Three Oversold Healthcare Catalyst Stocks

Includes: AMAG, CPD, MNTA, XLV
by: Mike Havrilla

With the S&P 500 SPDR ETF (NYSEARCA:SPY) trading about 8% below its 50-day moving average (DMA), I went in search of oversold healthcare stocks trading at least 16% below their 50 DMA which have potential catalysts within the next six months that may provide some very nice returns.

The Healthcare Sector SPDR (NYSEARCA:XLV) is trading about 12% below its 50 DMA amidst concerns of sweeping healthcare reform that would threaten the profits of health insurers, managed care companies, big pharma, and biotechs – although such concerns may be overblown given the failed attempts at large scale healthcare reform in the past..

Momenta Pharma (NASDAQ:MNTA) is trading about 29% below its 50 DMA and the Company is uniquely positioned to benefit from legislation that was introduced today to bring safe and affordable generic biologics to the market. The Promoting Innovation and Access to Life Saving Medicines Act in the House of Representatives is expected to establish a regulatory pathway for biogenerics at the FDA.

MNTA should have an inside track on its ANDA for Lovenox (M-Enoxaparin) after working closely with the FDA on the tainted heparin crisis and their proprietary drug candidate M-118 will have Phase 2a results and a possible partnership by late 2Q09. Legislation for biogenerics is not required for the two ANDAs or the proprietary blood thinner M-118, but would serve as an added bonus for MNTA and increase the value of their technology platform and ability to create equivalent versions of highly complex biological agents.

Click here for my full article on Momenta's three-part business model, including complex generic equivalents in partnership with the Sandoz division of Novartis (NYSE:NVS), proprietary compounds, and follow-on-biologics.

AMAG Pharma (NASDAQ:AMAG) is trading around 23% below its 50 DMA and awaiting a response from the FDA on its Feraheme (ferumoxytol) NDA as an intravenous (IV) treatment of iron deficiency anemia. AMAG received a second complete response late last year for Feraheme, but it appears that no new issues were raised by the FDA and the Company may not need to submit another response to the agency.

The rate-limiting step to attaining FDA approval for Feraheme is having the agency review the Company's response to the manufacturing issues raised in the original complete response and conducting a re-inspection of the facilities, if deemed necessary – resulting in a potential FDA decision by mid-year without the need for AMAG to re-submit and have another PDUFA date issued by the agency. AMAG has given guidance on labeling discussions, which are likely to include a broad label, which includes both dialysis and non-dialysis patients.

Caraco Pharma (NYSEMKT:CPD) is trading about 16% below its 50 DMA as it awaits a FDA inspection of its Detroit manufacturing facilities in May as the final step toward resolving the issues raised in a warning letter from the agency last year.

Once the FDA completes its inspection and is satisfied with the corrective actions, Caraco will be eligible to receive new generic drug product approvals from the Detroit facility (the sale of currently marketed products was not affected by the warning letter) - removing all uncertainties currently weighing on the stock price, which has lost nearly three-quarters of market value in the past year.

The upcoming FDA inspection, strategic relationship with Sun Pharma [SUNPHARMA.NS], 25 pending ANDAs, and value parameters for Caraco position the stock well for long-term growth and gains if you believe the Company has adequately addressed the warning letter issues through personnel and facility upgrades to satisfy the concerns of the FDA. Click here for my most recent article on Caraco.