Yes, there is such a thing as a legal robbery - MedImmune (MEDI) just did it to AstraZeneca shareholders, or, should I say, AstraZeneca just robbed its own shareholders. Guys, what were you thinking?

Am I exaggerating? Aw, c'mon, $15 billion for MedImmune? Christmas came way early this year - as has Christmas for the next several years. Here's why:

• First, $15 billion is a great deal of money, even for a fat and flailing big Pharma company, and you could buy a good many other companies with better revenues streams and profitability, perhaps a cluster of them over time, than MedImmune

• MedImmune appears to be in good shape - the numbers this past quarter looked good with revenues were $575 million, profits of $166 million. But nearly 90% of revenues were from the sale of one drug, Synagis for the prevention of respiratory infections in premature and other health-compromised infants - a narrow marketplace of 125,000 patients a year, maybe. The purchase price, therefore, puts the deal at six times revenues and 20-23 times profits, which is also not an unreasonable price. But....

• What is in MedImmune's pipeline? Yeah, I know you thought it was the Flumist company, but my kid's baseball team generates more money through hot dog sales than Medimmune did with its FluMist flu vaccine.

They have two treatments in Phase III trials - including a different version of FluMist - four drugs in Phase II and six in Phase 1 trials. That is less than the combined product pipelines of Spectrum Pharmaceutical (SPPI) and Targacept (TRGT), which together boast a market cap equal to roughly 2% of that of MedImmune. Yes, I said 2%. Also, the MedImmune pipeline is all over the place, cutting across infectious disease, vaccine and cancer markets and while many could be solid products, it is hard to see any becoming blockbusters for major diseases like multiple solid tumor cancers or diabetes.

I am sure supportive analysts (employed by hopeful or engaged investment bankers) have crunched their drug modeling spreadsheets and come out with nice answers saying Synagis revenues and profits pay for much of the deal and the pipeline being bought by AstraZeneca is reasonable. What they are leaving out is the management and financial bandwidth sucked up by this large a deal precludes AstraZeneca from going after other and better companies with more robust pipelines. There is only so much time in a day and so much dilution shareholders can stomach and it is hard to imagine AstraZeneca going after any medium and/or revenue-generating companies in the next two years, a real loss for its shareholders.

Stay away from AZN and thank them for boosting the valuation of many other companies in this space, from the little guys to big caps such as Biogen Idec (BIIB).

The surprise decision by the FDA to ask for more data on Provenge, and essentially keep the drug off the market for another two (to four and one-half) years, has opened a debate on the role of the FDA and how it makes decisions.

Poorly, is the simple answer. The agency is using 19th-century scientific logic to manage the process of approving or rejecting 21st-century drugs.

Strangely, though, the real fault of the FDA lies in not adhering to a standard created in the fourth century BC. It is known as the Hippocratic Oath, the pledge made by physicians on how to best care for their patients. For the full oath, check out Wikipedia's definition. For the purpose of our discussion, the key words are "Do No Harm."

Do no harm is what the FDA forgot - and the four hypocrites on the Advisory Panel who voted against the drug also forgot. Do no harm.

For the vast majority, I would say 99%, of drugs, the FDA standard of "prove you are right, prove you work" is the right way to go with the statistical measure they use, which typically require a company to prove with 95% certainty positive outcomes in a trial are the results of a drug in question. But for drugs such as Provenge, wrong standard, and retreating into this standard not only violates "do no harm" it is an overt act of cruelty born out of cowardice.

Strong words - and I am not dying of prostate cancer.

Why is Provenge different? Because there is no treatment for the form of prostate cancer targeted by Provenge and affecting, conservatively, 45,000-55,000 each year in the United States. By having a patient take Provenge, you are diverting them from another treatment - you are not doing harm.

Yes, there is a chemotherapy called Taxotere approved for treatment, but no one sees this as a real treatment as, on average, it extends life 10 weeks and is terribly harsh, with many, perhaps a majority of eligible patients refusing treatment due to side affects.

But, the FDA says Provenge does not work.

Provenge, to many of us, does work - it is just the size of the clinical trial and the structure of the data collected and submitted to the FDA that did not meet original promises for the trial. And to keep statistics pure, possibly 22,000-plus men will die earlier than they should in the next four and a half years. That is the time I estimate it will take to complete a new trial, present data and get Provenge past the FDA.

