Biotech stocks have been in near free-fall the past month, with the iShares Nasdaq Biotechnology Index (NASDAQ:IBB) dropping a noteworthy 15.4%. While this could be part of a general market correction, such a dramatic decline may indicate deeper issues with particular stocks or the economy at large. By contrast, large declines such as the one we are experiencing might be creating some compelling buying opportunities, especially among stocks leading the way down. With that in mind, here's a look at the three worst performing biotech stocks over the past week, namely Puma Biotechnology (NASDAQ:PBYI), MacroGenics (NASDAQ:MGNX) and Aratana Therapeutics (NASDAQ:PETX).
Puma races to the bottom
Puma Biotechnology takes the dubious honor of the industry's worst performing stock last week, with its 28.4% drop. Puma shares have now fallen over 34% this quarter after gaining more than 170% in the past year. The good news is that there is no bad news behind this drop. At the American Association for Cancer Research meeting in San Diego a week ago, the company reported that its experimental breast cancer drug neratinib showed a clinical benefit compared with Roche's megablockbuster Herceptin. Specifically, Puma reported that 55.6% of women responded to treatment with neratinib, compared with only 32.6% receiving Herceptin. Puma also reported that a Bayesian simulation suggested that the drug is likely to perform well in a late-stage trial.
So why did shares plummet? My view is that Puma is a victim of the sectorwide downturn that is hitting developmental-stage companies the hardest. Before Puma's recent dive, the company sported a $3 billion market cap based purely on neratinib's potential. As the drug won't be ready for a regulatory filing for another two to three years, I think the market may have gotten ahead of itself with Puma's valuation, which the market appears keen on remedying in short order. So you may want to sit on the sidelines for now with this clinical-stage biotech.
MacroGenics on the downward spiral
Not far behind Puma in last week's cliff dive is MacroGenics, falling 21.8% for the week. Like Puma, MacroGenics is a clinical-stage company lacking significant revenue from a commercial product. Although the company reported positive preclinical data for its experimental colorectal cancer treatment MGD007 at the AACR meeting as well, shares still fell on unusually high volume. Again, the lack of a negative catalyst is telling, making me believe MacroGenics is falling mostly because the market is shying away from biotechs lacking a revenue stream. As the company is expecting to advance its gastroesophageal cancer drug into a late-stage trial later this year and has a particular active clinical program, a secondary offering isn't out of the question in the near term. Put simply, I think you want to take a flier on MacroGenics for the time being.
Aratana keeps falling
Aratana continued its quarter-long decline last week, dropping another 19.7%. Like its predecessors, Aratana doesn't have a clear-cut catalyst to blame this weakness on. Instead, I think the market simply isn't in the mood for all the uncertainty surrounding transitional-stage companies like Aratana. Specifically, Aratana was a developmental-stage pet therapeutics company until last year, when it went public to acquire other companies with commercially available products. What's key to understand is that we haven't seen the net effect of these acquisitions on Aratana's top-line growth yet, but we should see them reflected in next quarter's earnings report. Until then, the market seems content on viewing Aratana as a clinical-stage company with a lack of significant revenue.
What's interesting about the industry's top three decliners last week is that they are all early on in their life cycles. Puma and MacroGenics, for instance, are years away from producing a commercial product, and Arantana is only now entering the commercial stage through its recent acquisitions. In my view, the market has decided, albeit somewhat suddenly, that it now wants actual revenue, not projections or estimations. Keeping that in mind, you might want to consider more long-lived companies offering dividends during these turbulent times. Indeed, the high-water mark of speculative biotechs appears to have occurred.