Investors use the “defensive” label to describe businesses that enjoy steady demand for their products – like food, cigarettes and electric utilities.

The thinking goes, you want to own these sectors when the economy stinks. Their sales and cash flows should hold up better than retailers and hotel chains when consumers are broke.

This from Rob Fannon, guest editor on Today’s Money Morning:

Considering we’ve just had the worst credit crisis in 80 years, and one of the worst-ever bear markets in stocks, the new “defensiveness” shown by biotechnology stocks is extraordinary.

Biotech is typically a wild sector. Most people don’t think of it as place to find safe stocks. But have a look at the accompanying chart, which tracks the SPDR S&P Biotech ETF (XBI) over the past two years. This fund has big holdings in the 10 or so large biotechnology companies that have viable products bringing cash in the door.

As the chart shows, the XBI ETF is actually higher today than it was back in 2007. You can’t say that about oil, real estate, retail stocks, food stocks, tech stocks, gold stocks, or financial stocks.

The strength in biotech shares is confirmation of something I’ve been predicting for the past few months: We’re due for huge rally in biotechnology stocks.

Biotech companies are much different than giant pharmaceutical companies like Pfizer Inc. (PFE) or Merck & Co. Inc. (MRK). Biotech firms make their drugs from living cells, rather than from mixtures of chemical compounds. Biotech drugs treat life-threatening diseases – so recessions barely dent sales growth. People can pass on the cholesterol-lowering effects of Lipitor for a while, but stopping a cancer treatment can kill a patient in weeks to months.

And because most biotech drugs are made from living cells, they’re hard to copy. Right now, the U.S. Food and Drug Administration (FDA) has no approved pathway for generic biotech drugs. While Big Pharma is struggling with dwindling pipelines, big biotech companies are profitable, have growing sales, are generating tons of cash, and face no generic competition in the near term. Biotech bull markets are often good for gains of 300% to 500% – across the entire sector.

That’s why I think you should become familiar with the sector immediately.

I recommend you start with three of the hottest areas of biotech. Each one has the potential to generate new “blockbuster” drugs (drugs with annual sales of more than $1 billion). Those three key areas are:

• Metabolic disorders: “Metabolic syndrome” is a politically correct term for patients who are obese, diabetic, and face increased risk of heart disease. There are good drugs to control diabetes and help prevent heart disease, but no good drugs to treat obesity. With half of the U.S. population technically obese or overweight, an effective diet pill is the Holy Grail of drugs. Right now, Americans spend more than $50 billion per year on over-the-counter diet remedies. An FDA-approved fat pill would be a monster seller.

• Vaccines: With new products to prevent cervical cancer, avian flu, and the common cold, vaccines are back in vogue. Big Pharma player Wyeth (WYE) has one of the biggest vaccines businesses in the drug world. It’s part of the reason the company recently fetched a $68 billion buyout offer from Pfizer. Dutch biopharma player Crucell NV (ADR: CRXL) is the top remaining independent vaccine players in biotech. I predict it’ll be acquired before 2009 is over.

• Infectious diseases: The transformation of HIV from a death sentence to a chronic disease has turned the infectious-disease-drug market into a multibillion-dollar industry. Gilead Sciences Inc. (GILD) is the top player in this space. The next frontier is an effective treatment for Hepatitis C. Current drugs have terrible side effects and only “cure” 50% of patients. A handful of biotech companies – Vertex Pharmaceuticals Inc. (VRTX), Human Genome Sciences Inc. (HGSI), and Pharmasset Inc. (VRUS) – are nearing pivotal clinical data for next-generation Hepatitis C drugs.

There’s never been a more exciting time to be a biotech investor. Big Pharma companies have nearly $100 billion in cash that will keep buyout offers large. We have plenty of “Holy Grail” areas to focus on. And, as you’ve seen, we have a strong trend on our side.

P.S. I expect the biggest opportunity in biotech (or the entire stock market for that matter) will arrive on March 30. By this day, one company will announce test results for a new drug that could create the single biggest return of any investment I’ve ever found. One drug expert calls the potential market for this drug the “biggest untapped goldmine in the industry” and speculates that it would be worth $10 billion per year. Click here for the full details of the situation.

