The phenomenal run of biotech stocks was cut short on Monday after companies like Amgen (NASDAQ:AMGN) and Celladon (NASDAQ:CLDN) reported disappointing news on the development front. This led to a 4.1% decline in the NASDAQ Biotechnology Index. Overall, the U.S. stock market was down.
Biotech major, Amgen’s shares fell 3.3% with the FDA raising concerns about the company’s skin cancer drug, talimogene laherparepvec, in its briefing documents ahead of an FDA advisory panel meeting. In addition to questioning the overall benefit-risk profile of the drug, the FDA said that the biologics license application cannot be considered for an accelerated review at this time.
Development related news holds a lot of importance for biotech companies especially those in the clinical-stage. Considering how important these updates are, Celladon’s shares plummeted 80.7% after the company's lead experimental gene therapy, Mydicar, failed to meet both its primary and secondary endpoints in a phase IIb study for advanced heart failure.
Meanwhile, Biogen (NASDAQ:BIIB) shares also saw some weakness with the company’s first-quarter 2015 earnings falling short of expectations.
The sector has been threatened by pricing pressure ever since Express Scripts (NASDAQ:ESRX) struck an exclusive deal with AbbVie (NYSE:ABBV) for its hepatitis C combo drug, Viekira Pak over Gilead's (NASDAQ:GILD) Sovaldi and Harvoni, in exchange for a significant discount.
Moreover, the entry of the first biosimilar in the U.S. is a looming threat to the sector. Sandoz – a Novartis company (NYSE:NVS) – gained FDA approval for Zarxio, a biosimilar version of Amgen’s blockbuster drug, Neupogen. Several other companies including Hospira (NYSE:HSP) are also looking to introduce biosimilars in the U.S. Biosimilars are expected to directly affect the market for branded biotech drugs.
Meanwhile, the volatility in the sector is expected to continue with several companies yet to announce first-quarter 2015 earnings. Additionally, events, panels and discussions, including updates on clinical trials, drug launches, partnerships and big-time announcements are adding to the heat. So we believe it’s wise to avoid some stocks post Monday’s slump.
How to Pick?
Picking stocks to dump could be a tricky proposition given that there are so many to be avoided. However, with the assistance of our new style score system, one can locate stocks with a red flag.
Our Growth Style Score condenses all the essential metrics from the company’s financial statements to get a true sense of the quality and sustainability of its growth. Our research shows that stocks with Growth Style Scores of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) offer the best investment opportunities in the growth investing space.
Under no circumstance should you buy a stock with a Zacks Rank #4 or #5 coupled with a low Growth Style Score of C, D or F. That means the A-rated stocks are expected to outperform the B-rated stocks; the B-rated stocks are expected to outperform the C-rated stocks; the C’s are expected to outperform the D’s, and the F’s should underperform them all.
Here we have zeroed in on five stocks that are either a Zacks Rank #4 or #5 and have a low Growth Style Score.
Alkermes plc (NASDAQ:ALKS)
Dublin, Ireland-based Alkermes has a diversified product portfolio and a robust pipeline focusing on central nervous system disorders such as addiction, schizophrenia and depression. However, the company has had its share of pipeline setbacks including a decision to discontinue the development of ALKS 7106 (pain) when it failed to meet the company’s pre-specified criteria to enter phase II studies. Alkermes’ fourth-quarter 2014 earnings also declined from the year-ago period.
Moreover, this Zacks Rank #4 stock has seen its current year estimate widening to a loss of $1.03 per share over the last 60 days. Alkermes currently has a Growth Style Score of D and will be reporting first quarter 2015 results on Apr 30.
Arena Pharmaceuticals, Inc. (TA:ARNA)
San Diego, CA-based Arena focuses on the discovery, development and commercialization of drugs targeting unmet medical needs. The company’s only approved product is obesity treatment, Belviq. Belviq sales are yet to pick up and competition in the obesity market is heating up with the approval of treatments like Saxenda and Contrave. Arena’s fourth quarter results were also disappointing with the company reporting a wider-than-expected loss and revenues lagging expectations.
Arena has seen its current year estimate widening to a loss of 56 cents per share over the last 60 days. The company currently has a Zacks Rank #5 and a Growth Style Score of F.
Clovis Oncology, Inc. (NASDAQ:CLVS)
Clovis is a clinical stage biopharmaceutical company focused on acquiring, developing and commercializing innovative anti-cancer agents in the U.S., Europe and additional international markets. Being a clinical stage company, it runs a high risk of pipeline and regulatory related setbacks.
Clovis’ fourth-quarter loss was wider than expected and this Corolado-based company has seen its current year estimate widening to a loss of $7.55 per share over the last 60 days. It also carries a Zacks Rank #4 with a Growth Style Score of F. The company is scheduled to report first quarter 2015 results on May 6.
Kythera Biopharmaceuticals, Inc. (NASDAQ:KYTH)
Kythera is a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel prescription products for the aesthetic medicine market. The company’s double chin drug ATX-101 is currently under FDA review with a response expected by May 13.
Kythera’s fourth quarter loss was wider than expected and the company expects to see higher operating expenses this year.
This Westlake Lake, CA-based based company has seen its current year estimate widening to a loss of $4.26 per share over the last 60 days. The company currently has a Zacks Rank #4 and a Growth Style Score of F.
Argos Therapeutics, Inc. (NASDAQ:ARGS)
Durham, NC-based Argos Therapeutics is a development stage biopharmaceutical company focused on the development and commercialization of fully personalized immunotherapies for the treatment of cancer utilizing its proprietary technology platform, Arcelis. Argos does not have any approved product in its portfolio.
Argos’ fourth quarter loss was also wider than expected. The company has seen its current year estimate widening to a loss of $3.15 per share over the last 60 days. Argos currently has a Zacks Rank #4 and a Growth Style Score of C.