The biotechnology sector is among the most volatile in the market. It includes companies of great opportunity, trends that can reverse quickly, and stocks that will trade higher regardless of the overall market sentiment. The volatility of the industry often provides good entry points for investors to take advantage of promising stocks. As a result, I am taking a look at several companies with key developments that have traded lower in the last few sessions. I'm not suggesting that any of these stocks are a buy, but are worthy of your due diligence.
BioMarin Pharmaceuticals (BMRN)
After trending over $43 per share, BioMarin Pharmaceuticals has pulled back by more than 14% during the last seven sessions. The company has been one of the most consistent performers since 2009, and in the past, all periods of profit taking have proven to be great opportunities.
BioMarin announced earnings last Thursday after the market closed, and the company reported a narrower loss than expected along with reaffirming full-year revenue guidance for the year. Some had suggested that its fall, prior to earnings, was due to whispers that the company would miss expectations. During the company's last quarter, it posted sales growth of 12%, its loss had widened, and with it not expected to achieve profitability in the next year, some are pessimistic. Therefore, its loss was most likely attributed to the fear of earnings and the potential response.
The company does have a promising and diversified pipeline to complement a large product line. Therefore, it could become a great investment following its loss. In my opinion, its loss has been in anticipation of earnings, but now that the company has reported we may see new buying pressure. My only concern is the time frame for achieving profitability, the company has done a good job at keeping investors up to date, however in this economy I want to see results. Either way, with its current loss, it's worth your due diligence.
OncoSec Medical (ONCS.OB)
A couple weeks ago I received an email regarding a company called OncoSec Medical. At the time I had never heard of the company, but for some reason I have kept it on my radar during the last month. I find this to be a very interesting company because of both its technology and the investors who follow it. The stock had traded flatly all year. But last month the company announced data presentations, and the stock doubled in preparation of the announcements.
Last Tuesday the company announced its first round of data for Merkel Cell carcinoma (MCC), and results were very encouraging. The company proved that OncoSec Medical System increased levels of IL-12 in the tumor environment without any safety issues, and one patient saw a significant reduction in cancer throughout his body. However, the disease is rare, the study was small, and the results were expected. Therefore, the stock actually fell 15% on the day of the announcement, and has since continued to fall, but not because results were bad, but rather priced into the stock.
In terms of importance, the MCC data was not anticipated to the same degree as the metastatic melanoma data. Metastatic melanoma is a much more common disease and presents significantly greater sales potential. Yet, judging by what I've learned about the company, I believe the MCC trial was to see the platform's effectiveness at treating the disease as a determinant to whether or not the company moved forward in MCC trials. I think that with encouraging results the company can move forward, and will move forward, into later trials, and eventually earn an FDA approval for the technology.
The company is scheduled to announce data for the more important metastatic melanoma trial in November, and the stock could very well trade much higher in anticipation of that data. As I said, the metastatic melanoma data is much more significant, in some ways it's the dinner after the appetizer (MCC data) in regards to the future of this company. My personal belief is that investors sold the stock without really knowing why, to lock in near term profits or avoid loss. And despite it still trading with gains of 50% over the last month, I expect ONCS to trade sharply higher in the next two weeks in preparation of this much more significant data, which I might add uses the exact same technology. The stock's trend caught my eye and I believe is worth your due diligence, because once it posts one day of gains, watch out, it could create a domino effect!
Idenix Pharmaceuticals (IDIX)
Idenix Pharmaceuticals is a company that has gone from one extreme to the other. In July it was trading over $11, with a $1.4 billion market cap, as it announced that it received Fast Track Designation from the FDA for its chronic hepatitis C product, IDX719. But just a few days later the company announced a $150 million offering of common stock and its shares fell to $8. If that wasn't enough, then the company announced that the FDA placed its IDX184 treatment for hepatitis C on a partial clinical hold following "serious cardiac-related adverse events." Subsequently, the stock sunk even lower to $6.
Now priced at $3.70, the company has lost much of the support from investors and has continued to trade lower. In the six sessions alone the stock has lost more than 13% of its value, trading at 52-week lows. The fall of this stock has been incredible seeing as how it was one of the best performing stocks in the market throughout 2011.
Idenix still has one hepatitis C treatment, while the other remains on hold. Some consider Achillion Pharmaceuticals (ACHN) to be its primary competitor, and the much better choice, as it continues to rally on strong data. However, the overall potential for hepatitis C drugs is great, meaning if Idenix's drug progresses through trials with success it would present significant upside for the stock. Although, the main question is if Idenix is now worth buying, and personally, I am not so sure.
I, like many investors, found its $150 million offering to be very disheartening considering it was just days before the "clinical hold" of one of its most promising products. Perhaps I should look past this issue and see that the stock could indeed be undervalued. However, in this economy, actions such as the ones on behalf of management are often unforgettable, especially when it costs investors such a large amount of money. With that being said, the FDA does seem to support IDX719, and the market potential for the product is large. The stock is cheap and any positive news could lead to large gains. Therefore, IDIX is worth your due diligence but should be thoroughly assessed.
Orexigen Therapeutics (OREX)
Orexigen Therapeutics is the third part to the weight loss company equation. Most are aware of the company's story: Its lead candidate, Contrave, was denied in early 2011 due to potential heart risks, therefore the company has taken part in a large "Light Study" to assess any cardiovascular events.
On Monday the company announced that it had received a dispute response indicating that the FDA is "highly supportive" to explore a faster path to the resubmission of Contrave. The company also announced that it had surpassed enrollment of 7,000 patients, therefore speeding up the time to interim analysis. On this news you might guess that it traded higher, however the stock quickly reversed and has since traded lower by 8%.
After the news was announced, Orexigen temporarily popped but then sold off throughout the day, and then further into Tuesday due to heavy selling pressure in the overall market. This is a stock that has traded higher by 250% in 2012, thanks to the approval of both Arena Pharmaceuticals (ARNA) and VIVUS' (VVUS) weight loss products. Most Orexigen investors now believe in the likelihood of Contrave being awarded an approval, with the FDA seeming more accepting of the need for weight loss drugs.
The company's stock has remained volatile over the last few weeks, and trades with the performance of both Arena and VIVUS. Therefore, despite the good news from Orexigen, VIVUS dragged its shares lower with its failure to win European Agency backing, in addition to lower sales estimates from analysts who cover the stock. As a result of its weakness, I think OREX is a stock worth watching.
Orexigen could be close to an FDA approval, is valued under $400 million, and is more than $2 from its 2012 highs. And with Arena preparing to launch a drug that could very well exceed all expectations, due to its marketing and safety benefits, OREX may be preparing to rally. In fact, I'd also watch Arena Pharmaceuticals, as with its launch we might see increased buying pressure and a stock that breaks its current range. I believe both stocks are worthy of your due diligence.
Disclosure: I am long ARNA.