The Healthcare Sector SPDR Fund (NYSEARCA:XLV) was up 7.3% during the June 2011 quarter, while the S&P 500 was down half a percent. The sector includes companies involved in such industries as health care equipment and supplies, health care providers and services, biotechnology, and pharmaceuticals. Of the approximately 600 stocks in the healthcare sector, 72 stocks trading above $1 at closing on June 30th went up more than 25% during the quarter (see Table). These stocks were analyzed to determine if they would continue in the same direction, or if they would reverse their moves going forward. The following are the best buy and sell ideas based on that analysis.
Buy Amarin Corp. Plc Adr (NASDAQ:AMRN): AMRN is a clinical stage Ireland-based global pharmaceutical group which develops novel drugs for the treatment of cardiovascular diseases using its proprietary advanced oral and trans-dermal drug delivery technologies. The stock gained 98% during the June quarter, it is up 76% year-to-date (YTD), and it is up a whopping 600% in the last 12 months.
AMRN is in kind of sweet spot in that the two alternatives the market is focusing on are (1) how successful will the commercial launch be of its cholesterol drug AMR101 and (2) at what premium is it likely to get bought out by "Big Pharma." A look at its long-term chart will reveal two strong rallies that catapulted the stock from $3 to $20. The first one was in late November last year when AMRN shot up from $3 to $9 on reporting the MARINE pivotal trial that showed strong, statistically significant, dose-dependent triglyceride lowering in patients with high baseline triglycerides of >500 mg/dL. The second giant rally was in April when the stock shot up from $9 to $20 on reporting the ANCHOR pivotal trial that met all primary and secondary endpoints with statistically significant reductions in triglycerides and statistically significant decreases in LDL-C in patients with baseline triglycerides of >200 mg/dL. The purpose of the ANCHOR trial was to demonstrate that AMR101 is effective in reducing triglyceride levels in patients with high triglycerides without increasing LDL-C (bad cholesterol) levels in patients on background statin therapy. Also, it increased the addressable market from 4 million patients who have triglyceride levels over 500 mg/dL to 40 million patients who have triglyceride levels over 200 mg/dL.
The peak revenue projection for the drug once it is commercialized is projected to be $1.25 billion. As a comparison, GlaxoSmithKline’s (NYSE:GSK) Lovaza, the only approved prescription omega-3 for high triglycerides generated $800 million in sales last year; and Lovaza has a smaller addressable market, and it increases the LDL-C (bad cholesterol). With projected peak sales of $1.25 billion, the company is selling for a bargain 1.4 times peak revenue, well short of the four to six times that is more characteristic in the biotech industry. We would start accumulating a position here, and would be aggressive buyers on any dips. Whether AMRN gets bought out for a premium, or it continues on as an independent company to commercialization, we believe that this is an attractive buy in the $14-15 range. The mean analyst targets for AMRN are in the $22 range, with a high of $35, well above the current $14 price; and of the eight analysts that cover the stock, six rate it at strong buy and two at buy.
Sell Questcor Pharmaceutical (QCOR): QCOR is an integrated specialty pharmaceutical company focused on the development, acquisition and marketing of innovative, acute care and critical care hospital and specialty pharmaceutical products. Its primary product is H.P. Acthar Gel, an injectable drug that is approved for the treatment of exacerbations associated with multiple sclerosis, infantile spasms, opsoclonus myoclonus syndrome and nephrotic syndrome. The stock gained 67% in the June quarter, it is up 64% YTD, and it is up almost 200% in the last twelve months.
QCOR trades at a 41 P/E on a TTM basis, and at a forward P/E of 22, at the top of its historic P/E range. Revenues and earnings rose from $88 million/40c in 2009 to $115 million/57c in 2010, and they are projected to rise to $170 million/85c in 2011 and to $218 million/$1.18 in 2012. We wrote bullish pieces on QCOR, on April 5th when QCOR reported preliminary operating metrics for its March 2011 quarter, and on April 27th when the company reported for the March 2011 quarter, prior to the rise from the mid-teens to over $28 last week. However, at current prices, the stock is fully valued based on current fundamentals, and appears to have factored in any outperformance in the upcoming June 2011 quarterly report that is due out on July 26th after the close. While Acthar and QCOR are an ongoing bullish story, we believe that the bias may be to the downside in the short-term, and we would look to lighten our positions ahead of the June quarter report.
Other Big Winners: Other prominent big movers in the healthcare sector in the June 2011 quarter include:
- Elan Plc Adr (NYSE:ELN), an Ireland-based worldwide specialty pharmaceutical company focused on the discovery, development and marketing of therapeutic products and services in neurology, acute care and pain management and on the development and commercialization of products using its extensive range of proprietary drug delivery technologies. It was up 65% in the June quarter.
- Biosante Pharmaceuticals (BPAX), an emerging pharmaceutical company developing a pipeline of hormone therapy products to treat both men and women. It was up 39% in the June quarter.
