The European elections set off delayed market reactions as the EU begins to come unglued. The elevation again of a socialist to the French presidency and gains made by neo-Nazis in Greece show there is no political will for the austerity measures needed to return the countries to a firmer financial footing. The euro may crumble or Greece may exit the union, or both.
While the stocks below strapped on rocket packs and went even higher, resist the urge to high-five everyone in the cubicles next to you. Smart investors won't celebrate until they know why their stock surged. Without a fundamental basis for the bounce, these stocks can quickly make the return trip down.
Fit or fat?
Yesterday investors in Arena Pharmaceuticals
Although there were many positive indicators, there's still a lot of concern as well over side effects, and even if the FDA panel approves the drug tomorrow, there's nothing to suggest that the full regulatory agency will follow suit.
In the past I've avoided making a CAPSCall on these biotechs because the FDA is so capricious in its decisions, but the euphoria gripping the market for these stocks -- Arena's up 83% year to date -- has me believing its investors will be in for a rude awakening. The Fool's biotech guru Brian Orelli agrees with me (or I agree with him) and suggests Arena hasn't "satisfied the FDA's safety concerns."
Add the biotech to the Fool's free portfolio tracker and tell me in the comments section below or on the Arena Pharmaceuticals CAPS page if you think as I do that the FDA's not ready to assume the risks associated with a new fat-loss drug.
A meal fit for a king
It wasn't a drug approval that sent shares of Savient Pharmaceuticals
Savient's stock tumbled the other day when Tang Capital Partners, which owns some $39 million worth of debt, accused the biotech of being insolvent and asked a judge to appoint a receiver. Tang wanted the courts to prohibit any financing deal to be enjoined as well as to stop any bonuses from being paid to management. The judge, however, refused Tang's request for the restraining order, and Savient said it will now be able to raise about $44 million and extend maturity on half of its debt.
The biotech reported earnings this morning too that underscored the troubles Tang highlighted. The investment fund accused Savient of having "no reasonable prospect of continuing its business successfully" because doctors are leery of prescribing its gout treatment Krystexxa as it can lead to "extremely severe adverse reactions," including allergic anaphylaxis, which Savient noted in filings with the SEC.
Sales in the first quarter were just $3.1 million, barely higher than the $3.0 million it sold in the fourth quarter. Losses also widened to $0.49 per share, worse than the $0.46 loss analysts were expecting as costs of trying to sell Krystexxa soared.
Savient tried to sell itself one time before without success, perhaps realizing how difficult it would be to go it alone. Although other drugmakers like Abbott Labs or Merck could find Savient a natural fit since they also sell anti-inflammatory treatments, none was willing to take the bait.
Going into orbit
These two companies may have divergent futures despite their short-term bounce, so check out for free the one stock The Motley Fool thinks will break all the rules to win. Hurry though, because the free look at the new report, "Discover the Next Rule-Breaking Multibagger," is available for a limited time only.
Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Abbott Laboratories. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.