3 Horrendous Health-Care Stocks This Week

Hurricane Sandy caused a real scare for millions of Americans this week. And Halloween always creates a lot of fun scares for millions of kids. Were there any scares for health-care stocks this week? Here are three of the most horrendously scary performances.

October surprise
Abiomed (Nasdaq: ABMD  ) didn't receive a treat for Halloween. The company, instead, received a subpoena from the U.S. Attorney's Office for the District of Columbia on Oct. 31. The subpoena relates to an investigation of the company's marketing and labeling for its Impella 2.5 micro heart pump. Mr. Market became quite scared and sent Abiomed shares plunging nearly 27% for the week.

The Impella product line accounts for around 88% of total company revenue. Impella 2.5 is the lead product, with nearly 700 customer sites in the U.S. Any threats to continued growth for the product represent a significant concern for Abiomed.

No one knows how much merit there is to the investigation at this point. And, of course, swarms of lawyers immediately launched their own investigations after the U.S. Attorney's Office announcement, so now Abiomed has others nipping at its heels. Expect the unanswered questions to hold shares down for the near term.

Off course for Corcept
Halloween wasn't bad for Corcept Therapeutics (Nasdaq: CORT  ) . The day after, though, kicked off a slide that carried through Friday. Shares dropped nearly  22% from the beginning of the shortened market week.

Corcept announced its earnings after the market close on Oct. 31. The pharmaceutical company lost $0.08 per share. That's actually a little better than the average analyst estimate of $0.09 per share loss. So why did Corcept go off course?

Comments made by Oppenheimer in its downgrade of Corcept offer the most likely explanation. Revenue for the quarter came in much lower than expected. Oppenheimer referred to the launch of Corcept's new drug Korlym as "disappointing."

Dilution convolution
Biopharma Lexicon (Nasdaq: LXRX  ) didn't get a subpoena from anyone and didn't announce disappointing quarterly results. However, shares fell nearly 10% for the week.

Lexicon's slide began a few weeks ago, when the company announced a new public offering of 17.5 million shares. The stock has fallen 24% from its levels prior to when Lexicon first announced its plans. Based on that kind of drop, many of us would probably expect that the share offering will result in fairly heavy dilution. But we would be wrong. The 17.5 million shares that Lexicon is selling amounts to only 3.5% of outstanding shares.

The company announces quarterly results on Nov. 6. We will find out then if the market overreacted to the prospect of share dilution, or if the sell-off was warranted for other reasons.

Pick of the poor performers
Every week, I take a stab at which of the horrendous health care stocks is most likely to do better going forward. My selection this week is Lexicon. The company has a promising diabetes drug, LX4211, that should advance to a phase 3 study in 2013. I also like seeing when insiders buy shares of budding biotechs. Two firms with seats on Lexicon's board of directors recently bought 3 million shares each, at $2.25 per share.

Abiomed will have the cloud of uncertainty hanging over its head for a while with the U.S. Attorney's investigation. Corcept has ground to make up with the rollout of Korlym. Lexicon looks to be the least likely of the horrendous health care stocks this week to spook investors more.

While you can certainly make huge gains in biotech and pharmaceuticals, the least scary investing approach is to choose great companies and stick with them for the long term. In our free report, "3 Stocks That Will Help You Retire Rich," we name stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

Keith Speights has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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11/25/2014 4:00 PM
ABMD $35.49 Down -0.01 -0.03%
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LXRX $0.99 Down +0.00 -0.23%
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