Last month was another lousy one for the market. The Nasdaq Composite slipped 2.8% in October, logging its third consecutive monthly loss.
Not every Nasdaq-listed ticker suffered an October swoon, however. Indeed, a handful of the Nasdaq's names dished out enormous gains last month that are worth a closer look. Perhaps this newfound bullishness is built to last. Or maybe it isn't.
Either way, see if you notice the common thread among the exchange's strongest October performers.
Why they're the best of the best
Just for the sake of weeding out the Nasdaq's stocks too small or too volatile for most investors to consider, we'll limit our look to just Nasdaq-listed names with market capitalizations above $2 billion. This still leaves us with some impressively big winners.
Structure Therapeutics (GPCR -0.10%) is one of them. Shares of the biopharma outfit made steady and sizable forward progress all month long, ending last month with a gain of 47%. Making this advance all the more impressive is that it adds to the late-September surge of 70% following a promising update on its GSBR-1290 as an obesity treatment.
While one-day gains like these don't often see much follow-through, this one did largely because the drug in question is similar to Novo Nordisk's popular diabetes treatment Ozempic, as well as its weight-loss drug Wegovy. The premise of such a simple solution to obesity has been a particularly hot button for investors of late, further fueled by the hope that Eli Lilly's diabetes treatment Mounjaro will soon be approved as yet another weight-loss option. The mania is putting all biopharma companies that are working on such drugs into the spotlight.
Shares of fellow biopharma outfit ImmunityBio (IBRX 43.84%) fared even better last month, rallying nearly 90% after the company announced it had resubmitted its N-803 drug to the U.S. Food and Drug Administration for potential approval. The bladder cancer treatment wasn't outright rejected following ImmunityBio's first request. The regulatory agency did have official questions about the drug and its trial, though. The resubmission addresses these concerns. Investors are celebrating because the development possibly puts the biopharma company one step closer to its first-ever FDA-approved drug.
That being said, know that the company has a handful of other drug trials underway, including two others in the final stage of their testing.
Last but not least, Sweden's Olink Holding AB (OLK -1.00%) gained 69% in October after scientific equipment maker Thermo Fisher announced plans to acquire the smaller company at $26 per share. Assuming the deal goes through, Thermo Fisher will win access to Olink's proteomics discovery and development know-how, which is used by biopharmaceutical companies to better understand a disease's particular proteins. Thermo Fisher has the financial wherewithal to see the acquisition through.
The question remains, however: Are any (or all) of these hot Nasdaq stocks still worth buying?
Reality checks
The answer to the question for at least one of these names is simple enough: Olink isn't worth buying, not because it's a poor company but because there's little point in buying it now. Thermo Fisher has given Olink's shareholders its best possible price. They'll likely accept the generous offer.
As for ImmunityBio and Structure Therapeutics, however, things get a bit more philosophical -- and a lot more complicated.
In a normal market environment, it's usually not wrong to buy stocks making new 52-week highs since they'll very likely keep moving higher. There are limits, however. Gains of 47% and 90% test them.
Take Structure Therapeutics, for instance. Although the resubmission of its request for approval of GSBR-1290 as an obesity drug is an exciting step forward, there's no assurance it will actually get the regulatory green light from the FDA. And even if the therapy is approved, Structure Therapeutics is competing with far-better-established companies on this front, with at least two other comparable drugs already waiting in the wings. Investors are not only pricing Structure Therapeutics shares as if the FDA will approve GSBR-1290 but that the drug will then be competitive. That's an awfully big risk.
ImmunityBio's situation is very similar. That is, while N-803 shows enough promise as a treatment for some forms of BCG-unresponsive bladder cancer, to satisfy the FDA it must be just as effective at treating the disease as the several other treatments already on the market. That's a rather tall order, especially given that the agency has already raised questions about this drug's efficacy and development. Like GSBR-1290, there's certainly no guarantee that N-803 will win the FDA's approval. Also, keep in mind the drug's intended market is only a very narrow sliver of the bladder cancer part of the oncology market. Even if greenlighted, immediate revenue opportunities remain limited.
There's an even bigger takeaway here, too. That's the nature of these particular stocks and their underlying businesses.
Having seen big bullish surprises from the biopharma industry in the past, investors may be proactively hunting for -- or perhaps just hoping for -- another one. They'll even buy its most-storied stocks without weighing their plausible odds of success or their potential gains, even if these companies' research and development works out. That's risky simply because things can stop and turn on a dime in the biopharma business.
Bottom line? Either or both of these stocks might continue to climb. The bulk of October's gains, however, are founded on speculation rather than fundamentals or even well-reasoned hope. That's too dangerous for most people's portfolios. Such a tailwind can stop blowing without any warning. All it takes is the wrong headline or a simple loss of interest. Most investors don't need or even want that kind of unpredictable drama.
Handle biopharma stocks with care
This might put things in perspective. According to data from industry news venue BioSpace, 28 biotech companies have declared bankruptcy so far this year. That's the biggest annual number in the past decade (which includes a couple of years' worth of the COVID-19 pandemic).
At one point, all 28 of these companies and their products were seen as promising enough to at least secure start-up funding. Now, they're essentially worthless.
Connect the dots. The biopharma industry serves up lots of bullish stories to investors. Not all of them have the happy endings they're expected to.