Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Roundtable: 3 Stocks Janet Yellen Would Hate

In the Fed's Monetary Policy Report submitted July 15th, Fed chair Janet Yellen called out social media and biotech stocks as having valuations that appear "substantially stretched" (i.e. overvalued). We asked our top contributors for stocks where they think the Fed is absolutely correct. Below are their thoughts.

George Budwell: I think investors have really lost sight of how much risk is involved in many clinical stage biotechs, pushing many of these companies into the stratosphere market cap-wise. Inovio Pharmaceuticals'  (NASDAQ: INO  )  market cap of $566 million--despite a lack of late-stage candidates and an unproven platform, is a good example of this problem.

Inovio's most advanced clinical product is a DNA-based vaccine dubbed "VGX-3100". According to the company, we are close to hearing the vaccine's mid-stage results as a potential treatment for late stage cervical pre-cancer to early stage pre-cancer.

The problem is that DNA-based vaccines have repeatedly failed to produce immune responses in humans stronger than traditional protein-based vaccines. And Inovio's electroporation methodology doesn't appear to be the key to unlocking this technology's promise--based on the clinical trial results so far. As a result, I have a hard time believing investors have appropriately gauged the amount of risk inherent in Inovio's approach to drug development. 

Todd Campbell: GW Pharma (NASDAQ: GWPH  ) jumps to mind.

There's no question that GW Pharma has some intriguing therapies in its pipeline and GW Pharma has already proven that its marijuana based drug Sativex is well tolerated.

However, despite winning approval in Europe -- a major MS market -- for Sativex in treating MS spascity, sales have remained elusive, totaling just $13 million in the first quarter.

Investors have looked beyond those results to focus instead on Sativex's potential in treating cancer pain and a form of childhood epilepsy, but investors may be getting too far out over their skis on this one. The cancer pain indication is for use as a second line therapy behind commonly used opioids and the epilepsy patient population being targeted by Epidiolex is tiny.

Since GW Pharma's market cap is north of $1.2 billion and its annualized sales are roughly $50 million, investors are paying a rich 23 times sales to buy shares. At that valuation, GW Pharma will need to execute perfectly if it hopes to justify that price tag.

Brian Orelli: I like what Sangamo Biosciences (NASDAQ: SGMO  ) is trying to do. The current HIV medications beat back the virus, but can't kill it completely, requiring patients to take drugs for the rest of their lives. Sangamo seeks to create a functional cure modifying cells so they can't be infected by the virus. It doesn't get much more disruptive than that.

If it works.

And that's the rub with Sangamo Biosciences. The technology hasn't proven to work with high enough efficiency yet. Could it? Maybe. Perhaps. Hopefully.

If it does, Sangamo is certainly worth a lot more than its current $850 million market cap. But history has shown that new drug technologies tend to take a long time to work out the kinks. Just look at a chart of Isis Pharmaceuticals trading sideways from 2002 to 2012 as the company tried to get its antisense technology working. While there's certainly potential for a big reward, the risk of failure or a long delay before success makes it hard to see how the reward justifies the current valuation.

A blockbuster opportunity even Janet Yellen would call undervalued.
The best investors consistently reap gigantic profits by recognizing true potential earlier and more accurately than anyone else. Let me cut right to the chase. There is a product in development that will revolutionize not just how we treat a common chronic illness, but potentially the entire health industry. Analysts are already licking their chops at the sales potential. In order to outsmart Wall Street and realize multi-bagger returns you will need The Motley Fool's new free report on the dream-team responsible for this game-changing blockbuster. CLICK HERE NOW.

Read/Post Comments (0) | Recommend This Article (0)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3035684, ~/Articles/ArticleHandler.aspx, 9/2/2015 4:35:56 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 7 hours ago Sponsored by:
DOW 16,058.35 -469.68 -2.84%
S&P 500 1,913.85 -58.33 -2.96%
NASD 4,636.11 -140.40 -2.94%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/1/2015 3:59 PM
GWPH $103.31 Down -3.04 -2.86%
GW Pharmaceuticals… CAPS Rating: **
INO $7.10 Down -0.39 -5.21%
Inovio Pharmaceuti… CAPS Rating: **
SGMO $7.65 Up +0.09 +1.19%
Sangamo Bioscience… CAPS Rating: ***