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3 Horrendous Health-Care Stocks This Week

By Keith Speights – Jan 11, 2014 at 8:00AM

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What were the worst health-care stocks of the week? Merge Healthcare, AMAG Pharmaceuticals, and Aegerion Pharmaceuticals win the dubious honors.

It was a great week overall for health-care investors. Lots of stocks in the sector jumped more than 10%. Unfortunately, the good times didn't roll for everyone. Here are three of the worst-performing health-care stocks of the last week.

Revision collision
Our biggest stock crash over the past few days came from Merge Healthcare (NASDAQ: MRGE). Shares of the health-care software firm dropped almost 14% this week on news that the company had to revise previously announced subscription backlog totals.

Merge reported on Wednesday that a former employee falsified customer contract information. While the issue didn't affect any GAAP financial reporting, the company had to backtrack on subscription backlog numbers provided earlier. More than $15 million in subscriptions backlog announced by the company last quarter was phony -- a drop of 27%.

Things just haven't looked too hot for Merge since August, when the company's earnings came in well below what analysts expected. This latest issue doesn't help matters at all. What Merge really needs is a strong quarter showing solid earnings growth. Few are expecting that kind of improvement anytime soon, though.  

Fears of Feraheme failure
Shares of AMAG Pharmaceuticals (AMAG) fell 13% this week. The sell-off came on the heels of AMAG's announcement about a meeting with the U.S. Food and Drug Administration about the supplemental New Drug Application, or SNDA, for anemia drug Feraheme.

AMAG already markets Feraheme for treatment of iron deficiency anemia, or IDA, in adult patients with chronic kidney disease. The company hopes to gain FDA approval to expand the indication to include all adults with IDA who have failed or cannot tolerate oral iron treatment.

Unfortunately, in the latest round of discussions, the FDA didn't bring up proposed labeling or post-marketing requirements for the expanded indication. That led some investors to worry about the likelihood of failure in winning approval for the broader indication.

Subpoena subtraction
Aegerion Pharmaceuticals
' (NASDAQ: AEGR) stock closed at $73.56 on Jan. 3. This week, though, Aegerion closed at $65.77 -- nearly 11% lower. What caused the subtraction in shareholder value? A subpoena.

On Thursday, the company announced that the U.S. Department of Justice has launched an investigation related to Aegerion's marketing and sales of Juxtapid, which treats rare genetic disease homozygous familial hypercholesterolemia, or HoFH. Aegerion said that it intends to fully cooperate with the investigation.

A warning shot was fired over Aegerion's bow back in November, when the FDA sent a letter to the company about alleged misleading marketing of Juxtapid. The FDA expressed concern about potential improper positioning of the drug as a stand-alone therapy that was safe and effective for reducing cardiovascular events. 

Outlook not so good
Remember the old Magic 8-Balls that had an answer for pretty much any question? If we asked the 8-Ball about any of the stocks on this week's list, my hunch is the answer might be "outlook not so good."

Merge Healthcare has solid technology, but the company just isn't firing on all cylinders right now when it comes to financial performance. AMAG had a nice run in 2013. However, a thumbs-down on Feraheme's broader indication would probably nix the chances of a repeat performance this year.

Aegerion could get past the DOJ investigation and still have a big fight on its hands to succeed. Another drug, Kynamro from Sanofi's (SNY 0.78%) Genzyme unit and Isis Pharmaceuticals (IONS 0.75%), also competes in the HoFH market. Kynamro is still quite expensive at around $176,000 per year, but that's a lot less than the price tag for Juxtapid. 

For now, investors might want to hold off on jumping too heavily into any of these stocks. The situation can change, though. That's why the Magic 8-Ball often gave the sage advice: "Ask again later."

Fool contributor Keith Speights has no position in any stocks mentioned. The Motley Fool recommends Isis Pharmaceuticals. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

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