3 Horrendous Health-Care Stocks This Week

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The last five days proved yet again why investing in biotech can be a very risky proposition. Disappointing clinical trials, Food and Drug Administration panel decisions, and analyst downgrades can wreak havoc on these stocks. And they certainly did so this week. Here are three of the week's worst performers in the world of health care.

Another one bites the dust
Clovis Oncology (Nasdaq: CLVS  ) announced this week that its CO-101 experimental drug for treating pancreatic cancer didn't work any more effectively than the existing gemcitabine treatment. Shares were whacked 46% for the week.

At least Clovis is in good company. Others have shared similar fates in attempting to take on pancreatic cancer. Most recently, Amgen (Nasdaq: AMGN  ) abandoned its phase 3 clinical trial for ganitumab after research found no significant improvement over current therapy. Celgene (Nasdaq: CELG  ) still seems to be the best hope for a new pancreatic cancer drug.

Clovis intends to regroup by focusing on a few other drugs in its pipeline. Two are already in clinical studies. CO-1686 targets treatment of non-small-cell lung cancer, while rucaparib is intended for battling ovarian and breast cancer.

The devil's in the details
Dynavax Technologies (Nasdaq: DVAX  ) joins Clovis in the negative-forties club. Shared plunged 41% this week following a negative vote by an FDA advisory panel on the safety of the company's Heplisav vaccine.

I must eat a big helping of crow on this one. After an FDA staff report came out earlier in the week singing the praises of Heplisav, I thought the vaccine would likely sail on through to FDA approval. Although I played devil's advocate to point out that the FDA staff report had no real bearing on the advisory panel decision, my optimism still prevailed.

The devil is truly in the details, though. Heplisav's efficacy isn't in question, but the panel voted eight to five (with one member abstaining) that the data didn't sufficiently support the safety of the vaccine. Dynavax could still win FDA approval, but the probability of doing so is definitely lower now. 

How sweet it isn't
Nektar Therapeutics (Nasdaq: NKTR  ) didn't have a sweet five days, either. Shares dropped 26% for the week.

The catalyst for the stock's decline came from an analyst downgrade. Jefferies lowered Nektar from a buy rating to a hold. Why? Two other companies making opioid induced constipation drugs, Salix (Nasdaq: SLXP  ) and Progenix (Nasdaq: PGNX  ) , revealed last week that the FDA raised safety concerns.

Ironically, Nektar announced positive efficacy and safety results from AstraZeneca's (NYSE: AZN  ) phase 3 study of naloxegol. The partnership between the two companies began in 2009 and includes the opioid-induced constipation drug.AstraZeneca's results weren't enough to undo the damage from the Nektar downgrade, though.

Risky business
These horrendous performers illustrate perfectly why investors should closely manage risk. The old sayings of "don't put all your eggs in one basket" and "don't risk more than you can afford to lose" are as applicable today as they were years ago. 

Biotech, in particular, is speculative. Nothing is guaranteed or certain. The high flyers of today can be the horrendous thuds of tomorrow. And the opposite can also be true at times. It is and will continue to be a risky business.

While you can certainly make huge gains in biotech and pharmaceuticals, the best 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.

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  • Report this Comment On November 17, 2012, at 2:38 PM, Hope4GoodFuture wrote:

    For Clovis, the issue was much worse than the fact that the drug didn't work. The larger issue was that the whole hypothesis for the drug- that low hENT1 expression equals worse survival with gemcitabine- turned out to be false. This trial showed that low hENT1 exressors did the same as high hENT1 expressors with gemcitabine, meaning that the whole basis for the trial was built on bunk. That, I believe, means that a whole lot of research, as well as reconfirmation of the research by a partner of Clovis, as well as review of the research by the Clovis, was WRONG. Clovis has a lot of explaining to do. While patients in the trial probably got "the standard of treatment" with gemcitabine, they missed out on the Abraxane trial and the TH-302 trial, and others, that may have provided a far superior outcome. This company had the buzz of "good management". If investors are going to trust this company going forward, a highly transparent postmortem is needed asap to determine who they wasted so much on a false premis. I hope there is a very good explanation for what happened so we can move on and trust the basis for the next 2 drugs in the pipeline.

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