On Dec. 28, 2001, ImClone (nasdaq: IMCL - news - people ) revealed that it had received a letter from the Food and Drug Administration saying that the agency wouldn't even consider ImClone's application for its hyped cancer drug, Erbitux, because the data were not up to FDA standards. ImClone shares, which had previously gone up to $75, dropped 6% that day and 59% in January.
Rye, a certified financial analyst who began covering biotech in 1999 at SunTrust Equitable, didn't believe ImClone's argument that the problem was just a hiccup in the regulatory process. "We downgraded ImClone from a market perform to an outright underperform, which is the equivalent of a sell," he says. At the time, ImClone still sold for $55 a share. Now it trades at $14. Investors who listened to Rye got to keep most of their money.
"When the news came out on ImClone, it cast a shadow on the whole sector," Rye says. Since many biotechnology companies have little in the way of sales or earnings, it is not unreasonable to look at these firms as publicly traded venture capital. In short, it is crucial for investors to have a realistic and honest appraisal of the prospects of a new biotech drug.
 | |
| Brian D. Rye |
That means that there are still good buys for savvy investors. One such company, Rye says, is Ilex Oncology (nasdaq: ILXO - news - people ). The San Antonio, Tex.-based firm's Campath is already approved for leukemia. But the drug is also being tested for non-hodgkins lymphoma and multiple sclerosis--meaning that a significant ramp-up in sales is possible. Since Rye put a strong buy on the stock in Sept. 2002, its share price has increased 230% to $10.47.
Despite its encouraging prospects, Ilex Oncology is not expected to be profitable in 2003. Analysts reporting to Thomson Financial/IBES expect Ilex to lose $1.48 per share in the new year. The best-performing biotech analysts identified by StarMine anticipate a loss of $1.45 per share; this forecast includes Rye's estimate of -$1.38. "
