Sarepta Therapeutics skyrocketed 73 percent on Monday on the news that the FDA approved its treatment for Duchenne muscular dystrophy. For Jim Cramer, this is the best-case scenario for an investor that owns a speculative biotech like Sarepta.
Not every development-stage biotech story plays out this way, though. Sometimes, the data can be disappointing, or the FDA blocks a key drug and the stock plummets. Cramer wants investors to understand that an early-stage biotech can be speculative.
One speculative biotech that landed on Cramer's radar was Seres Therapeutics, which traded between $20 and the mid-$30s until July, when disaster struck. Seres reported disappointing clinical trial data for its key drug, prompting the stock to lose nearly 70 percent of its value.
With the stock closing at $12 on Monday, the risk-reward is more attractive to Cramer than it was when it was in the $20s or $30s. With full clinical trial results that will likely be received by the end of the year, there could be a huge upside.
"It seems like a negative outcome is pretty much baked into the stock price, which means if anything goes right here — kind of like what happened to Sarepta — then Seres could have some tremendous upside," Cramer said.
However, it is important to remember that the position would be on speculation, not an investment, Cramer said. That means investors should only buy Seres or similar early stage biotechs, if it is money they are willing to lose.