With IBB up 15% year to date, gains in the healthcare sector have kept the headway started in 2012 as more companies are moving into earnings. Vivus' (VVUS) Qnexa FDA nod gained mainstream headlines and netted biotech savvy investors over 100% gains. Positive surprises in earnings thus far have also brought financial successes. Salix Pharmaceuticals (SLXP) beat Q4 EPS estimates by $0.24 and earned $3 million more in 2011 than expected, sending the stock near double-digit gains the following day. SLXP expects a 36% revenue increase in over 2011 this year and appears to be a candidate for longer success. There are more SLXP stories waiting to be told in earnings releases and even more VVUS excitement sure to unfold into 2012. The following companies may offer some interesting stories as we move into earnings.
These two stocks plays are at opposite ends of the healthcare spectrum, yet both have financials that are more stable in this volatile sector.
Emergent BioSolutions (EBS) - Emergent has many high profile government contracts in the areas of vaccine development and antibody therapeutics. EBS has a contract to provide BioThrax to the U.S. government into 2016, a contract worth $1.25 billion. BioThrax is currently the only FDA approved vaccine for anthrax and the company's main source of revenue. The company also maintains a pipeline with a promising small molecule therapy drug, SBI-087 with partner Pfizer (PFE). This drug is currently in phase II trials for rheumatoid arthritis and holds potential for other autoimmune disorders.
Earnings released Thursday March 8, will perhaps draw some attention to this money making biotech that has seen an 8% drop YTD when much of the rest of the sector was growing. EBS, a $616 million market cap company, offers a good value. It is a low debt stock with an FY 2011 EPS estimate of $0.57. The company has had a pull back on decreased growth in 2011, but looks to have growth return in 2012 with a forecasted $300 million in revenue.
Trinity Biotech (TRIB) - TRIB is a 1% yield dividend stock, which releases earnings Monday March 5. This $212 million market cap company operates in diagnostics and has a robust pipeline of diagnostic tools ranging from STI's to enteric infections. February 28, the company announced its point-of-care Uni-Gold Giardia test has obtained CE Marking in Europe. TRIB has also filed for FDA approval. The stability of its financials as well as its role in the sector provides it a unique position. As a biotech with Q4 EPS estimates of $0.19 and yearly EPS at 0.63, revenue up in Q3 6% year over year, and a dividend, this option may be a good long play to look into before earnings.
Both stocks following are releasing earnings on Monday, March 5. Each offers the classic risk/reward associated with the biotech sector. Depending upon your long- or short-term goals, either stock could provide entry opportunities surrounding earnings release.
Astex Pharmaceuticals (ASTX) - Astex is a stock that most recently hit headlines with negative FDA indications. The FDA Oncogenic Drug Advisory Committee voted 10-3 against the company's supplemental new drug application for leukemia drug Dacogen (decitabine) on February 9. Astex and partner Eisai (OTC:ESALY) certainly do not benefit from this ruling, but it is far from the nail in the coffin. The drug is still approved and indicated for multiple Myelodysplastic Syndromes. The FDA ruling showed the benefit/risk profile did not support a label extension to include Acute Myeloid Leukemia. Hypomethylating drugs such as Dacogen hold epigenetic promise in "turning on" tumor suppressing genes by removing methyl groups on said genes, which works like removing an "off" switch. The science is potentially revolutionary, but the secretive nature of ASTX's pipeline and partners other than GlaxoSmithKline (GSK) make it more of a wild card.
This $179 million market cap company saw a plunge in stock price after the Dacogen announcement. ASTX is estimated to have a -$0.01 EPS for FY 2011. Though sales growth increase of over 25% is expected from FY 2010, growth moving forward is expected to slow as the pipeline matures. ASTX also has a history of beating estimates come earnings, sometimes by triple digit percentages. Rodman & Renshaw recommend this stock as a strong buy. This profitable, debt-free biotech could be a more stable speculative play, (if such a thing exists), with a large potential upside for the current share price.
Orexigen (OREX) - The company's prescription weight loss drug, Contrave, is similar in nature enough to Vivus's Qnexa, allowing it to enjoy spill-over excitement and double digit gains from the FDA nod given to its competitor earlier this month. The company itself however doesn't expect FDA approval to be possible until 2014, as it will be required to conduct additional cardiovascular studies beginning in Q2. In the pipeline is Empatic, another obesity targeting drug in Phase II clinical trials.
The stock is up more than 140% YTD and currently near its 52-week high. Volume, like interest, has been high for this $188 million market cap company. This stock is not for the faint of heart with its history of volatility. Revenue growth is predicted to be up in FY 2011 over 250%, but EPS estimates are still not profitable and likely will only get less so in 2012 as the company spends more to develop clinical trials. Most analysts have a hold on this stock, but it is one to consider with the attention garnered this year and the volatility associated with weight loss drug approval.