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While we're well into the holiday season, not everyone is feeling merry these days. Several health-care stocks took big hits over the past five days. Here are three of the most horrendous performers for the week.
Shares of Rigel Pharmaceuticals (Nasdaq: RIGL ) took a nosedive this week after its partner AstraZeneca (NYSE: AZN ) announced disappointing results from a phase 3 study of fostamatinib in treating rheumatoid arthritis. The stock dropped as much as 36% before climbing back to end down nearly 21% for the week. AstraZeneca shares also fell, although by less than 4%.
The phase 3 study met one of its objectives. Fostamatinib proved to be more effective in treating rheumatoid arthritis than placebo. However, it failed the more important objective. Patients taking the drug didn't have results as good as those taking Abbott's (NYSE: ABT ) Humira.
Rigel has other products in its pipeline, but fostamatinib is the only late-stage drug. AstraZeneca said publicly that results from a larger study are expected in mid-2013. Rigel seems likely to remain in limbo until then.
One company's good news meant another's bad news. Incyte (Nasdaq: INCY ) shares declined over 10% for the week after Gilead Sciences (Nasdaq: GILD ) announced a buyout of YM Biosciences (NYSEMKT: YMI ) .
Both Incyte and YM Biosciences have JAK inhibitors targeting myelofibrosis. Incyte's Jakafi received FDA approval in Nov. 2011 and EMA approval last August. YM Biosciences' CYT387 has not yet advanced to phase 3 trials, but showed promising results from a phase 1/2 study.
Incyte's stock beat-down stems from worries that CYT387 could ultimately gain the upper hand, especially with the backing of a big company like Gilead. That scenario could play out, but nothing is a given in the world of biotech.
Teva Pharmaceuticals (NYSE: TEVA ) shares also fell over 10% this week after a downgrade from Leerink Swann. Leerink analyst Jason Gerberry noted his skepticism about the company's ability to quickly replace revenue from declining older products.
Guidance from Teva disappointed investors a couple of weeks ago, so analyst downgrades are not unexpected. If you read the fine print of what Leerink's Gerberry wrote, though, you'll find that he values Teva at $44 to $45 per share. The stock now trades around $39 per share.
Even after its disappointing guidance, fellow Fool Chuck Saletta highlighted several reasons investors should consider buying Teva. Chuck values Teva at $37.2 billion using discounted cash flow analysis. Assuming Chuck is right, the stock is undervalued by around 12.5%.
Merriness and mirth
My view is that investors in Rigel and Incyte might see more mirth than merriness over the coming months. The same might also be true for Teva investors, but I think the long-term potential for the stock is favorable considering its current attractive valuation. Buying Teva at the currently depressed prices could result in merry returns down the road.
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