This Drug Stock Could Get Drowsy

Biotech and medical stocks have been tough to divine this year. But so far, Evan Sturza, editor of Sturza's Medical Investment Letter, has been proficient in spotting several pretty big winners--and losers--in the group. In May, he picked SCIMED Life Systems when it was 46 a share and Synergen when it was 38. SCIMED is now 63; Synergen is 49. On the short side, Sturza tagged Somatogen as a loser and sold it short at 37. It's now 17. Upjohn was another Sturza short: It fell from 44 in January to 34.

Right now, Sturza is very down on Gensia Pharmaceuticals, trading at 38 a share with a market cap of $1.1 billion. That's high, says Sturza, for a company that has lost money since 1986 and whose one product, Arasine, has yet to be approved by the Food & Drug Administration. "Given the stock's price and worries about Arasine, Gensia is vulnerable to a severe sell-off." Some pros agree: They have sold short 1.7 million of Gensia's 28 million shares outstanding.

Gensia bulls are assuming that Arasine, a drug designed to prevent a heart attack or heart-tissue damage during coronary-artery bypass surgery, will be used in thousands of cardiac and noncardiac surgeries a year at $500 to $750 per patient, says Sturza. "Since the stock's price factors in a best-case scenario for Arasine, any disappointment will have disastrous consequences for shareholders," he warns.

Sturza contends that Gensia has yet to prove that Arasine can achieve a "statistically significant reduction of cardiac complications." Sturza is betting the stock will fall to 20 in a year. Gensia will announce within days the results of the most recent clinical tests on Arasine, but the company declined comment.

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE