When Santa asked me this year whether I was good, I had to admit “not all the time.”
That’s because, in looking back at the stories I wrote in 2011, it’s obvious I often was too optimistic in my coverage of health care companies. When reporting on news and developments, it’s my responsibility to provide better balance to the comments from company executives who (not surprisingly) too often view their organizations’ investment prospects through rose-colored glasses. So this writer is making a New Year’s resolution to be a more scrutinizing Scrooge in 2012. Next year, I pledge to search for — and report — the opinions of those who might take a more critical view of company developments to achieve more evenhanded coverage and better serve our readers.
Now that’s not to say I didn’t have some winners in 2011. I point with pride to my Aug. 10 piece about Celgene (NASDAQ:CELG) titled “Is it Time to Join CEO and Jump on Celgene Shares?”
One good reason cited was the purchase of 10,000 shares by Bob Hugin, CEO of the San Diego-based biotechnology company. His purchase price was $52.70. Based on Monday’s closing price of $64.58, Hugin’s four-month profit on his investment is a nifty $119,000, or nearly 23%. Over the same period, the iShares NASDAQ Biotechnology Index Fund (NASDAQ:IBB) was up about only 17%.
Other reasons for a possible run-up in Celgene shares included:
- The company’s stock had been hit hard prior to the Aug. 10 article, declining 15% in the previous 30 days.
- Celgene had upped its guidance for 2011 and was selling at a relatively reasonable price-to-earnings ratio of 15.
- Sales of its best-selling cancer treatment Revlimid were up 35% in the second quarter, and the company had some promising drugs in its pipeline.
That’s the good. The bad and ugly were combined in my assessment of gene-sequencing company Illumina (NASDAQ:ILMN). In the April 27 article “Illumina Leads Race for Gene-Sequencing Payday,” I reported that one analyst likened the company to Apple (NASDAQ:AAPL) for the ability to replace its products before they became stale.
The absurdity of that statement is illustrated by the performance of the two companies’ shares since that date. Apple is up 10%, while Illumina shareholders have seen the value of their investment tumble nearly 62%. Ouch!
I suggested there were many reasons to like the company, including:
- The planned summer rollout of a compact, less costly personal sequencing system known as MiSeq.
- A 2010 sales gain of 45% and an increase in operating profit of more than 36%, along with a projected revenue increase of 20% in 2011.
What we didn’t foresee for Illumina was a third quarter that came in below market estimates and a $15 million to $17 million restructuring plan. It was implemented because of concerns about reduced research funding by government and academic institutions as well as a soft global economy.
Guess that P/E of 80 at the time of the story should have been a red flag, too, huh?
But I’m not disheartened. As a lifelong Chicago Cubs fan, there’s always next year!
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As of this writing, Barry Cohen did not hold a position in any of the aforementioned securities.