Source: The Market’s Safest Sector Also Has Enormous Potential to Rise

Stock in US ethanol producer Pacific Ethanol (NASDAQ:PEIX) sold for more than $18 in November 2006. It now sells for just over $1.60. Meanwhile, investors in ethanol producer VeraSun (NYSE:VSE) lost nearly 70% this year.

But Rob Fannon says there’s a bigger ethanol bubble coming – one that can make big bucks for early investors…

This from Rob in The Growth Stock Wire:

With corn prices where they are today, corn-based ethanol is just not a viable business. But you don’t need corn to make ethanol.

Cellulosic ethanol comes from just about any part of any plant: wood, grass, sugarcane, even banana peels.

Just like corn, cellulose – what gives a plant its structure – can break down into sugars to produce ethanol. But cellulose “feedstock” is cheap and abundant. Scrap wood and discarded yard clippings are practically free, compared to $6-$8 per bushel of corn. So theoretically, a gallon of cellulosic ethanol could cost half as much to produce.

Right now, cellulosic ethanol production is confined to labs. The ramp-up to commercial scale is a few years away, which is where the investable opportunity is today… and how this story came across my radar screen.

There are two ways to invest in cellulosic ethanol… First, you could buy stock in enzyme suppliers. These are biotech and specialty chemical companies that produce the enzymes needed to break down cellulose. Or you could buy stock in integrated producers, companies building cellulosic ethanol production plants.

Rob says it’s too early to tell which the best route is. But he says, “it’s a safe bet that several winners from both sides will emerge from the race to the next energy bubble.”

The Department of Energy has already pumped $700 million into alternative fuel technologies last year. And the Energy Independence and Security Act calls for the use of 9 billion gallons of ethanol this year.

Corn-based ethanol may not have taken off, but that doesn’t mean the cheaper-to-produce cellulosic ethanol won’t.

Genetech has formed a special committee of independent directors to evaluate the $89-a-share acquisition offer from Roche, which already owns 56 percent of the US biotech firm.

If the deal does go through it may be bad news for Roche and Genentech shareholders, according to Phase 1 Investor editor Rob Fannon in The Growth Stock Wire. But it would be good news for the biotech industry as a whole…

While I believe the bid is a bad move for Roche – and not a great proposal for Genentech shareholders – this mega-deal is actually good for the entire biotech industry… and its investors.

With Genentech gone, the top of the biotech food chain is empty. Many investors will be searching for new spots to park their biotech cash. And sector valuations are on the rise. Both major biotech indexes – the Nasdaq Biotech Index and AMEX Biotech Index – are up more than 7% in just a few weeks.

Small-cap biotechs are cheap right now. So I’d be willing to bet the sector could jump 25% or more in the coming months. And big-cap names like Biogen (NASDAQ:BIIB), Genzyme (NASDAQ:GENZ), and Elan (NYSE:ELN) have jumped to the top of Big Pharma’s short list of buyout candidates.

If you’re thinking of dabbling in the biotech sector, Roche’s bid for Genentech just may be the buy signal you’re waiting for.

Source: The Buy Signal You’ve Waited For

Rob says that although Big Pharma stocks are cheap right now – bellwether Pfizer (PFE) is cheaper than it’s ever been – drugmakers are racing off the side of a cliff.

This is because when patents expire drugmakers loose billions of dollars to generic manufacturers.

But biotech drugs can’t be copied easily. And the sector is in an uptrend. Rob recommends using a biotech ETF to play this trend.

Biotech drugs are harder to copy than traditional drugs, making them more expensive to produce and less prone to future competition from generics. So drugmakers are willing to pay up to get a few biotech drugs in the pipeline.

