3 Horrendous Health-Care Stocks This Week

Students across the nation will soon get their grades for the semester winding down. This week, the three stocks in our weekly review of horrendous health-care performers received their grades also. As you might expect, all three got big fat "F"s. Here are this week's flunkies.

1. "F" for failure
Oncothyreon
(NASDAQ: ONTY  ) shares plunged more than 57% this week after dismal results from a phase 3 study of  L-BLP25, also known as Stimuvax. The clinical study found no statistically significant improvement of survival in patients with non-small-cell lung cancer who took the drug.

The phase 3 study was conducted by German pharmaceutical company Merck KGaA, which licensed L-BLP25 from Oncothyreon. Despite the bad news, Merck KGaA noted that the trial found potential for the drug in certain subgroups of patients. The company plans to talk to outside experts and regulatory agencies about possible alternatives for moving forward.

L-BLP25 is the only drug in Oncothyreon's pipeline in a late-stage study. The small biotech does have several phase 2 trials under way for its PI-3 kinase inhibitor PX-866. 

2. "F" for Fabry flop
Amicus Therapeutics
(NASDAQ: FOLD  ) also announced negative results from a clinical trial of its drug migalastat HCI in treating Fabry disease, a rare genetic disorder. Shares tanked 54% during the week.

The story for Amicus sounds similar to that for Oncothyreon. A big partner, in this case GlaxoSmithKline (NYSE: GSK  ) , conducted the phase 3 study. Like Oncothyreon's L-BLP25, Amicus' migalastat didn't achieve statistically significant improvement. Glaxo also remained publicly committed to the program in much the same way that Merck KGaA was. Amicus doesn't have any other drugs in phase 3, like Oncothyreon, although another phase 3 study for migalastat is under way.

One key difference is that Amicus' relationship with partner Glaxo is closer than that between Merck KGaA and Oncothyreon. Glaxo owns a 20% stake in Amicus.

3. "F" for firestorm
Perhaps the most entertaining horrendous health-care stock story of the week involves Herbalife (NYSE: HLF  ) . A firestorm erupted earlier this week, when hedge fund manager Bill Ackman launched an attack on the weight management and nutrition supplement company. Shares dropped 38% for the week.

Ackman alleged that Herbalife is a pyramid scheme and stated that he began short-selling the stock months ago. He told Bloomberg TV that his fund sold short over 20 million shares of Herbalife. That reflects a short position exceeding $1 billion.

Herbalife quickly fired back, calling Ackman's charges "a malicious attack." The company's CEO, Michael Johnson, went on CNBC to personally respond. Johnson referred to Ackman's allegations as "blatant market manipulation" and called for the SEC to investigate. 

This drama won't be over for a while. Herbalife announced on Friday that it will hold an analyst day on Jan. 7 to make a detailed case in defense of the company's business model. Stay tuned for the next episode.

Star student
While these three stocks all got grades of "F" for the week, there are plenty of star students in the investing universe. Which could be the valedictorian for 2013?

The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in our brand-new free report: "The Motley Fool's Top Stock for 2013." I invite you to take a copy, free for a limited time. Just click here to access the report and find out the name of this under-the-radar company.


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