Should You Sell These Biotechnology Stocks
Mohsin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Bio-pharmaceutical companies usually make for some very high risk investments. This is because there are a number of factors that cannot be predicted accurately.The valuations skyrocket on drug approvals, but the actual performance in the market is an entirely different story. The following three stock have seen heavy institutional selling in the last few months, and I believe investors should stay away from them for the time.
Cambrex Corporation (NYSE: CBM)
Cambrex is a biopharmaceutical that focuses on the development and commercialization of generic and new therapeutics. The company provides a number of different chemicals and active pharmaceutical ingredients used in preparing various pharmaceutical and OTC products. Cambrex uses agents and direct marketing to sell its products to generic and innovator pharmaceutical companies.
Revenues have grown by 4% during the last quarter but there has been balance sheet deterioration. Inventory has grown by approx. 14%, and accounts receivable has also increased by 18%. The increased receivables and high inventory levels have affected the current ratiom which has decreased from 2.71 to 2.55.
Institutions and insiders have reduced their holdings of the company in the last six months. Insiders have sold a net 44,000 sharesm which reduces insider holdings by an approximate 5%. Institutional investors have reduced their Cambrex holdings by 1.3 million sharesm which reduces total holdings by 5.2%. Despite the lack of confidence from insiders and institutions, the stock is still trading at a 45% discount to the mean sell side target price of $16.
Dendreon Corp. (NASDAQ: DNDN)
A number of companies witness sky high valuations when their major drugs get FDA approval. The appreciation is even higher for small biopharmaceuticals with a single candidate. Early Dendreon investors enjoyed some large valuations after its primary drug Provenge received FDA approval. Changing market perception about Provenge has been the primary factor behind huge fluctuations in the stock price, which has moved from $40 to $4.
The company has launched a new marketing campaign for the drug that aims to reach the consumer directly. It is still too soon to say if these campaigns will turn around sales, but initial reports indicate that it has been successful in creating more awareness about the vaccine. Meanwhile there has been some heavy dumping by institutional investors of Dendreon. They have unloaded almost 25 million shares of the company, which has reduced total institutional holdings by a mammoth 41%. Although the stock is 30% below the mean sell side target price, the mediocre performance of Provenge makes Dendreon a sell.
Idenix Pharmaceuticals (NASDAQ: IDIX)
Idenix is a biopharmaceutical involved in discovering and developing drugs for viral diseases in human patients. The company primarily focuses on the treatment of the hepatitis C virus. The stock has fluctuated wildly between $3 and $11 during the last 52 weeks due to varying investor perception of the company's drug line. It is currently trading at a 65% discount to its 52 week high and 35% discount to the mean sell side target price of $5.8. Institutional investors are also losing their confidence in the future of Idenix Pharmaceutical and are the dumping the stock. In the last six months they have sold approximately 17.5 million shares of the company, bringing total institutional holdings down by approximately 30%.
The biotechnology industry has some of the most risky investments on the market. The companies above have been pretty volatile in the last 52 weeks, and institutional investors are also dumping these stocks. I believe investors should stay away from these companies until more solid long term catalysts emerge.
Mohsin Saeed has no position in any stocks mentioned. 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!