In April, for example, the biggest Japanese pharmaceutical company – Takeda Pharmaceuticals – paid close to $9 billion to acquire Millennium Pharmaceuticals. In other words, Takeda handed Millennium shareholders a 53% profit over the previous day’s closing price. These deals will only get more frequent as Big Pharma gets more desperate. That’s why I love biotech stocks for the long term…

The problem with this long-term thesis is that biotech stocks in general have been “dead in the water” for the past few years. The sector enjoyed a big run from 2003 to 2005. It’s taken time to digest those gains… and money managers have been more focused on commodities since then.

But I think this “dead money” period may be ending…

In the past month, biotech was one of the few sectors to show positive returns. Oil stocks, financial stocks, and consumer-spending stocks have been killed. Many biotech stocks, on the other hand, are doing well. As Brian Hunt mentioned in yesterday’s Market Notes, the S&P Biotech ETF just hit a new high for the year.

There’s a good reason for this strength. A struggling economy won’t hurt biotech and medical as much as, say, an automaker, retailer, or restaurant chain… And biotech is one of the few industries showing solid sales growth.

A big holding in the S&P Biotech ETF, Gilead Sciences, just reported a 22% increase in quarterly sales growth. A slew of big biotech players report earnings next week, and I expect more great numbers.

Several ETFs give you broad exposure to biotech. Just enter “biotech” in the search box on www.etfconnect.com for a full list of funds. (A warning on the HOLDRs Biotech ETF – I’d avoid it… It’s ridiculously weighted toward just four high-profile companies.)

The really huge gains in biotech will be made with the best individual companies. Pick the right one and you could easily multiply your money by four or five times.

Whichever route you choose, I encourage you to pay attention to the biotech sector. It has a terrific long-term outlook and it’s getting started on another run higher.

Source: The Decade’s Most Irresistible Opportunity

So how can you turn a profit in this turbulent sector? By investing in contract research organisations, or CROs, says biotech expert Rob Fannon. When the big pharmaceutical companies outsource research to CROs they get paid whether or not the new drugs ever make it to market.

There’s another way to profit too – contract sales organizations, or CSOs. They’re another way for Big Pharma to outsource, but instead of doing research they sell. Investing in them is a low-risk method to turn a big profit from Big Pharma’s woes…

Today, I want to tell you about a group of stocks ready to explode as the world’s largest drugmakers slim down… As I’ve explained before in Growth Stock Wire, Big Pharma is in trouble. The industry is facing slowing sales, patent expirations, generic competition, and withering pipelines. Now drugmakers are on a massive diet. The biggest losers – Pfizer (PFE), Merck (MRK), and Sanofi-Aventis (SNY) – are dumping employees and slashing costs.

One of the winners in this situation is contract research organizations, or “CROs.” Rather than perform the work in-house, drugmakers are outsourcing research and clinical trial work. As I’ve written before, I love CROs. They get paid whether or not new drugs make it to market. So they’re a uniquely safe health care investment.

I recently told Phase 1 subscribers about another industry set to reap big rewards from drugmakers’ downsizing. Let me explain…

By far, the biggest victims of Big Pharma’s cutbacks are drug reps: attractive, well-paid twenty-somethings visit doctors bearing free samples and branded mugs. The largest drugmakers in the world are firing their rank-and-file sales force in record numbers. For the first time in more than a decade, the total number of drug reps actually fell last year.

Leading the bloodbath is Pfizer, the world’s largest drug company. Last October, it kicked off a cost-savings plan that included a 10% reduction in its global workforce: 10,000 jobs. That includes 2,200 sales positions, nearly 20% of its U.S. fleet. Shortly after, Pfizer’s peers announced similar cutbacks…

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Britain-based AstraZeneca will trim 7,600 jobs, 11% of its roster, including most of its European sales force. Johnson & Johnson will cut 5,000 folks, including 400 drug reps right away. Sanofi-Aventis is firing one-third of its domestic sales force. And 3% of Novartis’ employees, including 500 U.S. sales reps, got canned.

Of course, these companies still need to sell drugs. But at $165,000-$170,000 a year, traditional drug reps are too darn costly. The industry must sell more efficiently. That’s where contract sales organizations, or CSOs, come into play.

