Don't Look Here for the Best Biotech Stocks

Setbacks often have a much larger effect on share prices at developmental companies than more established ones. While the investment community has seen several lowly developing biotechs rise from the ashes, rushing into a position at a company that recently got whacked or is facing headwinds can be a dangerous venture. Here are a few such companies with concerns that should be major factors in any investing decisions. In other words, these are not the best biotech stocks on the market.

Arena Pharmaceuticals  (NASDAQ: ARNA  )

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Despite sky-high potential for its weight-loss pill, Belviq, Arena has not had an electrifying start out of the gate. Total prescriptions total just 1,087 for the week of June 14 and 1,829 the next, according to TheStreet's Adam Feuerstein. Investors knew it would be difficult to gain traction with doctors, but perhaps underestimated just how difficult. While it is still early in the game for Arena, consider that Orexigen estimates that the total obesity market supported nearly 8 million prescriptions in 2012. This company is crawling toward disrupting the status quo, and shares have been punished as a result. Things may not get much better in the near future after Consumer Reports gave Belviq a dismal review earlier this month. I would steer clear of Arena until the attitude toward weight-loss therapies improves.

Dendreon (NASDAQ: DNDN  )

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Dendreon cannot catch a break lately with its prostate cancer vaccine Provenge. Sales slid further in the first quarter, but that should only get worse as another entrant jumps into the already crowded market. Xofigo from Bayer was recently approved and launched for patients with castration resistant prostate cancer who suffer from bone metastases. The specialized treatment will take patients away from other therapies, including Zytiga from Johnson & Johnson, Xtandi from Medivation, and of course Provenge. The quickness and severity of the new competition depends on the launch, but investors can expect it nonetheless. Will Dendreon's pipeline be enough to salvage its future?

Impax Laboratories (NASDAQ: IPXL  )

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To be fair, it isn't all that uncommon for a company new to manufacturing to miss a bullet point or two when submitting a Biologic License Application. Dynavax should be able to correct the issues well before safety data are resubmitted. It isn't always smooth sailing, though, and Impax is a prime example. The FDA raised three specific concerns at its Hayward, Calif., manufacturing facility last year. Not only did Impax not make the recommended improvements, but it managed to raise nine new concerns during the FDA's follow-up inspection earlier this year. How do you do that? I have no idea. That will certainly hold-up approval of the company's Parkinson's disease drug, Rytary. Luckily, Impax is more established than the other companies described in this article. It should still make you wonder how the company failed so miserably in responding to its manufacturing shortfalls.  

Spectrum (NASDAQ: SPPI  )

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Spectrum got mowed down in March after sales of Fusilev, a drug used to prevent side effects of cancer drug methotrexate, were guided to a range of $80 million to $90 million for 2013. Sales in 2012 topped $200 million. Why the drop? Doctors are switching to generic drugs after a shortage gave them few alternatives to Fusilev. The company offers two other drugs, Folotyn and Zevalin, and has three more in late-stage trials. So all hope is not lost given this correction, but investors need to entertain the possibility that Fusilev sales continue to fall or perhaps even fail to reach the company's guidance.

Foolish bottom line
If you're looking for the best biotech stocks, you may want to look elsewhere. All of these companies have noteworthy problems to tackle before they should be considered for your portfolio. Companies may seem like steals after a big drop, but you have to remember to ask yourself if the drop was warranted. In each case outlined above, recent developments delayed a company's ability to return value to its shareholders. I would stay away from these companies until they successfully respond to the obstacles they face.

Instead, when it comes to biotech, I look for more established companies. It's no secret that biotech stocks have been soaring recently, but the best investment strategy is to pick great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" not only shares stocks that could help you build long-term wealth, but also winning strategies that every investor should know. Click here to grab your free copy today.


