rejected twice by the FDA.

Finally, there are not many of these penny stocks that show up in the biotechnology field. They are far and few between. Many of the stocks that show up when you search for FDA drug rejection are the big companies such Merck or Eily Lilly, but once in awhile one of these gems will show up, and hopefully you will buy into it and take it for a ride.

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