On Thursday November 8th, two companies within the biotech sector announced significant news that should send shares lower over the next few trading sessions. Both of these companies should be considered potential candidates for the establishment of a short position over the next 30-60 days.
BioCryst Pharmaceuticals (BCRX) which is based in Durham, North Carolina is "a biotechnology company, designs, optimizes, and develops novel small-molecule pharmaceuticals that block key enzymes involved in infectious diseases, inflammatory diseases, and cancer." On Thursday, the company announced quarterly EPS results of -$0.19/share on revenue of $5.80 million, which is pretty impressive since analysts were expecting BCRX to post a loss of -$0.21/share on revenue of $4.70 million.
In most cases a net income beat of $0.02/share and a revenue beat of 23.4% would normally be a good thing. But in the case of BCRX, the suspension of the company's Phase 3 clinical trials has the potential to cripple the company for years to come. According to comments by Dr. William Sheridan, "the company is proceeding with a full analysis of the non-blind data from the trial, and a final decision will be made following completion of the analysis and further discussions with our development partners; however, it is unlikely that Peramivir development for U.S. registration will continue."
Savient Pharmaceuticals (SVNT) which is based in East Brunswick, New Jersey operates as a "specialty Biopharmaceutical Company in the United States. It engages in developing and commercializing KRYSTEXXA for the treatment of chronic gout in adult patients refractory to conventional therapy. The company also sells and distributes branded and generic versions of oxandrolone, a drug used to promote weight gain following involuntary weight loss." On Thursday, the company announced quarterly EPS results of -$0.56/share on revenue of $4.50 million, which is pretty dismal since analysts were expecting SVNT to post a loss of -$0.48/share on revenue of $5.80 million.
When it comes to Savient, one of the more important negative catalysts comes in the form of company's existing debt. During the third quarter, "interest expenses on the company's debt increased $3.3 million, or 93%, to $6.8 million for the three-month period ended September 30, 2012, from $3.5 million for the three-month period ended September 30, 2011. Interest expense for the three-month period ended September 30, 2012 reflects $2.7 million of cash interest expense and $4.1 million of non-cash interest expense. Interest expense for the three-month period ended September 30, 2011, reflects $2.9 million of cash interest expense and $0.6 million of non-cash interest expense."
For potential investors looking to establish a position in either Savient or BioCryst, don't be fooled by the intraday sell-off shares are currently experiencing. This is clearly not a buying opportunity as Savient is down roughly 17% and BioCryst is down roughly 40%. If either company continues to disappoint not only in terms of research and development, but in terms of earnings, we could see both companies sell-off significantly over the next month or two.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.