I called them cruel, becasue, of course, cruelty does not have to be purposeful -- it only has to mean hiding from what needs to be done. To "do no harm" they are cruelly condemning potentially tens of thousands of men to a premature death. I called them cowards - and let us look at the definition of coward I found:

* lacking courage; ignobly timid and faint-hearted; "cowardly dogs, ye will not aid me then"- I remember that one from Shelley
* lacking determination or strength of character

That sums it up.

Can this be fixed? Not for Provenge - the FDA was designed to be an independent agency, as it should be, and neither the Executive Branch nor Congress can intervene - only the courts and they are justifiably reluctant to do so.

But, can this be fixed. Yes, and simply, without passing new enabling legislation, although the people who run the FDA will probably want a Congressional go-ahead for any sort of meaningful change.

What should that change be? To formally create a new kind of "conditional approval" approval suitable only for severe or terminal illnesses that otherwise have no other viable, alternative treatment. They would be approvals that require a large follow-on trial or epidemiological study of patients using the particular drug. The approval would have a sunset clause - it would be rescinded automatically on a certain date if the follow-on data was not submitted to the FDA in the specified time period and/or if the FDA found the data did not support a full approval.

Is this an overreaction? Even the most conservative estimates place the number of premature deaths due to the denial of approval to Provenge at 22,500 or seven times the current body count in Iraq. Enough said.

I have used this line before but...psst...wanna invest in a hot disease?

Biotech investors send me e-mails all the time about specific companies or potential products. No one asks questions about a disease, but disease trends drive the fundamental underpinning a company. I believe investors should target a disease and either "buy" a disease basket or "create" a disease basket out of several companies approaching the same patient population.

We tend to do this in other market segments. We look for information that will lead us to the next great trend and company. Good examples are personal computers in the early '80s, big box stores in the late 1980s, networking in the early '90s and so on. Then we search for the leaders who are at the forefront of the trend.

That's all well and good, but I have yet to meet an investor who invests in a disease. And that's a pity, because diseases are where it is "at" in life sciences and biotech investing.

If you saw 20 new houses with "Sold" signs, and the name of the developer on the signs was all the same and a publicly held company, wouldn't you check it out as an investment?

When you hear that diabetes has hit epidemic proportions, what do you do? Most likely you reach for some Splenda for your coffee. You may need the Splenda, but you should really be thinking "disease." Actually, you should think boomers first -- as 80 million of them are getting older, and for the most part fatter, and unhealthier every day. You shoudl read about what diseases they have or, most importantly, will likely get.

First, there are the great killer diseases -- heart disease, cancer, and diabetes. Boomers are the generation living longer, that is true, but many are doing so with these diseases. With these diseases you not only get a huge (pardon the pun) patient population, you get patients spending money for many years on treatments.

Second, there are the diseases of aging -- arthritis, Alzheimer's disease and age-related macular degeneration. The boomers will live longer and 50% of everyone over the age of 85 gets Alzheimer's, 65% get some form of arthritis and 5% of the population over the age of 65 will get age-related macular degeneration.

Third, there are the lifelong diseases and their treatments -- HIV, multiple sclerosis, alcoholism and all the vaccines. These treatments cut access all age groups but are used by patients forever.

So, we see there are three gigantic markets representing $100s of billions.

So how do you play them?

You have several choices as an investor:

Focus on the ones you already know something about or know something about a company in that space. If I had to choose one "space" right now, it would be diabetes. This disease has reached epidemic proportions in the United States and the developed world -- and it's the direct result of diet and lifestyle choices.

Direct and indirect revenues from diabetes-related illnesses topped $100 billion last year in the United States alone. And last year not one but three major new treatments were approved by the FDA -- with two of them on the road to being blockbusters already and all three from companies relatively unknown to the public (but part of my newsletter's Buy List).

I still think all three are good buys and they are individually a great, great way to make serious money in a short period of time. Investments in this market segment are far less speculative than in many others. There are lots of companies ranging from Amylin (AMLN) to Polymedica (PLMD) that are pure plays on diabetes. In this area I would pick companies and avoid building a basket.

A second segment, and far riskier for investors, is Alzheimer's disease.

It's the single greatest public health crisis this country will face in the next generation and the typical Alzheimer's patient costs the healthcare and social welfare system $175,000, with that cost rising by double digits. And there are only a couple of modest, relatively ineffective and frightfully expensive treatments for Alzheimer's.

