In the biotechnology space, gains can occur seemingly without notice as small, unheard of companies will often breakout and return market leading gains with unexpected clinical results, better than expected sales, or even the gain of intellectual property. It is common that these unheard of stocks can return gains of unprecedented proportions and result in riches for those who were fortunate enough to capitalize and buy at the right time. However, when this occurs there are others who are left wishing that they had capitalized on the opportunity or that they had not sold the stock for minimal gains. But ever so often, these momentum stocks will provide investors with a second chance. This "second chance" is typically in the form of a pullback due to profit taking. Unfortunately, investors rarely notice the opportunity and are then left with yet another feeling of regret. The five stocks in this article fall under this category of momentum stocks that have pulled back and may be providing investors with a second chance to board the plane before takeoff. As we discuss the following stocks, ask yourself a question: "Are any of these stocks presenting value and for what reason have these stocks pulled back"? Because who knows, you may be able to capitalize on a previously missed opportunity.
The first stock on this list goes to Questcor Pharmaceuticals (QCOR), and not necessarily for its YTD trend, but rather for its five-year performance, which definitely falls under the category of a momentum stock. The stock has returned an unparalleled 10,400% over the last five years! In other words, if you'd invested $10,000 back in 2007, then you would be a millionaire today! And earlier this month, the stock was trading at all-time highs, once again, but has since slid, and is trading with a loss of 28% over the last month despite very impressive sales figures and strong quarterly earnings.
The recent pullback in shares of QCOR occurred following a research report that questioned the company's business model, valuation, and its practices to achieve such high sales of its lead drug, Acthar. This report was released the day after the company had reported the sales numbers for Acthar, which showed aggressive growth that far exceeded all expectations. Now regardless of whether you believe the bearish report or not, there is one fact that cannot be argued, and that is the aggressive sales of Acthar. The company shipped a total of 1,800 vials of Acthar to CuraScript SD, for a total of 4,710 vials in the last quarter. The company also announced quarterly results Tuesday after the market closed, and posted a 144.6% increase in sales and beat EPS expectations by $0.06 representing significant growth. Questcor also commented that it has significantly increased its sales force in both Nephrology and Neurology, and expects that hiring will be complete by August. Speculation and opinions are irrelevant, because at the end of the day the only numbers that matter are top and bottom line growth-- and according to fundamentals, this company is growing very fast. Therefore, the recent pullback should prove to be an excellent entry point for the stock, and its forward P/E ratio of 10.00 suggests that significant upside potential is present in this fast-growing company's stock.
Vivus (VVUS) is another company that has fallen due to a negative research report which brought to life questions over the company's patent struggles. The stock has declined by over 24% during the last five trading days in a time where it should be trading at all-time highs and celebrating the approval of its weight-loss drug, Qnexa. However, we shouldn't feel too sorry for VVUS investors, because after all, they have capitalized on a gain of 130% in 2012 alone. The stock itself is highly debated, as the topic regarding which is better, Qnexa or Arena's (ARNA) lorcaserin, are constantly discussed or argued. VVUS is now trading significantly lower than it was last Tuesday, before the FDA decided to approve its weight-loss drug-- and with a $2.2 billion market cap and a drug that will most likely be in very high demand, conventional wisdom suggests a substantial amount of upside being present.
The last thing I want to do is debate which drug is better, lorcaserin or Qnexa, or which has the most upside. Qnexa's trials showed more weight-loss, while lorcaserin is believed to be the safer choice. Therefore, both have ups and downs, and look poised to benefit from a huge market considering one-third of all Americans are overweight. As a result, I think it is fair to suggest that demand will be high, and consumers will be lining up at their doctor's office to try one, if not both, of the new FDA approved weight-loss drugs. And if both are proven to be effective, then the market could be many billions in annual revenue for both companies. However, the key with VVUS is that it does not have a partner, while ARNA does have a partner in Eisai; therefore, ARNA will only receive 31.5%-36.5% of all sales, meanwhile VVUS gets to keep all of its sales. As a result, with all things being equal, VVUS should return significantly more in revenue and profits compared to ARNA, at least in the first year; it may perhaps more than double the sales since VVUS has a strong balance sheet and can afford to market the drug itself. Therefore, its current market cap, which is only a 22% premium compared to ARNA, should be presenting a considerable amount of value and upside potential in a space that could be worth several billion dollars in annual revenue. As a result, I believe its price tag of $22.39 is cheap, and is a bargain price for those who take advantage of the value.