Today, Big Pharma players can “borrow” sales reps on a temporary basis from a few CSO players. For example, Novartis may need a short-term team to push its flu vaccine in the fall. Or Merck might want to boost a drug launch and build brand awareness quickly. Using CSOs, drugmakers can supplement their internal sales force with top reps without taking on permanent, costly employees.

Right now, CSO reps make only 5% of total drug sales. This figure is set to triple in the next three years. That would make the substitute sales-rep industry worth about $2 billion. But CSOs do much more than farm out salespeople. They also recruit, train, and place new reps at drug companies. And they do market research, brand management, and other types of consulting.

The industry’s biggest player is inVentiv Health (VTIV). The company loans out sales reps, crafts sales and marketing strategies, and provides staffing services. It brings in about $1 billion per year

Like CROs, the CSO industry is a perfect example of a low-risk, high-reward way to profit on Big Pharma’s crash diet.

Good investing,

Rob Fannon

P.S. inVentiv is trading near fair value. But I prefer clear bargains… Last month, I recommended a CSO pioneer to my Phase 1 readers. Incredibly, the company was trading just above the amount of cash it held in the bank.

We’re up about 8% on the position in a few short weeks, but this is just the beginning. I expect the stock could net readers at least 50% returns in the next year. Click here to learn about a risk-free subscription to Phase 1.

Source: Another Perfect Health Care Investment

I’m at the annual Biotechnology Industry Organization (aka “BIO”) Conference here in San Diego. The buzzwords I keep hearing are biofuels, green energy, and agribusiness. This year’s tag line is Innovate. Heal, Fuel, Feed the World. And no shortage of businesses are claiming to do just that…

On Tuesday, keynote speaker Arnold Schwarzenegger highlighted several state energy programs that use biotechnology. And before the “governator” took the stage, genomics pioneer Dr. Craig Venter discussed his biofuels research…

As CEO of Celera Genomics, Venter headed efforts to sequence the human genome. Today, he’s launched his own private research institute focused on creating synthetic life forms… Essentially, he’s making creatures that eat carbon and excrete fuel.

Innovators like Venter are about to make a boatload of money in ag-bio, biofuels, and other “green” life-science technologies.

You see, when oil was $30 a barrel and corn still cost $2, biotechs didn’t have a reason to develop alternative energies or agricultural breakthroughs. Now, oil is over $130 and corn is $7.50 – and hitting new highs along with wheat, soybeans, and rice. The biotech industry wants a piece of the action…

Large players like Monsanto (MON) and Syngenta (SYT) dominate the food side of the game. Both companies develop insect-resistant crops and genetically engineered seeds. Over the last year, Monsanto’s shares have doubled, up nearly 110%. Syngenta is up nearly 75%. Both are still in relentless uptrends.

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But today, the stocks are too rich for my taste: Monsanto sells for 45 times earnings and Syngenta for 30.

One company I like better is Denmark-based Novozymes. Novozymes works on food, energy, and… oh yeah… drugs. The company makes specialty enzymes. Its products are used in dishwashing detergents, food and alcohol production, oil and ethanol processing, livestock feed, and pharmaceuticals. Novozymes netted $1.5 billion in sales last year. And the $5 billion company is trading at reasonable levels today.

The one catch is that the stock trades on the OMX Nordic Exchange in Copenhagen. That makes it more difficult for U.S. investors to buy.

The same is true of a couple of other interesting companies I found at BIO…

Take Danish company Danisco, for example. Danisco is one of Europe’s largest producers of sugar. Its technology also transforms raw materials into livestock feed, biofuel, and plastics. Last year, it brought in $4 billion in sales from customers in close to 50 different countries.

And Euronext-traded DSM sells plastics, polymers, and chemicals used in human health and animal feed. And half of its $13 billion in sales last year came from industrial materials. The $10 billion company also has a manufacturing relationship with one of my favorite Phase 1 picks, Dutch biotech Crucell (CRXL).

