With markets dropping-and-popping this month investors are right to wonder whether rising volatility means that it's a good time to be moving out of high flying stocks. But just because a stock is hitting new highs doesn't mean that it isn't a great company that investors should hold onto for the long haul. So we asked three of our top analysts to tell us which companies they think may not deserve lofty prices. Read on to learn which three companies they picked.
Merrimack's success this year stems from anticipated FDA approval for MM-398, a second-line pancreatic cancer drug that can be used alongside chemotherapy to extend overall survival. While pancreatic cancer is a deadly disease with few treatment options, there are simply too many questions regarding peak sales for me to be on board with buying Merrimack here.
In my opinion, Merrimack's $900 million market cap fairly values the potential for MM-398, which -- if approved -- will be marketed by Baxter (NYSE:BAX). Decision Resources pegs the total market for pancreatic cancer at about $700 million and since MM-398 will be used after patients are treated with generic gemzar, Celgene's (NASDAQ:CELG) Abraxane, and Roche's (NASDAQOTH:RHHBY) Tarceva, MM-398's sales potential will likely be far less than these others. Since peak sales for Gemzar (prior to going generic) were about $700 million, and MM-398 is likely to fall far short of that, the company will need to prove that it can do better before I get interested in it.
George Budwell : Shares of the small-cap biotech SciClone Pharmaceuticals, (NASDAQ:SCLN) have remained stubbornly resistant to this widespread downturn. I wouldn't take that as a sign that this stock will push higher, though.
SciClone is somewhat of an oddball biopharma. Instead of developing drugs for the lucrative U.S. market, SciClone has decided to focus mainly on China. Besides having growth on its side, China offers Western companies the advantage of a less rigorous regulatory process. SciClone, for instance, has been able to gain key approvals for its flagship drug Zadaxin, and more recently its tumor embolization product, DC Bead, in China.
This combination of relaxed regulatory standards, new product approvals, and high growth potential has nonetheless failed to translate into an improving top-line for SciClone. Over the past three years, SciClone is on track to grow revenue by exactly 0%. The company also states that its key competitive advantage is its "high-quality Western manufacturing." With an unpredictable communist regime that often unfairly favors domestic entities, this "advantage" could turn into a weakness in the blink of an eye. In short, this stock looks too risky to hold after its huge run-up this year.
Sean Williams: Finding biotech stocks near their 52-week high isn't as easy these days as it was a month ago with the S&P 500 well off its all-time high. However, the recent run-up in predominantly clinical-stage biopharmaceutical company BioCryst Pharmaceuticals (NASDAQ:BCRX) serves as the perfect example of a hype that should be sold.
Why has BioCryst exploded higher? Blame it on the Ebola craze which is sweeping the nation. From hazmat suit makers to potential Ebola vaccine developers if you say the word "Ebola" right now your stock soars – and that has all the makings of a bubble.
To begin with, BioCryst received $4 million from the National Institute of Allergy and Infectious Disease in mid-September to accelerate the development of BCX4430 as a possible cure for Ebola. Keep in mind this funding doesn't mean the experimental drug is anywhere near the testing phase. This is merely a broad-spectrum antiviral drug in preclinical studies that could be many, many months away from human trials. In the meantime, GlaxoSmithKline (NYSE:GSK) has already begun clinical trials for its hopeful Ebola vaccine with no less than one-half dozen other companies also getting ready to follow suit. In other words, BioCryst is toward the end of the pecking order and it's likely to get left behind.
The other point to consider here is that BioCryst's chances of turning a profit anytime soon are next to nothing, in spite of the possibility for its flu vaccine peramivir to be approved in the U.S. When the market is plunging the last thing investors want to do is take risks on predominantly clinical-stage biotech stocks that are burning through their remaining cash.
So if I owned the stock, I'd take this recent price swing higher and head for the exits.
Todd is long Celgene. George and Sean don't have positions in the companies mentioned. The Motley Fool recommends Baxter International and Celgene. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.