Investors in Northfield Labs (NFLD) were treated by a blood bath when the results of a Phase-3 study showed elevated levels of death for their PolyHeme blood substitute. Today’s 58% decline was obvious, but when I looked back at the chart, I couldn’t believe that I missed changing the signal last week. Something “not so funny” was going on with trading in these shares over the past few days and as early as last week. I have a feeling the SEC will be investigating last Friday’s trades, as well as Monday and Tuesday’s but there is a pretty natural defense. On Thursday, Northfield’s primary competitor got bad news that advisors to the FDA were not supporting a controversial clinical trial and I can understand that fearing a tougher regulatory environment might lead to some selling. Furthermore, you might assume that nervous NFLD investors might have extrapolated that the Biopure decision had to do with the yet-to-be-released results of Northfield’s similar study.

However, that’s a stretch. Usually, when one competitor in a head-to-head race falls back(BPUR), people have a propensity to assume the other guy (NFLD) has a better chance of winning big. In the world of first-in-class drugs with huge market potential, that is even more common. In this case, you have to believe that the selling on Friday, Monday and Tuesday was natural supply and demand based solely on BPUR’s bad luck and having nothing to do with information on a study that had not been released to the investing public until after Tuesday’s close. Focus all you want on today’s blood-letting, but I am more intrigued by the 33% decline from last Monday’s open until Tuesday’s close. The other reason I am disappointed about not changing the signal had to do with not listening to Roger Nusbaum’s post from last week (click here and then read his followup post here). Excellent work Roger! Certainly better than mine. By the way, Northfield says that it still intends to submit the drug for FDA approval.  As for biotechs, I hope you are not surprised that these stocks can and do, put a hurt on your portfolio from time to time.  Just check recent action in NUVO and NEOL and you will see that NFLD is not alone.  If you are speculating (investing is the wrong word) in a biotech that has one drug in its pipeline, you should never forget what happened in these stocks.