When it comes to the healthcare industry, there are so many sub sectors investors and potential investors should research before considering a position in what they think is the next home-run stock. Today, I'm going to focus on two companies, one firm that focuses on Molecular Diagnostics and Genetic Analytics and another that develops Anti-Infective Drug Therapies. Each of these companies has multiple catalysts potential investors should consider before establishing a position.
Sequenom Inc. (SQNM) closed trading at $3.46/share on Wednesday as the company continues to trade upward on the continued insider buying that has taken place over the last few weeks. Insider buying in probably one of the most important catalysts potential investors should consider. In my opinion, it demonstrates an insider confidence in the company that could lead to continued long-term growth. Along with the recent instances of insider buying, there are two secondary catalysts to consider. First, the company currently has roughly $100 million cash on its books and debt roughly 1/5th that amount at $20.29 million. Those numbers equate into a total debt to total cash ratio of 0.203, which in my opinion is a very healthy variable moving forward. The second thing to consider in terms of SQNM is the company's pipeline and an upcoming FDA decision expected in the next 6 to 12 months with regard to its MaterniT21 PLUS test.
Achillion Pharmaceuticals, Inc. (ACHN) closed trading at $5.90/share on Wednesday as was trading as much as 5% in pre-market trading as the FDA placed on hold on Idenix Pharmaceuticals (IDIX) hepatitis C drug IDX184, which directly competes with ACHN's hepatitis C drug pipeline portfolio that includes but is not limited to ACH-1625 (an NS3 protease inhibitor currently engaged in Phase II trials), ACH-2864 (an NS3 protease inhibitor currently engaged in Phase I trials), ACH-2928 (an NS5A inhibitor engaged in Phase I trials) and ACH-1302 (an NS5A inhibitor also engaged in Phase I clinical trials). Along with the company's pipeline, there are two things potential investors should consider. First and foremost, the company carries a very healthy total debt to total cash ratio of 0.014. Second, the hold placed on IDEX by the FDA opens a key channel for ACHN since their drugs aren't nucleotide based but rather protease inhibitors, which are considered to be the next-generation architecture behind these compounds. One last thing to consider in terms of ACHN is the fact the stock was upgraded today to a Market Perform rating by JMP Securities.
I think both companies possess excellent long-term potential, although there are a few things to consider that could result in subsequent sell-offs of either stock. In terms of SQNM, the biggest negative variable comes in the form of recent EPS trends, which haven't been all that great and if they continue to miss estimates by considerable amounts, the insider buying may be negated. When it comes to both companies, the next biggest catalyst to consider is going be the FDA, any negative indication, hold, or rejection could send these stocks falling significantly from current levels. For potential investors looking to establish a position in either company, I'd establish a small- to moderate-sized position, and then add to that position at any positive indication from either clinical trials or further drug developments.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.