best biotech investments 2014

Why Tesaro (Nasdaq: TSRO) Stock Is Surging Today

Shares of Tesaro Inc. (Nasdaq: TSRO) stock were up 23% today (Monday) after the company announced that its drug rolapitant met the main goal of its third and final phase 3 trial.

TSRO stockThe news sent TSRO shares to an intra-day high of $29.49. TSRO stock had been trading near 52-week lows of $22.15 just last week, and prior to today, the stock had been down 15% in 2014.

Rolapitant is designed to prevent chemotherapy-induced nausea and vomiting. According to the company, the drug "achieved statistical significance over standard therapy in 532 cancer patients."

In its report, the company stated that more than 70% of patients who undergo chemotherapy report nausea and vomiting. Frequently, symptoms can be so bad that patients postpone or discontinue treatments.

In December, Tesaro had announced that rolapitant was found to be effective in two late-stage trials, but the drug didn't show any advantages over similar drugs like Merck & Co. Inc.'s (NYSE: MRK) Emend. TSRO stock slid nearly 28% in December because of that news.

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According to Money Morning's BioScience Investment Specialist Ernie Tremblay, volatility is common among biotech companies with late-stage drug candidates.

"Anyone who's very familiar with the bioscience/pharmaceutical sector will tell you investing in experimental drugs can be an object lesson in volatility," Tremblay said. "A stock's surge or decline is often premised on general assumptions about the likelihood of FDA [Food and Drug Administration] approval."

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The process of receiving regulatory approval from the FDA is arduous, and only about 20% of drugs survive the process. On average, it takes about eight years for drugs to receive approval.

But when major drugs do receive approval, they can bring billions of dollars in profits to their companies, and huge stock gains for shareholders.

That's why stocks like TSRO can post such big gains in one day. Investors know that receiving regulatory approval can be a long-term profit machine for a biotech stock, and they want to buy in before the drug hits the market. Conversely, bad news like December's report can cause shares to crash.

Volatility will remain the name of the game for TSRO stock in the immediate future as news continues to break regarding rolapitant's approval.

Are you buying biotech this year? Share your thoughts on Twitter @moneymorning using #Biotech.

Check out bioscience expert Ernie Tremblay's recent Money Morning column - and get his pick for a biotech stock that could double in the next year: One Stock, 18 Ways to Make Big Money