More Biotech Bets for the Fearless

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The company priced above its range in December and has a market valuation of almost $500 million. So why does this loss-making company appeal so much to a few investors? Among other factors, the company received funding from big-name venture capitalists like MPM Capital and Bear Stearns Health Innoventures.

Another is potential sales. The company's hopes rest on Hematide, an erythropoiesis stimulating agent designed to treat anemia in patients with chronic kidney disease and for cancer patients undergoing chemotherapy. Anemia-fighting drugs are blockbuster sellers—generally defined as more than $1 billion-plus in annual sales—for Johnson & Johnson (JNJ) and Amgen (AMGN). And Affymax believes Hematide could be longer acting and cause fewer side effects than the existing products. The drug is in several mid-stage trials.

3. Jazz Pharmaceuticals (Filed for IPO)

Oftentimes investors find initial public offerings in biotech come along too early in a company's development before it has much encouraging data on its prospective compounds. Jazz Pharmaceuticals, which filed to go public earlier in March, could wait a little longer because it focuses more on acquiring and licensing drugs than on developing them from preclinical stages. The offering's underwriters include Morgan Stanley (MS) and Lehman Brothers (LEH). Jazz already markets a drug for the sleep disorder cataplexy, and excessive daytime sleepiness in patients with narcolepsy.

By modifying known therapeutics and the methods by which they are delivered, the company also believes it can mitigate the risk of drug development. In January, the company licensed the U.S. marketing rights to Luvox CR, an extended-release version of the antidepressant, which Jazz hopes will win approval to treat obsessive-compulsive disorder and social anxiety disorder. If it succeeds, product rollout could come as early as next year.

4. Altus Pharmaceuticals (ALTU)

Altus' plan is to commercialize drugs that it modifies using its protein crystallization technology. It is pushing two leading product candidates. One is an oral treatment for nutrient malabsorption caused by an exocrine pancreatic insufficiency. The second is an injected treatment for growth-hormone deficiency that it is developing with Genentech.

Cowen (COWN) has an outperform rating on the stock. The firm likes Altus' business model of modifying drugs to treat rare diseases. (Cowen makes a market for and has a banking relationship with Altus.)

But research outfit Morningstar (MORN) is less enthusiastic. It rates the stock one star out of five. A recent report on the company says it believes both of Altus' lead candidates have promise if, of course, they win approval. It adds that the company "does not appear to provide a viable commercial alternative if either of the leading candidates fails."

5. Trubion Pharmaceuticals (TRBN)

Seattle-based Trubion develops drugs designed to bind to targets on cell surfaces. The lead product candidate, now in mid-stage trials, aims to treat rheumatoid arthritis, a market with blockbuster potential. The company believes it may also have use in treating lupus, though it has not yet begun clinical trials aimed at the disease.

Trubion carries all the usual biotech risks, but investors have warmed to the company anyway. The stock is up more than 50% since its October IPO. More than promising pills or potions, those who play biotech stocks may consider ever-optimistic investors as the sector's greatest asset.

Halperin is a reporter for BusinessWeek.com in New York.