- Vivus Inc. (NASDAQ:VVUS), a biopharmaceutical company developing therapeutic products, including Qnexa in phase 3 trials for obesity and in phase 2 trials for type 2 diabetes; Avanafil, a PDE5 inhibitor drug candidate; Luramist in phase 2 development for the treatment of hypoactive sexual desire disorder (HSDD) in women; and MUSE (alprostadil), a first generation therapy for the treatment of erectile dysfunction or ED. The stock was up 32% in the June quarter.
- Ariad Pharmaceuticals Inc. (NASDAQ:ARIA), engaged in the development of drugs that treat aggressive and advanced-stage cancer by regulating cell signaling with small molecules, and it is also developing small-molecule drugs that block signal transduction pathways in cells responsible for osteoporosis, and immune and inflammatory diseases. It was up 51% in the June quarter.
- Biogen Idec Inc. (NASDAQ:BIIB), a developer of treatments for Multiple Sclerosis (MS), cancer and autoimmune diseases. Its marketed products include AVONEX for the treatment of relapsing multiple sclerosis; RITUXAN for treating relapsed or refractory, CD20-positive, and B-cell Non-Hodgkin’s Lymphoma (NHL); TYSABRI to treat relapsing MS; and FUMADERM for the treatment of severe plaque psoriasis in adult patients. It was up 46% in the June quarter.
- Hansen Medical Inc. (NASDAQ:HNSN), a developer of medical robotics for accurate positioning, manipulating and control of catheter and catheter-based technologies. It focuses on electrophysiology procedures for the diagnosis and treatment of patients, who suffer from abnormal heart rhythms, or arrhythmias, such as atrial fibrillation. The stock was up 54% in the June quarter.
- Regeneron Pharmaceutical (NASDAQ:REGN), a developer of pharmaceutical products to treat inflammatory diseases, eye diseases and cancer. The company’s commercial product includes ARCALYST (rilonacept) injection for subcutaneous use for the treatment of cryopyrin-associated periodic syndromes, including familial cold auto-inflammatory syndrome and muckle-wells syndrome in adults and children. The stock was up 26% in the June quarter.
- Vical Inc. (NASDAQ:VICL), a developer of DNA-based vaccines and therapeutics to prevent and treat cancer and cardiovascular and infectious diseases. The company is developing certain infectious disease vaccines and cancer therapeutics internally, and some it is developing in collaboration with major pharmaceutical and biotech companies. It was up 39% in the June quarter.
- Cubist Pharmaceuticals (CBST), a biopharmaceutical company that develops anti-infective products to treat conditions in the acute care environment. The company markets CUBICIN, the first antibiotic in a new class of anti-infectives called lipopeptides. The stock was up 43% in the June quarter.
- Affymetrix Inc. (NASDAQ:AFFX) engages in the development, manufacture, sale, and servicing of consumables and systems for genetic analysis used to monitor gene expression and investigate genetic variation for applications in the life sciences and clinical healthcare markets. The company offers integrated GeneChip microarray platform that includes disposable DNA probe arrays (chips) consisting of nucleic acid sequences, certain reagents for use with the probe arrays, a scanner and other instruments used to process the probe arrays, and software to analyze and manage genomic or genetic information obtained from the probe arrays. The stock gained 28% in the June quarter.
- Anventrx Pharmaceuticals (ANX), a biopharmaceutical research and development company whose business strategy is to commercialize leading edge medical research through licensing agreements with prominent universities and research institutions. The company’s current efforts focus on treatments for cancer based on the improvement of existing drugs and addressing limitations with their safety. The stock gained 43% in the June quarter.
- Idenix Pharmaceuticals (NASDAQ:IDIX), a biopharmaceutical company engaged in the discovery and development of nucleosides, nucleoside analogs, nucleotides and non-nucleosides to treat viral infectious diseases caused by hepatitis B virus, hepatitis C virus and human immunodeficiency virus. The stock gained 51% in the June quarter.
- Seattle Genetics Inc. (NASDAQ:SGEN), a developer of monoclonal antibody-based therapeutics for the treatment of cancer and autoimmune diseases. It was up 32% in the June quarter.
- Thoratec Corp. (NASDAQ:THOR) develops proprietary circulatory support systems for a range of clinical needs for advanced heart failure patients. The product lineup consists of Ventricular Assist Device such as the Thoratec Paracorporeal Ventricular Assist Device, the Thoratec Implantable Ventricular Assist Device, the HeartMate Left Ventricular Assist System (HeartMate XVE), and the HeartMate II Left Ventricular Assist System (HeartMate II). The PVAD, IVAD, HeartMate XVE and HeartMate II are approved by the FDA and have received CE Mark approval in EU. The stock was up 27% in the June quarter.
Of these, THOR, CBST and CHTP are being accumulated by high alpha or guru funds that have a long-term track record of beating the market averages. In contrast, REGN, QCOR and IDIX are under distribution by guru funds based on the latest available March 2011 quarter 13-F filings. Furthermore, guru funds have no ownership in BPAX, AFFX and ANX.
Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.