Despite a slower, but still steady stream of earnings reports, ongoing merger and acquisition rumors in the pharmaceutical sector, and mixed economic data, investors decided today would be the day to push the broad-based S&P 500 (^GSPC +0.77%) lower and lock in some profits.
On the economic data front, the weekly Mortgage Bankers Associations' loan originations report showed a welcome 3.6% increase in refinancing and new mortgage loan activity, which builds on the 5.3% gain noted in the prior week. Overall loan originations are still well off their highs set a year ago, but it's encouraging with lending rates still near historic lows to see consumers taking advantage of these rates rather than sitting on the sidelines.
On the other hand, for a second straight month the Producer Price Index jumped notably, this time by 0.6%, which was well ahead of economists' forecasts. There's a tight line to walk when it comes to inflation in that we want to see prices moving higher as it demonstrates increasing demand. However, we also don't want to see prices surging, either, as it could cause consumers to spend less. Since consumer spending is such a vital component to U.S. GDP, a 0.5% gain in the PPI in March followed by a 0.6% gain in the PPI in April has to have investors wondering if a number of price hikes are on their way to consumers.
By days end the S&P 500 had retraced 8.92 points (0.47%), its worst one-day loss in more than a week, and closed at 1,888.53. Despite the move lower, three companies from the biotech sector helped lead optimists to higher ground.
Leading all companies to the upside today was clinical-stage biopharmaceutical company bluebird bio (BLUE +0.00%), which soared 27.3% after it reported its first-quarter results. For the quarter revenue soared to $6.3 million from $1.1 million in the year-ago quarter as its expenses more than doubled to $17 million and its loss swelled 63% to $10.5 million, or $0.44 per share. By comparison, Wall Street was expecting a narrower loss of just $0.32 per share.
But, it wasn't the details of its loss that got shareholders excited so much as the company's pipeline update which included the announcement that it expects to report initial clinical results in its beta-thalassemia major study (HGB-205) utilizing LentiGlobin at the European Hematology Association Congress next month. Investors are clearly pleased with the reporting timetable and are assuming based on the venue that the data has thus far been good – thus the share price shooting so much higher. As for me, I'd still suggest holstering that optimism until we see the upcoming data, but I'd have no qualms about you adding bluebird bio to your watchlist.
Source: Alan Dean, Flickr.
Trailing not too far behind bluebird bio was Celldex Therapeutics (CLDX 0.18%) which shot higher by 26.9% after announcing a clinical trial collaboration with Bristol-Myers Squibb (BMY +0.66%). Under the terms of the agreement Bristol-Myers will pay Celldex $5 million upfront and the two will collaborate on multiple solid tumor phase 1/2 cancer studies utilizing Celldex's investigational CD-27-targeting antibody varlilumab, and Bristol-Myers' prized experimental anti-PD-1 inhibitor nivolumab. These studies are expected to start by the fourth-quarter of this year.
The deal itself is critical for Celldex in that if the combination therapy is successful it will have landed an experienced marketing partner. Yet, I'd also like to remind investors that Celldex's current valuation of $1.4 billion is extremely lofty considering that it's entirely clinical-stage. There are phase 3 studies worth watching, but until Celldex has an FDA approval under its belt it's probably not worth your investing money based on its current valuation.
Finally, shares of clinical-stage biopharmaceutical (noticing a trend today?) MannKind (MNKD +0.31%) took one giant leap higher, gaining 6.5%, after research firm Piper Jaffray upgraded the company to neutral from underweight and boosted its price target to $6.50 from $2.
Next-generation Dreamboat inhaler. Source: MannKind.
The reasoning behind the upgrade was MannKind's confidence that inhaled diabetes therapy Afrezza will be approved by the Food and Drug Administration on or before its July 15 PDUFA decision date, and that the company may be getting close to finding a marketing partner. While the upgrade was probably overdue given Piper Jaffray's out-of-date price target, I still find plenty of reasons to be skeptical with MannKind's cash pile shrinking and the company still searching for a marketing partner after all these years. With execution risk a viable concern as well I believe investors have more than enough reason to stick to the sidelines in the meantime.