While we're on the topic of weight-loss drugs, we might as well mention the only company with a late-stage weight-loss drug that has also followed the same trend as its counterparts, Orexigen Therapeutics (OREX). The jury is still out for this particular stock, as it is the only company left with a weight-loss drug that has not been approved, and is more than a year from its date with the FDA. However, due to the excitement surrounding the industry, its stock has returned a gain of 244% YTD, and I do believe it is fairly priced compared to others in the space (with a market cap of $400 million) as we don't know what will become of its "Light Study" trial that is currently in progress.
To me, OREX has the most questions, but also the most upside potential. It was denied back in early 2011 due to cardiovascular concerns, therefore making it one health study short of entering a massive market with both ARNA and VVUS. The good news is that the space is large enough for all three; the bad news is that ARNA and VVUS will have a head start. However, it is an interesting stock because it trades with ARNA and VVUS, which are two stocks that I believe, have significant upside potential. The stock has currently fallen by 25% during the last seven trading days, but if sales are strong for VVUS and ARNA, then I believe OREX will continue to follow the same path and trade higher. If its safety trial meets its primary goal, then watch out; this could be a stock with upside that far exceeds its bigger brothers due to its market cap being smaller, regardless of whether it's deserved or not.
2012 has been a year for the ages if you're an investor in ImmunoCellular Therapeutics (IMUC), as the stock has gone from an unheard of OTC listed company to being a NYSE Russell index included company with exceptional clinical results and a very impressive patent portfolio. Earlier this month, the stock was pushing $4.00, but has since fallen and has lost nearly 30% of its value in the month of July. However, the year has still been a win for the company, as its stock has returned a gain of 130% in 2012 alone. Considering the clinical results and potential of this company, I feel confident that its recent loss is nothing more than a bump in the road, and that it will resume its bullish trend in the immediate future.
IMUC is a perfect example of why I am writing this article. If you look back at historical trends of some of the largest returns in biotechnology, such as QCOR, there are always bumps in the road that provide investors with good entry points. At $2.80 this stock trades with a market cap of just $110 million, but with its innovative technology, and study results showing that 37% of the patients treated with the company's lead candidate have no signs of brain cancer following 44-63 months after treatment (compared to just 6% for standard care alone), it appears as though a significant amount of upside exists for this stock. This is a stock that is still in the early stages of its rally because of an incredible amount of support from investors, analysts, patients, and physicians. For example, the company is enrolling for its new trial and has already reached 213 patients, and has done so 3 times faster than other studies for glioblastoma multiforme, which shows a level of acceptance and excitement among both physicians and patients. I believe, because of its potential, that the recent price action is nothing more than a healthy pullback, because if you look at the one-year chart, it appears to be following the same bullish trend that has led to its large YTD gains. Throughout April, and into early May, the stock fell from $3 to under $2.30 (which created fear among investors). Yet just as quickly as the stock fell, it recovered, and over the following three weeks the stock traded to new highs at $4.00; it is possible that we are simply seeing a continuation of this trend, and that this pullback will lead to new highs in the coming weeks, because after all there is strong support at $2.75, which means the price could be presenting the perfect opportunity.
The final stock for this list is Omeros Corporation (OMER), which is a company that was led higher with a multitude of key developments in 2012, but has seen one of the more aggressive periods of profit taking over the last few weeks. The stock trades with a market cap of $205 million following a YTD gain of 130%; however, over the last month the stock has lost nearly 31% of its value.
OMER'S 31% loss occurred following its public offering on June 27, which further validated beliefs that the company did not have the cash to manage its large pipeline or complete studies for its two Phase 3 candidates. This stock in particular has a significant bull and bear case: The bears argue that management is inefficient and blows money too quickly; meanwhile the bulls defend the company's spending habits because of its unusually large pipeline with upside potential. I believe that both sides of the argument have validity. Despite the fact that I believe the stock is presenting upside, I still acknowledge that the company's balance sheet is a mess. This is in spite of upgrades, a slew of intellectual property acquisitions, and very encouraging clinical data. Therefore, I consider this stock to be a bit more risky than the others on the list; but with a promising pipeline and data that's just as impressive, I believe the upside outweighs the risk. And with a five-day rally of 5.5% it's possible that its rally may be occurring right now before your eyes.
Disclosure: I am long IMUC.