CAPS Rating (out of 5)
|Dendreon (Nasdaq: DNDN )||
|Entropic Communications (Nasdaq: ENTR )||
|Huntsman (NYSE: HUN )||
Where to begin? Markets got crushed yesterday, falling over 500 points, or 4.6%, as concern that the double-dip recession is finally upon us flared, making it an official "correction" where the market averages are down 10% or more. So stocks that went down by even larger percentages are pretty big deals.
The devil's in the details
Wait a second! I thought getting through the FDA gauntlet was supposed to be the hardest part of being a biotech. Once you got the green light for approval, it was all green grass, blue skies, and open roads. You mean it's not?
Dendreon was put through the wringer several times getting its prostate cancer therapy Provenge approved by the regulatory agency. Investors who stuck with the company had a right to expect that once it came to market management's promises of sales of $350 million to $400 million annually would pan out. Instead, yesterday they got platitudes that Provenge should see "modest growth" in the third and fourth quarters on the $78 million it generated in the first half of the year.
Not even Medicare's decision to pay for the drug could overcome the "buy-and-bill" method of reimbursement. Doctors first have to shell out the $93,000 cost of the treatment, then bill the insurance companies for reimbursement, and apparently, not many are willing to do so. Dendreon contrasted Provenge with Yervoy, Bristol-Myer Squibb's (NYSE: BMY ) treatment that costs $120,000, but is eligible for prior approval from insurers, so doctors know ahead of time they'll be reimbursed. That level of certainty is not there with Provenge.
Although management insists demand is not a problem, Dendreon is cutting employees, which makes it seem like there's not enough support for having plenty of staff to meet it. There's also new competition from Zytiga, a prostate cancer treatment made by Johnson & Johnson, that costs just $5,000 a month for eight months with not dissimilar survival rates. Dendreon is of the mind the traction J&J is enjoying thus far won't last.
Investors were spooked by all this talk and made Dendreon the worst performing stock yesterday among many lousy performers. But highly rated CAPS All-Star zzlangerhans it was that broader sell-off that contributed to Dendreon's own demise and he's betting it was a bit overdone:
I think the stock is oversold in the short-term and likely would have rebounded if the indexes hadn't shed 4% today. The company still has more than 700M in the bank and 50M in sales is not exactly garbage. Again, I've lost familiarity with this company but I think they have a good chance at recovery when some optimism returns to the market.
So does Dendreon come back once again from this latest debacle? Let us know on the Dendreon CAPS page or in the comments section below if you think this biotech is done.
We're all in this together
This whole "connected living room" thing just doesn't seem to be playing out as expected. Google's TV mashup is causing Logitech to cut prices on its Revue device because returns outpace sales. TV glass maker Corning (NYSE: GLW ) is lowering expectations of LCD sales, and home networking chipmaker Entropic Communications missed analyst revenue and earnings forecasts as Verizon (NYSE: VZ ) changed it inventory management practices.
The telecom adjusted how it's rolling out its FiOS network, and while not seeking out new markets to deploy the high-speed network, it's still buying up as much fiber optic cable as it can get its hands on to roll it out in already targeted markets. Verizon's optic cable supplier Corning (NYSE: GLW ) says orders were 20% above expectations though there's a shortage at the moment.
So while the connected living room isn't playing out as hoped, it seems the markets have misread the landscape, and in the broader market bloodbath, dragged Entropic down with it. CAPS member shamapant thinks its oversold, and I'm inclined to agree. I've indicated on the Entropic CAPS page that I think it will rebound from these lows over the coming quarters. Join me there and let us know whether we're still all connected.
A lagging indicator
The sell-off in specialty chemicals maker Huntsman is also a bit of a surprise, considering it turned in a fairly strong quarter. Investors should wonder whether a penny per share miss in earnings is worth losing nearly a third of the company's market value.
Revenues at Huntsman surged 25% in the second quarter, but rising oil prices caused expenses to rise and there was only so much of the higher costs it could pass along to customers. Perhaps in the wake of yesterday's dramatic plunge, where oil prices also fell to around $91 a barrel, the market will reassess its rout. Two weeks ago, oil was hovering near $100, but an unrelenting spate of bad economic numbers has softened traders' position about demand.
Investors in paint makers like Sherwin-Williams (NYSE: SHW ) can expect some cost shocks, too. One of the areas Huntsman was able to hike prices was in titanium dioxide, a key ingredient in paint.
With 95% of the CAPS members rating Huntsman to outperform the broad market averages, it's likely a good number of them will view the current discounted price as a time to double down. You can follow along on its development by adding it to your watchlist and let us know on the Huntsman CAPS page if you think it can paint over its current decline.
Ready for a resurrection
Just because your stock has taken a beating doesn't mean it's going to roll over and die. Markets are known for overreacting. A closer look on Motley Fool CAPS at what's happened to your stock can give you an edge over other investors who just react to the market's lead. You can decide for yourself whether it's ready to come back from the dead.