Earnings season continued to be in high gear this week. Positive quarterly results helped propel several biotech stocks higher over the last few days. Others jumped because of good news for their pipelines.
Three biotech stocks that especially soared this week were Nektar Therapeutics (NASDAQ:NKTR), Sage Therapeutics (NASDAQ:SAGE), and Valeant Pharmaceuticals (NYSE:BHC). Here's what lit a fire under these stocks -- and, more importantly, whether they're smart picks for investors after the huge gains.
Nektar Therapeutics: How sweet it is
Nektar Therapeutics stock skyrocketed nearly 40% this week. The big catalyst for Nektar was its announcement of third-quarter results on Tuesday after the market closed. Nektar's share price was already up prior to the announcement, and spiked even more on Wednesday.
There were two key items of note in Nektar's third-quarter update. One was the recognition of $127.6 million in revenue from Eli Lilly & Co. (NYSE:LLY), which represented a big chunk of the $150 million up-front payment for the development and commercialization of autoimmune disease drug NKTR-358. The other was that Nektar announced plans to submit a New Drug Application (NDA) for experimental pain drug NKTR-181 by April 2018.
Both of these developments underscore nice tailwinds for Nektar. The biotech continues to attract partnership interest from major pharma companies like Lilly. Eight of the 12 clinical programs in Nektar's pipeline have partners. Nektar is also on the verge of reaping the rewards from its pipeline, as the planned NDA for NKTR-181 indicates.
Sage Therapeutics: Antidepressing news
Sage Therapeutics stock jumped around 40% higher this week. On Thursday, the biopharmaceutical company announced positive results from two late-stage clinical studies of brexanolone in treating postpartum depression (PPD). The news turbocharged Sage's share price as well as the stock of Marinus Pharmaceuticals, which is developing a drug similar to brexanolone.
It was especially encouraging for investors that brexanolone achieved the primary endpoints in both of Sage's late-stage studies targeting PPD. Sage had announced in September disappointing results from a late-stage study evaluating the drug in treating super-refractory status epilepticus.
The company now plans to submit for U.S. regulatory approval of brexanolone in the PDD indication next year. These positive results could also bode well for Sage with its mid-stage studies evaluating another pipeline candidate, SAGE-217, in treating other neurological conditions.
Valeant Pharmaceuticals: Reduced debt, reduced worries
Valeant Pharmaceuticals stock vaulted 35% higher after languishing for much of 2017. The drugmaker announced its third-quarter results on Tuesday, and even posted a huge profit.
That profit came with an asterisk: Valeant enjoyed a one-time tax benefit of $1.7 billion. Without this tax benefit, Valeant's bottom line would have looked worse than the prior-year period. So why were investors so excited? The company continues to make significant progress in reducing its debt. Between the first quarter of 2016 and early November 2017, Valeant cut its debt by $6 billion.
The challenge for Valeant is that it will eventually run out of non-core assets to sell to lower the debt. The company hopes that new product launches, including the introduction of psoriasis drug Siliq earlier this year, will help it return to growth.
Are they buys?
I think both Nektar and Sage have pretty good chances of winning Food and Drug Administration approval for their drugs. I also think that Valeant will be able to continue reducing its debt through divestitures.
However, despite the huge week each of these three stocks enjoyed, they all carry significant risks. Nektar continues to lose increasingly more money. I don't see that drop tapering off anytime soon. My view is that an approval for brexanolone is now largely baked into the stock price for Sage. As for Valeant, it still has big problems, not only with its debt but also with declining sales for products that have lost exclusivity.
Any or all of these three stocks could perform well through the end of 2017 and into next year. I think, though, that there are alternatives with more attractive risk-reward profiles that investors would be better off buying.