Read/Post Comments (5) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 28, 2013, at 4:57 PM, nickl5 wrote:

    Qsymia versus Belviq (Belviq winning hands down)

    . Qsymia sales first 4 weeks Belviq is killing those #s

    Sept 14 – 3

    Sept 21 – 106

    Sept 28 – 583 (Total For Sept is 692)

    Oct 5 – 1,457

    week 1 only 3 days 1087 week 2 1829 up 66% nice spin Adam F you have had it wrong sense your short call @ 3

  • Report this Comment On June 28, 2013, at 6:07 PM, JustPassinThru wrote:

    The lack of "penetrating" insight in this author's article is disappointing. Before Belviq’s launch, analysts continually made fuzzy comparisons between Belviq and Qysmia. Now that Belviq’s sales numbers are starting to come in, not knowing them and reporting them accurately demonstrates how uninformed of the basic issues surrounding Belviq’s launch the author is.

    Total prescriptions reported the first week so far are 1,087. The second week was 1,829. It’s hard to find subscription data for Vivus’ Qysmia (the company was desperately fighting the consequence of the stock tanking because of the low numbers), but a November 26, 2012 article entitled: “Faced with flat sales, Vivus offers free trial on Qsymia weight loss drug” reported that “the overall trend mostly flat over the past four weeks–typically around 1,200 new scripts reported per week.” Assuming that the subscription trend wasn’t flat (sales usually “ramp” up over time) and that it had been somehow building over that month long period, the initial week’s subscription had to have been something less than 1,200 scripts – perhaps SIGNIFICANTLY less. Belviq’s trend, assuming a straight line, will result in first month sales of 11, 162 scripts for an average weekly total of 2,790!

    This is 230% Vivus’ Qysmia’s sales figures, and that’s just the first month! Because drug launches tend to “ramp” up, the average weekly sales total for this month is likely to be higher and next month’s total is likely to be considerably higher as word of Belviq’s utility and effectiveness spreads throughout the medical community and the general public.

    Also Consumer Reports’ review of Belviq was cited as a reason to “steer clear of Arena until the attitude toward weight-loss therapies improves.” That article has been roundly panned throughout the investment community for its inaccuracies reporting the facts, and its admonition to “eat less and exercise”. Hasn’t this treatment modality been available for thousands of years? If this was an effective solution to the obesity and diabetes epidemics in the United States, why are there so many millions of overweight Americans these days?

    And does it make sense for investors to “steer clear of Arena until the attitude toward weight-loss therapies improves.”? Doesn’t it make more sense for an investor to buy in before the attitude improves? You know: Buy low, Sell High?

    Perhaps its “Foolish” of me to expect better reporting and analysis in articles posted through this outlet, but I DO expect more…

  • Report this Comment On June 28, 2013, at 6:40 PM, fairguy wrote:

    I don't believe any charts. The best executions come out a best result . Arena having a professional

    representative resources to execute their strategies.

    All data of Belviq drug has been verified by FDA.

    In the mean time, Bunch shorters manipulating Arna stock. I have no doubt that the value of this stock

    will be a BLOCKBUSTER sky high . Investors need to stay intact. Day by days BELVIQ scripts will to an incredible numbers.

  • Report this Comment On June 28, 2013, at 6:47 PM, nickl5 wrote:

    This is Adam's quote

    Despite sky-high potential for its weight-loss pill, Belviq, Arena has not had an electrifying start out of the gate. Total prescriptions total just 1,087 for the week of June 14 and 1,829 the next, according to TheStreet's Adam Feuerstein. Investors knew it would be difficult to gain traction with doctors,This is what was said after Arena's first weeks scrips

    Arena Surges On Script Data

    Jun 21 2013, 11:21 | 101 commentsby:

    Twitter is abuzz and Arena (ARNA) investors, as well as the street are initially excited about the first script numbers of the recently launched anti-obesity drug Belviq. IMS Health is reporting that Belviq had 1,087 prescriptions filled during the week ending June 14th. Belviq launched on June 7th, but was not available till June 11

  • Report this Comment On June 28, 2013, at 11:27 PM, nickl5 wrote:

    Symphony reported over 2100 Scripts were filled for second week

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