The approach here is to bet the disease will be a huge market and play a mix (basket) of relatively safe stocks -- companies with a potential treatment, but also a great, existing business.

And one great candidate for the basket is the world's largest generic drug manufacturer, and also a maker of proprietary drugs for central nervous system disorders. It's a classic, non-revenue biotech start-up, and is up roughly 25% since I recommend it six months ago. The opposite of this large generic company, and also a good "basket" choice is are small speculative outfits, ranging from Neurochem (NRMX) to Transition Therapeutics (TTH:CA), and others of their kind.

Think about it.

I know from your e-mails that some of you have created "internet stock baskets" or a "specialty retail basket," and that many of those companies are easier for you to evaluate than biotech and life sciences companies. But you can do the same thing with great, huge markets like the ones I mentioned above. Why? Because disease is an ugly word. How? By getting some guidance and investng in a disease!

One aspect of biotech that is not well understood -- even by investors who currently own biotech and other life sciences stocks -- is the importance and predictability of what are known as catalysts. Catalysts are events that drive the stock, up or down.

A catalyst can be an FDA approval or rejection of a drug, the publishing of data, a presentation at a professional conference and so on. And, unlike almost all other industries driven solely by earnings and revenues, many catalysts have dates that are predictable -- even if the substance of the catalyst is not always easy to forecast.

Let's do what Freud did -- we'll explain the normal by analyzing the abnormal. Today, ELAN (ELN) soared on news that the company and its partner Wyeth (WYE) would ask the FDA's permission to begin a Phase III (or late-stage) trial for a drug for mild-to-moderate Alzheimer's disease.

Think about it. They are planning to ask the government permission to do something that will take two to three years to generate an actual approval, yet Elan shares climbed 16% on the news. And, to many investors, this was a total surprise because the Phase II trial data is still blinded -- the companies are not aware of how the placebo group performed against the group getting the drug. And this data would not be available for full analysis until next year.

Again, this caught everyone, including yours truly, by surprise. If the trial had been completed, along with the data being assembled, this announcement would be anticipated and the stock would have moved up only a bit, or fallen very sharply, depending on what the two companies planned on doing.

Another example is Spectrum Pharmaceuticals (SPPI). The company is publishing complete data from a trial for cancer treatment satraplatin this week. The results are pretty much known -- and the stock will not move a great deal unless SPPI publishes a surprise. But investors are well aware of this event and volume in the stock was much heavier last week than normal.

So, what should you do in these events?

If you are into a stock for the long haul and have a strong stomach and well-disciplined central nervous system, catalysts such as these mean little, so long as the fundamental story for the company remains unchanged.

If you are a short-term investor or have problems with volatility, then you better know the catalysts facing a company for any given period of time. You can find these yourself, subscribe to newsletters, even contact the company and ask what they see as catalysts or news for the coming months. This will help you make short term decisions or ride out volatility.

Predicting what the company will actually publish or announce or accomplish is a whole other matter.

Stay tuned, my next piece will be on predicting binary events.

Here's a question posted on my blog from Tim:

Hi Michael,

This is a very interesting article, and what makes it so interesting is Spectrum Pharma which I believe has the pipeline and the potential (satraplatin/ozarelix) to hit one out of the park. In fact I believe they will.

The current valuation of the company is ~116mil and that factors in 10% royalties from Satraplatin (ODAC panel will most likely give green light here and FDA will approve) but the market gives no value whatsoever to the remaining Spectrum pipeline which is almost half a page long.

I may be wrong, but I believe Spectrum is a screaming buy...triple buy I'd say.

I'd like to hear your thoughts on SPPI given your expertise and always on target posts.

Thanks,
Tim

My answer, Tim, is that I've followed Spectrum for a long time and if you use a metric I love -- the number of mid-stage Phase II and Phase III drugs (including those where a new drug application has been submitted) divided into a comapny's market cap -- Spectrum is well ahead, if not completely on top of, all other biotech and pharma companies.

SPPI's business model mitigates risk for investors by acquiring or licensing drugs past pre-clinical development. It also doesn't plan to sell or market its products, which mitigates some of the potential upside for the company.

I can live with that given the relative efficiency of the comapny in using its capital and other resources to get drugs through the development and (hopefully) approval process. I also agree with your optimism on satraplatin -- the FDA should decide this summer.

Michael