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3 Biotechs Falling Like a Knife

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When biotechs begin to fall, the result can be truly impressive, or heart-breaking -- depending on where you are standing. Over the years, I've found that it's generally not a good idea to hold onto biotechs moving south on heavy volume. That can spell bad news in a hurry.

With that in mind, here's a look at three biotechs that fell substantially on unusually high volume last week.

Ariad Pharmaceuticals (NASDAQ: ARIA  ) is an oncology company whose leukemia drug Iclusig made headlines recently when it was pulled from the market by the Food and Drug Administration after a late-stage trial showed an elevated risk of blood clots. Shares of Ariad fell more than 25% this week as a result, despite already being down more than 80% in the last month. The problem facing Ariad is clear: Iclusig is its bread and butter. So if the FDA does not allow it back on the market, and that looks doubtful at this point, Ariad is in big trouble. Currently, the company only has one other clinical candidate, and that drug is still in the very early stages of development.

The only good news is that Ariad does have a sizable cash position of about $300 million, giving them a cushion to develop new clinical candidates, or perhaps buy the rights to a promising late-stage drug. The one thing Ariad cannot do is stand idly by waiting for the FDA to allow Iculsig back on the market in some form. Foolish investors may want to wait for the smoke to clear before considering an investment in Ariad. Right now, there are far too many uncertainties surrounding the company and its flagship drug.

Inovio Pharmaceuticals (NASDAQ: INO  ) develops DNA-based vaccines and delivers them using a proprietary electroporation technique. Shares of Inovio have been a roller coaster all year long, and have certainly been the playground of day traders. Last week, Inovio shares lost more than 10% of their value on heavy volume, suggesting the stock may continue to experience downward pressure. This rapid move downward is surprising because the company recently signed a licensing deal with Roche (NASDAQOTH: RHHBY  ) to commercialize Inovio's multi-antigen DNA immunotherapies for prostate cancer and hepatitis B. As part of the deal, Inovio received $10 million upfront, and milestone payments could go as high as $412 million.

Although this deal shows that Roche believes in Inovio's future, the market remains unconvinced. For all their promise, DNA vaccines have yet to produce an FDA-approved treatment. And until Inovio announces the mid-stage trial results for its lead clinical candidate VGX-3100 indicated for HPV next March, I expect the stock to remain the province of traders. Foolish investors would be wise to wait until after Inovio's vaccine platform has been validated in a mid-stage trial.

Immunomedics (NASDAQ: IMMU  ) develops monoclonal antibodies for the treatment of cancer, autoimmune disorders, and other life-threatening diseases. The company has six products in clinical trials for a variety of diseases. Shares of Immunomedics have fallen hard and fast since the company announced the termination of a licensing deal with Takeda Pharmaceutical over veltuzumab last month. Even positive clinical trial results for 90-Y clivatuzumab, a treatment for advanced pancreatic cancer, failed to slow the fall. And last week, the pace of the decline picked up to the tune of a 15% drop on heavy volume.

The cause of Immunomedics precipitous decline is no secret. The termination of the Takeda deal leaves the company in a tough financial position. With only about a year's worth of cash and clinical costs soaring of late, the company may have to turn to the markets to raise cash soon. That said, Immunomedics does have a number of intriguing clinical candidates, and its late-stage candidate epratuzumab is progressing nicely. Although a dilutive round of financing appears imminent, I think investors with a long-term mind-set should keep a close watch on this biotech with its well-diversified pipeline.

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Related Tickers

9/26/2016 4:00 PM
ARIA $13.96 Up +0.44 +3.25%
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IMMU $3.26 Down -0.01 -0.31%
Immunomedics CAPS Rating: *****
INO $9.44 Down -0.06 -0.63%
Inovio Pharmaceuti… CAPS Rating: **
RHHBY $31.18 Down -0.37 -1.16%
Roche Holding Ltd.… CAPS Rating: *****