If the biotech sector sells off, does that create investment opportunities?
The sharp drop in the iShares Nasdaq Biotechnology (IBB) ETF in the last month erased all the gains made for the year. The fund is now down around 14% for the month. IBB’s greatest weightings are in Amgen Inc. (AMGN) at 9%, Gilead Sciences (GILD), and Celgene Corp. (CELG). The drop in these firms could be mild in comparison to other companies. Speculative, smaller market capitalization firms may experience bigger declines.
There are two biotech firms that the market could be selling off despite sound fundamentals.
Theravance Inc. (THRX) is planning to separate into two: a development and a royalty holding. The separation will take place in Q2/2014. Theravance has a partnership with GlaxoSmithKline plc (GSK) for Breo Ellipta and Anoro Ellpta. These drugs are used to treat COPD, or chronic obstructive pulmonary disease. Theravance dropped 20.4% in 2014.
Idenix Pharmaceuticals Inc. (IDIX) is down 13.6% this year. Shares peaked at $8. The firm has a market cap of $779.7 million. The hepatitis C drug maker is suing Gilead Sciences in Europe for patent infringement. The lawsuits allege that “Gilead infringes Idenix's recently-granted, co-owned European patent EP 1 523 489 that covers 2'-methyl-2'-fluoro nucleosides for treating the hepatitis C virus.”
Firms that are short on cash levels and could have difficulty issuing shares due to the sell off include Dendreon (DNDN) and Amarin (AMRN). Dentreon makes drugs to treat prostate cancer. Its cash levels are dropping. Cash declined to $92.53 million (in the quarter ended December 31, 2013), compared to $130.6 in the quarter ended March 31 2013. It has 28 million in debt due this June, and its cash burn rate will strain the balance sheet.
Amarin failed to gain five year exclusivity for marketing Vascepa, a fish oil pill to treat cardiovascular diseases. Net common stock increased over the last four years, while retained earnings dropped. An appeal to the judgment is not expected until Amarin’s Q2 or Q3. Amarin is reducing sales and marketing expenses this year, due mostly to a headcount reduction. R&D expenditure was $73 million in 2013. In 2014, the firm expects to reduce these costs by $20 million.
Written by Chris Lau.
Do you think biotech stocks are oversold? Use the list below to begin your own research.
1. Amgen Inc. (AMGN, Earnings, Analysts, Financials): Develops, manufactures, and markets human therapeutics based on advances in cellular and molecular biology for grievous illnesses primarily in the United States, Europe, and Canada. Market cap at $94.85B, most recent closing price at $125.79.
2. Gilead Sciences Inc. (GILD, Earnings, Analysts, Financials): Engages in the discovery, development, and commercialization of therapeutics for the treatment of life threatening diseases worldwide. Market cap at $128.19B, most recent closing price at $83.57.
3. Celgene Corporation (CELG, Earnings, Analysts, Financials): Develops, and commercializes various therapies to treat cancer and immune-inflammatory related diseases. Market cap at $67.46B, most recent closing price at $164.09.
4. Theravance Inc. (THRX, Earnings, Analysts, Financials): Engages in the discovery, development, and commercialization of small molecule medicines for various therapeutic areas, including respiratory disease, bacterial infections, and central nervous system (CNS)/pain. Market cap at $4.32B, most recent closing price at $39.78.
5. GlaxoSmithKline plc (GSK, Earnings, Analysts, Financials): Engages in the discovery, development, manufacture, and marketing of pharmaceutical products, over the counter (OTC) medicines, and health-related consumer products worldwide. Market cap at $133.74B, most recent closing price at $55.75.
6. Dendreon Corp. (DNDN, Earnings, Analysts, Financials): Engages in the discovery, development, and commercialization of therapeutics to enhance cancer treatment options for patients. Market cap at $455.22M, most recent closing price at $2.99.
Analyze These Ideas: Getting Started
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Dig Deeper: Access Company Snapshots, Charts, Filings
- Amgen Inc.(AMGN, Chart, Download SEC Filings)
- Gilead Sciences Inc.(GILD, Chart, Download SEC Filings)
- Celgene Corporation(CELG, Chart, Download SEC Filings)
- Theravance Inc.(THRX, Chart, Download SEC Filings)
- GlaxoSmithKline plc(GSK, Chart, Download SEC Filings)
- Dendreon Corp.(DNDN, Chart, Download SEC Filings)
- Amarin Corporation plc(AMRN, Chart, Download SEC Filings)
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