I’m not suggesting you buy any of these stocks, not without putting in some solid research. But these companies are all cashing in on a trend I expect to track for some time. The agriculture and energy sectors are minting money right now… As the biotech industry is figuring out, there’s plenty to go around.

Good investing,

Rob Fannon

P.S. Analyst George Huang and I are busy seeking out the trend’s smallest and most innovative newcomers. Phase 1 readers can expect recommendations focused on cleaner fuels, sustainable food production, and agricultural technologies.

Source: A Strange New Way to Invest

Over the last year, I’ve been railing at readers to keep as far away from Pfizer as possible, and Growth Stock Wire subscribers have certainly gotten an earful of my Pfizer bashing. (If, by some chance, you missed my rants, here’s one of my favorites. It offers investors three ways to cash in on the drugmaker’s demise.)

By no means do I get ‘em all right. But as you can see from the following chart, my Pfizer call has been spot-on. The stock’s taken a 32% nosedive over the last year, 10% in the last month alone.

Pfizer stock is now selling for around 10 times free cash flow – outrageously cheap. Even more tantalizing is its 7% dividend yield. But don’t let the fat dividend tempt you…

At 7%, Pfizer’s dividend is the drug industry’s highest, more than double the industry average (3.3%), and three times larger than the S&P 500 average (2.2%). Right now, the stock’s high yield is the one thing protecting Pfizer’s shareholders from utter catastrophe…———- Advertisement ———-
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But Pfizer’s dividend will disappear in less than two years.

The company has close to $30 billion in the bank, so you might think I’m crazy to question its hefty payout. And the company’s CEO and CFO claim the dividend is not only safe, but should grow 10% this year (barring any “significant events”). I don’t buy it…

To take advantage of lower foreign tax rates, Pfizer holds a majority of its cash, as much as 75%, outside of the U.S. But American corporate dividends must be paid from U.S.-based funds. Uncle Sam would wallop Pfizer with a staggering tax bill if the company brought foreign cash back home. So rather than pay the taxes, the company borrowed money this year to fund its dividend, upping its short-term debt by 50%.

Next year, to maintain its dividend without adding to debt, the company needs to bring in $8 billion in cash. To increase it 10%, as management suggests, the figure is closer to $9 billion. That’s possible, if difficult, with the company’s current free cash flow around $10 billion per year. But Pfizer is set to lose its top-selling cholesterol drug, Lipitor, to generic competition within two years. Lipitor brings in $13 billion a year and accounts for roughly 65% of the company’s annual free cash flow.

To make up for the loss, the company has cut costs, dumping 10,000 employees (including the chemist that developed Lipitor) and halting its share repurchase program (even with the stock bouncing off multiyear lows). But now that the easy cost-cutting measures are through, Pfizer’s management must be eyeing the annual dividend payment.

I don’t see how the company can keep up its high yield, let alone increase it, without taking on even more debt. When you’re borrowing to expand, that’s one thing. When you’re borrowing to throw the money out the door, that’s another.

So it’s a matter of “when,” not “if,” the Pfizer dividend yield falls at least back to levels in line with its peers. When this happens, you don’t want to be a shareholder. I’d expect another 40% drop from today’s depressed trading levels.

The dividend cut could come a lot sooner than expected, too. I had a good chuckle at management’s “significant events” disclaimer. I waited for the obvious question that nobody asked – Does the loss of a $13 billion annual drug franchise count as a “significant event”?

Good investing,

Rob Fannon

P.S. I’ll be in San Diego all next week at BIO 2008, the year’s largest biotech conference. In next Friday’s Growth Stock Wire, look for my report on the best ideas I find.

Source: Don’t Be Suckered in by This Big Dividend

Today, I’m going to share with you a health care investment you’ve probably never considered… one that’s set to grow in step with the aging population, returning hefty yields along with steady capital growth. Let me explain…

Today, health care accounts for 15% of U.S. spending, about $2.2 trillion. That already staggering number is set to skyrocket in the next decade as the waves of the “silver tsunami” wash ashore.

