Biotechs tend to shoot up so much after successful binary events that it may seem like buying them on sales isn't all that important. But if you can purchase the stock while the pessimism has reached a climax, you can increase your returns if things go well and add in a margin of safety if things don't go as planned.
I ran a screen for drug companies trading at least 50% below their 52-week high. I eliminated the companies with market caps below $200 million, because most of the stuff on the clearance rack is junk. We're looking for quality companies on sale.
Here are five I think are worth a closer look.
The failed launch
At least three companies from the screen are there because their drug launches didn't live up to expectations.
The FDA approved Dendreon's
But when the plants were built and the original plant expanded, Dendreon couldn't hit its goal of full-year revenue of $350 million to $400 million, with half of that coming in the fourth quarter. The company believes this isn't an issue of demand so much as a payment problem, given the high cost that doctors have to pay and then be reimbursed by insurers and Medicare for.
Human Genome Sciences
Other drug-less biotechs have been knocked down because waiting for their drug launches is apparently too much to ask of short-term-thinking investors.
I've had a bearish CAPScall on Vertex Pharmaceuticals
The drop seems a little ridiculous considering how well the launch of Incivek is going. It's true there's plenty of competition in the hepatitis C space, and early data for drugs in the competitors' pipelines suggests that Vertex won't hold its front-runner status for more than a couple of years. But Vertex has other drugs -- a cystic fibrosis drug that's already under review by the FDA -- and it's not going down without a fight in the hepatitis C market.
I'm going to switch my CAPScall on Vertex. I'm not sure whether Vertex has bottomed -- that's a hard call to make -- but it's certainly looking more appetizing at these knocked-down prices.
You can add all seven drugs to your watchlist to keep track of our Foolish musings on these companies: