What is the "ASCO Effect"?

May 03, 2012 at 11:59 AM EDT

Anyone interested in biotech stock profits should know the answer to this question: "What is the ASCO Effect"?

You see, there's an annual event that offers up some huge trading opportunities, courtesy of the American Society of Clinical Oncology (ASCO).

ASCO's annual meeting always seems to have everyone's ears. That's because its "ASCO Effect" has been known to benefit biotech stocks that reveal news at the conference.

In fact, some stocks surge more than 200% in the weeks leading up to the event.

This year's meeting will be held in Chicago from June 1-June 5 - and some stocks already have started to run.

If you're interested in cashing in on this biotech stock profit opportunity, here's what you need to know.

Importance of ASCO Created in 1964, ASCO is a not-for-profit organization started by a group of physicians from the American Association of Cancer Research (AACR). They saw a need for a professional oncology society and set out with a mission to "conquer cancer through research, education, prevention and delivery of high quality patient care."

Today, the Arlington, VA-based global organization has almost 30,000 members with 25% coming from over 100 countries. The diverse group includes clinical oncologists from all oncology specialties, sub-specialists and oncology healthcare professionals such as nurses and health care practitioners.

At ASCO's annual four-day meeting, usually held in early June, tens of thousands of attendees share ideas and learn about cancer breakthroughs from therapies and diagnostics. It also includes presentations from more than 4,000 scientific abstracts.

The organization has attracted top clinicians and investigators to administer patient care and conduct research. On its website, the organization boasts that it "will be recognized as the most trusted source of cancer information worldwide."

But it's much more than a source for thorough cancer research. Those in the biotechnology industry keep a keen eye on the ASCO meeting.

That's because of the more than 600 medicines and vaccines developed through biotechnology and clinical trials, a large majority (254) deal with cancer treatments, according to the Pharmaceutical Research and Manufacturers of America.

Behind heart disease, cancer is the No.2 cause of U.S. deaths.

The need for cancer treatments is high with an estimated 1.6 million new cancer cases to be diagnosed in 2012 while more than 577,000 Americans will die from it.

From an economic standpoint, cancer is expensive. The National Institutes of Health (NIH) estimates that the overall cancer costs of 2007 were $226.8 billion.

So for biotechnology companies focused on cancer drugs, this time of year is one that could bring a doubling or tripling of their stock price until the conclusion of the ASCO meeting.

That gain is what has been known as the ASCO Effect.

The ASCO Effect The ASCO Effect is nothing new; it has been going on for more than a decade.

In fact, the significant gains in related stocks have been so staggering the effect has raised the media's eyebrows. The U.S. Securities and Exchange Commission has expressed concern over the annual meeting's potential to release nonpublic research data.

According to ASCO policies, it allows selective disclosure of possible market-moving research to its members prior to its conference. With the ability to see data before it becomes public the conference does raise the issue of insider trading-type activity.

What was ASCO's response to the allegations?

Its stance had initially been that as a nonprofit, it was not subject to SEC jurisdiction and the research abstracts in question didn't include material information because the data in question is preliminary.

But ASCO did say that its disclosure practices violated "the spirit of the law" and it allegedly would make an effort to correct it.

Remember, this anecdote is from 2003 and the meetings continue.

Looking at the calendar, it's ASCO Effect time, meaning some stocks have started to move.

ASCO Effect in Action Now that you're aware of the ASCO effect, here's a story for you.

At the end of 2011's first quarter, San Francisco based-OXiGENE Inc. (Nasdaq: OXGN) had $2.7 million in cash and had its auditors deciding whether or not to close the company's doors.

But things began to change with its stock.

On March 31 last year, OXiGENE's stock sat at $1.76 per share. Over a nine-trading-day stretch that started the first day of May, OXiGENE shares soared 218% - on a massive spike in volume. If you include the intraday high, the stock gained as much as 245%.

What happened during that time? On April 18, ASCOhad published online the abstract titles that would be presented during its June annual meeting.

OXiGENE was on that list.

By the June 4-8 conference, the stock had already started its decline. On June 6, it sat at $4.59 but closed at $3.88 on June 10. Today, it is trading just over $1.00.

Other ASCO Effect biotech stocks have followed a similar trajectory. The ASCO Effect move often starts in April. But there's almost always an additional stretch in May during which oncology stocks experience near-vertical spikes in very short periods.

So if you're interested in investing in biotech stocks, now's the time to pay attention.

ASCO will be releasing this year's abstracts on May 16.

[Editor's Note: In our latest research report we identified three oncology stocks that could benefit from the "ASCO Effect." But that's only one of the ways investors can profit from them.

We intentionally picked companies with long-term growth potential. That gives shareholders a shot at the profits being reaped from the current surge in multi-billion-dollar biotech buyouts.

To get our report - "The Biotech Buyout Binge: Why These Three Stocks Could Double Your Money in the Next Three Months" - just click here. ]