You see, regardless of how healthy you are as you age, the majority of your lifetime medical expenses – approximately 80% – will come due in the final years of your life. As you would expect, a large portion of these dollars will flow to hospitals and assisted-living centers. So, as an investor, you might be tempted to buy the companies operating these medical centers and nursing homes. It’s not a bad idea… But I’ve got a much better one…

The safest way to play this megatrend is to buy the landlords… the companies that own hospital buildings, medical offices, and other health care facilities. Here’s why…

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REITs, by law, must pay 90% of their income to shareholders. In return, these companies pay little to no taxes. Health care REITs lease their buildings to medical-service providers or “operators,” who sign 10- to 20-year leases and are responsible for all property taxes, utilities, and expenses.

So health care landlords are practically immune to rising energy costs. In addition, automatic rent escalators – about 2%-4% annually – protect landlords from inflation.

And people get sick and go to the doctor no matter what the economy is doing. That’s why medical stocks like health care REITs are the ultimate “defensive” stocks… investments that perform well regardless of tumultuous economic cycles.
Of course, the words “real estate” now make the average investor cringe… Nearly every REIT started to tumble early last year, and health care REITs were no exception. But consider this: While REITs in general have fallen another 15% in the last 12 months, health care REITs are about flat. And that’s not counting their 6% dividend yield, which is 50% higher than the general REIT industry.

Now take a look at this chart…

This plots the one-year performances of the Dow Jones REIT index (black) and bellwether health care REIT HCP Inc (blue). HCP is the market’s largest, most diversified health care REIT. And it’s led the charge into laboratory space in biotech hot spots like San Francisco and San Diego.

HCP is up about 20%, including dividends, since I introduced Growth Stock Wire readers to the idea of collecting “health care rent checks” in July last year. And it’s up 9% since I revisited the opportunity in November, while the S&P is down 4%.
HCP is one of four health care REIT recommendations I’ve made to my paid subscribers. Including dividends, we’re up an average 22% in just one year. But with America’s 60+ club adding 8,000 new members daily, I think this is just the beginning.

Good investing,

Rob Fannon
Source:The Safest Way to Profit as the Boomers Retire

Approved by the FDA in early 2006, Sutent is the first drug to be simultaneously cleared for use in two different types of cancer – kidney and stomach. Sales leapt to $600 million last year and may cross the $1 billion mark this year… giving it “blockbuster” status.

Those revenues would make the average biotech stock explode. Onyx Pharmaceuticals, for example, enjoyed a similar launch with kidney-cancer drug Nexavar in 2005. Shareholders saw 300% gains in two years.

So who made a killing on Sutent? No one. That’s because Sutent accounts for less than 5% of its maker’s sales. And despite Pfizer’s success with the drug, its revenues are essentially flat. Shareholders are down 30% since the launch.

Compare that decline with Genentech, the world’s biggest biotech and the cancer market’s biggest player. Its stock is up roughly 60% since its top-selling cancer drug, Avastin, was approved in 2004.

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Good cancer drugs command huge price tags, some as much as $65,000 per year. And cancer causes more deaths than any other disease. The cancer-drug market is forecasted to double in the next five years to $85 billion per year.

So Sutent was Pfizer’s first salvo in the battle for Genentech’s market. The company has boosted its cancer research spending to roughly $2 billion per year, about 20% of its massive research and development budget. And it has 18 new cancer drugs in its pipeline.

Yet, as long-time Growth Stock Wire readers know, I believe Pfizer’s efforts are too little, too late… The drugmaker has already lost $6 billion in annual sales in the last two years as blood-pressure drug Norvasc and allergy drug Zyrtec have lost patent protection. And Sutent can’t compare to Pfizer’s biggest winner, Lipitor, which loses patent in 2011.

Pfizer would need a dozen or more drugs just like Sutent to replace the $12 billion in lost sales from its Lipitor franchise. The company would be enormously lucky to turn one or two of its 18 other candidates into a blockbuster product, let alone 10 or more.

Pfizer’s efforts in the cancer field are admirable. And, yes, Sutent is a fantastic drug. But the company’s hard work and big spending won’t save its shareholders. Pfizer will be dead money for years to come.

