What’s Moving These Biotechs?
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A number of biotechs of all sizes saw significant price action last week, specifically on Friday. It wasn’t just gainers that made the headlines, but also stocks seeing a significant decline. Therefore, I am looking at the best and worst, performing biotechs to determine what moved them and how to play the movement.
Dendreon (NASDAQ: DNDN)
Dendreon is probably the most controversial biotech stock in the market, due to the high expectations for Provenge while in development, followed by disappointing sales. However, after more than a year of strong declines, the stock has recently bounced, and rallied another 21% on Friday following recent data that suggests a surge in Provenge sales. In addition, the stock was upgraded and rumors of a pending takeover are starting to become a real catalyst.
Despite lowered costs following the closing of its New Jersey manufacturing facility, I urge investors to remember the company still needs $100 million of revenue to generate positive cash flow and the drug still has a $93,000 price tag. With that being said, the stock was $17.50 just 11 months prior, is significantly oversold, and could very well trade higher now that there are some positives being identified.
Perrigo (NYSE: PRGO)
Perrigo has been one of the better performing major drug companies in the market over the last decade, with a consistent uptrend and a return of more than 700%. However, the stock took a turn for the worse on Friday, with a loss of nearly 6% following a downgrade by Goldman Sachs to “Sell.” The reason: The firm expects a slower growth rate in-line with its peers. Perrigo boasts a larger than average valuation due to above average double digit growth.
The company has always had operating leverage, but Goldman believes the valuation combined with slower growth will put a damper on its trend higher. Personally, I agree with the firm, and believe that it's been a good ride, but it may be wise to invest money elsewhere.
Transcept Pharmaceuticals (NASDAQ: TSPT)
For the most part, the last year has been rough for Transcept Pharmaceuticals. The stock has fallen lower due to concerns for its sleep medication. However, in the last two days the stock has rallied more than 15% after receiving a big boost from regulators.
Transcept has already earned an FDA approval for its drug, Intermezzo. However, there have been fears that the FDA would ask for a lower dosage along with fears that the FDA would not lower the dosage of other medications such as Ambien. On Thursday we learned that the FDA did not require that Transcept to lower its dosage due to the labeling of the drug, but did recommend that several other sleep drugs be lowered from 10mg to 5mg because of impairment issues. This is a big win for the company, one that could produce larger sales, and considering its stock has already been pushed lower, I think the stock may rise further long term.
Amicus Therapeutics (NASDAQ: FOLD)
After failing to reach its primary endpoint its Fabry disease treatment, Amicus fell more than 40% in the two days after Dec. 19. Yet since the start of the new year, Amicus has rallied nearly 45% after announcing that all four cohorts in a Phase 2 study for the treatment of Pompe disease were positive.
It’s safe to say that the last month has been very eventful and volatile for investors, and on Friday the stock fell 8.5%. There was no news to push the stock lower, simply profit taking. The company is now trading with a market cap of $200 million and I believe is fairly valued; and because of how volatile it has traded, I wouldn’t be surprised if some profit taking occurs in the week ahead.
Biotechnology is a highly volatile space, and the performances of these four stocks prove this theory to be correct. In my opinion, these are stocks that are only good as long-term investments, because playing the day-to-day performance will often lead to massive disappointment. Hopefully, the developments above provided you will serve as a briefing of these stocks, and now with additional due diligence you can make an educated investment decision.
BrianNichols owns shares of DNDN. The Motley Fool owns shares of Dendreon. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!