Two promising biotech stocks to watch

Biotech is a notoriously tricky sector to invest in. But find the right company and you could make huge profits. Here, Louis Basenese picks two small-cap stocks that he thinks could be set to soar.

All the hoopla surrounding the biotech stock, Dendreon Corp. (Nasdaq: DNDN), this year is well deserved.

After all, the market potential for its prostate cancer treatment, Provenge, is significant. This year, 190,000 new cases of prostate cancer are expected, with 27,000 deaths from the disease. That makes it the most common non-skin cancer in the United States and the third most common cancer worldwide.

But Provenge takes a novel approach to treatment. The drug is the first active immunotherapy to improve survival by training a patient's immune system to attack the cancer. And since it uses the body's natural defences, patients only report flu-like symptoms instead of the nasty side effects associated with chemotherapy.

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This could have a far-reaching effect: If Dendreon's methodology works to combat prostate cancer, it may also work in combating other cancers, too.

If so, then forget blockbuster we're talking mega-blockbuster here.

Dendreon won't be the only biotech reaping profits

In turn, we could very well see an explosion in the use of immunotherapies, akin to the proliferation of antibody drugs since the late 1980s. And as a first-mover in the space, Dendreon should reap tremendous profits. But it won't be the only one.

With over 12 million new cancer patients each year and the lack of any truly effective treatments, it's only natural for other players to emerge successfully, too. And I'm convinced that a tiny Maryland-based biotech will be one of them.

With a market cap of just $50 million, the good news for us is that Wall Street is completely oblivious to the company's existence. But don't expect its anonymity and its sleepy stock price to last indefinitely. Here's why

Investor popularity increases for Dendreon & Northwest Biotherapeutics

As investors become increasingly aware of Dendreon, it's only natural for them to start hunting for other companies in the biotech sector that may achieve similar levels of success.

And such curiosity will quickly lead them to Northwest Biotherapeutics (OTC BB: NWBO.OB).

The company's prostate cancer treatment has also shown impressive preliminary results. In fact, the median survival rate for patients receiving Northwest's DCVax Prostate treatment checked-in at 38.7 months. That's almost a full 20 months better than the median survival rate for standard prostate cancer care.

In the life of a cancer patient, an extra year-and-a-half is a big deal. Most new cancer drugs add only about ten weeks of additional life.

But Northwest's overall survival rates after three years are even more impressive.

While just 11% of patients receiving standard prostate cancer care can expect to make it to three years, a staggering 64% of patients receiving Northwest's treatment made it to three years in the company's initial clinical trial. The company now has FDA clearance to conduct a large phase-III trial.

Northwest Biotherapeutics: this biotech stock is more than a one-hit wonder


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Rest assured, I'm excited about Northwest Biotherapeutics because of its strong preliminary results for its prostate cancer treatment. But I'm more enthusiastic about the company because of its pipeline of other drugs.

This isn't a one-hit wonder biotech stock. Much like Dendreon, Northwest boasts a lineup of multiple drugs that are showing strong promise, based upon preliminary trials.

Take its DCVax-Brain treatment, for instance

Two weeks ago, Northwest released updated data from its phase 1 and phase1/II clinical trials (conducted at UCLA) for patients with the most lethal type of brain cancer Glioblastoma multiforme (GBM).

And like DCVax-Prostate, the results were impressive

The median survival for the typical patient receiving standard care surgery, plus radiation and chemotherapy is 14.6 months. Yet the median survival for patients receiving Northwest's DCVax-Brain checked-in at more than double, at 36.4 months.

The treatment also showed tremendous promise in delaying recurrence. Typically, GBM tumors recur in just 6.9 months. But 74% of Northwest's patients made it one year without recurrence. And the median time to recurrence came in at over two years, at 26.4 months.

With over 12,000 GBM deaths per year in the United States and similar numbers in Europe, as well as much larger numbers for other forms of primary brain cancer, the market potential for DCVax-Brain is also significant.

Northwest's drug pipeline also includes treatments for ovarian, breast, lung, liver, head and neck and pancreas cancers, so you can see why I believe the company's shares could eventually match Dendreon's appreciation.

If only one or two of Northwest's products make it to market, the company will be extremely profitable. But we can't wait until that happens to make an investment.

Why biotech stocks are not for the faint of heart

As Dendreon continues to make positive announcements, Wall Street will inevitably clue into Northwest. And shares will advance well before it actually books a single penny in sales for its treatments. Keep in mind, Dendreon has already enjoyed a massive run-up, but Northwest has not.

In other words, to reap the rewards, we need to be early and willing to take some risk.

That said, don't be blinded by the upside potential. You need to be fully aware of the risks when investing in biotech. And when it comes to Northwest, only serious speculators should consider investing. Here's why

As I noted, it's a tiny company, with a market cap of just $50 million, compared to Dendreon's $3 billion.

Trading volume is seldom more than 50,000 shares per day.

Despite its impressive results, it has large clinical trials to complete and like many biotechs, it will need to continue raising capital.

If you're comfortable with those risks, invest accordingly. Otherwise, put Northwest on your watch list and monitor its developments for a possible future investment.

I'll certainly be watching it closely. Like Dendreon, I'm convinced the long-term profits will be significant.

This article was written by Louis Basenese and was first published in the daily investment newsletter Investment U