The same is true for the rest of Big Pharma. Sales worth $100 billion are set to go off patent by 2012. The big drugmakers won’t be able to innovate their way out of that.

What they will do is try to buy their way out, cherry-picking the best drugs in development from the biotech sector by buying entire companies. Of course, there’s a limited number of attractive biotechs… and a dozen or so big drug companies on the prowl. Pfizer and its peers will have to pay biotech shareholders hefty premiums to win the bidding process. In the end, Big Pharma investors lose, biotech investors win.

It’s likely Pfizer – or some other big drug stock – is hiding out in your retirement portfolio. If so, the position is down 30% or more over the last four years. Do yourself a favor: Dump your shares immediately and consider taking a look at the biotech sector.

Pfizer and the rest of Big Pharma may not fall very much from here, but even the biggest blockbusters won’t give these stocks the boost they need.

Good investing,

Rob
Source: Do Yourself a Favor and Dump These Stocks Immediately

Main Street investors watched helplessly as Regeneron lost nearly $500 million from its market cap in roughly three weeks. Should we just chalk it up to typical biotech volatility?

Actually, scores of hedge funds had anticipated Regeneron’s downward spiral weeks in advance. As I’ll explain, the group took advantage of another biotech “glitch,” sold Regeneron’s shares short, and pocketed a cool 30% return… while naïve investors were blindsided.

Last week, I described the “ivory tower glitch,” which occurs when academic studies shove around biotech stocks. Well, before those studies go public, scientists and researchers often present the data at academic conferences. This unpublished data can sometimes move entire sectors of the industry.

The most famous (or infamous) of medical conferences is ASCO, the annual meeting of the American Society of Clinical Oncology. This is the “Super Bowl” of cancer meetings.

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But ASCO has a dark side, which last year cost Regeneron investors a third of their investment. You see, before every scientific conference, organizers release “abstracts” – one-page appetizers summarizing each presentation. At clinical conferences like ASCO, the abstracts can contain highly anticipated data on new drugs… the kind of information that can move a stock up or down 75% in one day.

Here’s the catch: ASCO has traditionally released abstracts to the public at the beginning of the conference. Yet ASCO members – cancer doctors and researchers who pay annual membership dues – received this information a full three weeks in advance.

Clearly, the scientists on Wall Street’s payroll selectively ignored the Confidential label on ASCO’s abstract books. This data leak created a “glitch”… allowing some investors to trade on “insider” information, while the rest were left in the dark.

In its abstract last year, Regeneron summarized disappointing trial results for its lead cancer drug. Investors who saw this data weeks early had a chance to set up short positions, knowing the market would punish the company. Sure enough, when the public got the bad news, Regeneron’s stock lost 11% in a day and continued to drift lower for weeks.

Regeneron is just one example of dozens of similar ASCO “glitches.” So now, after enduring numerous complaints, ASCO is trying to level the playing field. This year, conference organizers released the 2008 abstracts to everyone all at once… last night at 9:00.

You might want to check them out to see if any of your biotech holdings are presenting at this year’s ASCO meeting. You can bet dozens of volatility-junky hedge-fund managers and analysts are scouring through the pages as you read this, getting ready to make major moves in the market.

If you’re looking for short-term volatility trades, check out the presentations from the usual suspects – big biotech players in the cancer market, including Imclone (IMCL), Genentech (DNA), Onyx (ONXX), Celgene (CELG), Exelixis (EXEL), Medarex (MEDX), and Immunogen (IMGN).

If history is any measure, we’re heading into a span of volatile trading days in biotech. At least this year, we’re all in the same boat.

Good investing,

Rob

P.S. Even with the newly level playing field, it’ll be hard for individual investors to gain an edge over hedge funds when it comes to ASCO. But my friend and colleague Dr. George Huang has developed a system that uses a similar, little-known glitch to generate an average 75% profits a year. Click here to read more about it.

Source: What Hedge-Fund Managers are Reading this Morning