Buy, Sell, or Hold: Affymax

When considering any stock for your portfolio, don't be swayed by just the positives. Examine its pros and cons, and decide whether it's possible upside outweighs its risks. Let's take a look at Affymax (NASDAQOTH: AFFY  ) today and see why you might want to buy, sell, or hold it.

Founded  in 2001 and based in California, Affymax sports a market capitalization of about $850 million, making it a small-cap company. It's a biopharmaceutical enterprise, known for its Omontys injections that treat anemia in some dialysis patients. Its stock has more than tripled  over the past year, leading some to want to jump into it and others to be wary.

Buy
One reason to consider buying Affymax is its business. With the world's population growing, getting older, and living longer, demand for health-care products and services is likely to remain in demand.

Its business is growing, as third-quarter revenue rose 3% and net losses came in a little smaller than expected. Much of that revenue, $10.4 million out of the $13.6 million total, came from its Omontys partner, Takeda Pharmaceuticals.

Speculators might be interested in Affymax as a possible acquisition target, but it's rarely smart to base investment decisions on speculation.

Sell
The company's valuation  is a concern, which isn't surprising given its surge over the past year. It has no price-to-earnings ratio, as it has no earnings yet, and its price-to-sales and price-to-book value numbers are much higher than the company's five-year averages.

Its financial figures have been a lumpy, too, with revenue rising from $44 million in 2007 to $115 million in 2009 and then back down to $48 million in 2011, and up to $83 million on a trailing-12-month basis. It's not quite fair to compare the past to the present, though, as Omontys has only recently been approved and on the market.

Its share count has more than doubled since 2007, too, shrinking the value of existing shares via dilution. Cash flow  has long been negative, but at least debt is modest. Recent cash levels look like they can support cash burn for a year or two, at least.

Meanwhile, Affymax does have competition, such as from Amgen (NASDAQ: AMGN  ) , which has contracts in place with dialysis providers DaVita (NYSE: DVA  ) and Fresenius Medical Care (NYSE: FMS  ) to distribute its drug Epogen. Affymax also has arrangements with Fresenius and others and is working to boost its market share. Omontys has a significant advantage over Omontys in that it's a once-a-month treatment, versus twice-a-week for Epogen. It's also strategically priced lower than Epogen.

Finally, unlike many other biotech outfits, Affymax doesn't have a pipeline full of new drugs in development. It is researching more uses for Omontys, though.

Hold (off)
Given the reasons to buy or sell Affymax, it's not unreasonable to decide to just hold off on it. You might want to wait for its losses to turn into gains, and for its revenue to ramp up. You might want to see more products approved and selling, as well.

You might also check out some other interesting biotech or pharmaceutical companies, to see if they inspire more confidence than Affymax. Spectrum Pharmaceuticals (NASDAQ: SPPI  ) , for example, actually has products on the market, such as its colorectal cancer drug, Fusilev. It's also sporting an attractive valuation, despite some concerns, such as competition.

Antares Pharma (NASDAQ: ATRS  ) may also be of interest, also with products on the market, such as ones featuring its needle-less injection technology and drug-delivering gels. It has been growing briskly, and its stock may have gotten ahead of itself too.

The verdict
I'm holding off on Affymax for now. Everyone's investment calculations are different, though. Do your own digging and see what you think. The company may perform spectacularly in the coming years, but remember that there are plenty of compelling stocks out there.

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  • Report this Comment On December 17, 2012, at 11:35 PM, mbracket123 wrote:

    Hi Selena,

    Why would you even mention revenue #s from 2007 to present as they are completely meaningless. The company was in development stage of its drug - all rev was milestone based from their partner, Takeda. Of course its lumpy and not relevant to product-generated revenue which has just started this past quarter.

    And saying they have competition from Amgen is slanting the wrong way - Amgen now has competition from the much more convenient (one-month vs. 13-times a month administer), breaking Amgen's decades-long monopoly of the market.

    Unless there is a negative outcome somewhere, which doesn't seem likely given the overly extensive trials, the drug will capture a huge % of the $2B+ market in just the first couple of years. Making this a $500M - $1B rev company. You can do the requisite math on what that means for valuation. Its really one of the best value plays today in the genre. Sound right to you?

    Ciao, Mike.

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