We’re bullish on healthcare and biotech.
But that doesn’t mean all healthcare and biotech stocks are worth buying.
Pharmaceuticals and medical devices are big business, but the ground is shifting. Big pharma is losing ground because national healthcare systems aren’t willing to shell out for expensive name-brand drugs. And many of those drugs are coming off patent soon, with no replacements on the horizon.
Biotech and device makers are spending like crazy to get some traction, but drug trials are expensive and breaking into the device market isn’t as easy as it would seem. Also, biotechs that could have hoped for big pharma suitors when the market was hot, have seen it cool, along with buyout prospects.
These seven healthcare dogs are mid-cap to large-cap players in the healthcare space. They have great stories, but very difficult futures ahead.
Some may be worth buying at some point, just not now.
7 Healthcare Stocks to Kick to the Curb: AstraZeneca (AZN)
AstraZeneca (AZN) is the second-largest U.K. pharmaceutical company and is in a world of trouble. Not only are many of its drugs coming off patent in coming years, but its drug pipeline is not coming up with replacements.
To make things worse, the company’s chief medical officer quit earlier this month. Briggs Morrison had been brought in three years ago specifically to help AZN develop new drugs and had been highly successful in his brief tenure. His abrupt departure is a very bad sign.
Sales peaked in 2011 and have been on the decline since then. Losing the man who has been working on a turnaround — a doing a pretty good job at it — does not bode well for getting the pipeline back in working order.
The stock is off 11% in the past year and even its 5.7% dividend doesn’t help swallow that bitter pill. Many big drug companies are having a hard time with the same pipeline challenge, as well as many countries looking to generics to save money on healthcare costs.
7 Healthcare Stocks to Kick to the Curb: Galena Biopharma (GALE)
Galena Biopharma (GALE) is the smallest stock in the list but it has been in the headlines for the past year both for good and bad reasons.
The good: In May it released two very encouraging results for its hopeful immunotherapy candidates GALE-301 for ovarian and endometrial cancers, and NeuVax, for breast cancer. The studies show both performed well in their respective studies and have driven the price of the stock up, because the entire value of the company is based on these drugs, especially NeuVax, which is in Phase III trials.
But then the bad: CEO Mark Ahn was fired 10 months ago for questionable dealings with a third-party stock promoter and GALE’s cash position is not very strong. That’s a big deal for a company that’s banking on getting drugs through expensive drug trials. And if for some reason the drugs don’t get approval, it’s going to really slam the stock.
GALE stock is way more risk than reward at this point.
7 Healthcare Stocks to Kick to the Curb: Grifols (GRFS)
Grifols (GRFS) is one of the top three blood plasma companies in the U.S. and Europe. And while that would seem to be a strong position in a market with a high barrier to entry, the problem is the Affordable Care Act will likely create some serious issues with its margins in coming years.
To counter this, GRFS has been one of the first in the sector to look for the “elixir of life” treatment to rejuvenate blood. It has recently taken a significant position in Alkahest, a company that specializes in young plasma-based therapies. The goal is to use “young” blood to replace “old” blood to treat everything from diabetes to Alzheimer’s.
It’s certainly an intriguing possibility but any payoff is a long way away. And in the meantime, GRFS is going to have to make do with a lock in a slow growth sector.
All seven brokerages that follow the firm rate the stock a hold and five of seven analysts rate it similarly. Don’t fight the tape.
7 Healthcare Stocks to Kick to the Curb: Insulet (PODD)
Insulet (PODD) is the perfect example of a medical technology company that seems to have it all but doesn’t seem to ever get it off the ground.
The company has been public since 2007 and has a great product — in theory. It sells a wireless insulin pump that diabetics can wear discreetly and control with a device the size of a smartphone.
Called the OmniPod, it was the next wave in insulin pump design. But almost eight years later, the company has yet to turn a profit and its most recent earnings were dismal, to say the least.
This company is still trying to cross the Valley of Death and it only has a couple sips of water left. And even if someone wants to buy the tech, they will wait and take if off the corpse, not come in and buy at a premium.
7 Healthcare Stocks to Kick to the Curb: Keryx Biopharmceuticals (KERX)
Keryx Biopharmaceuticals (KERX) has just announced some very good news. Its lead — and only — product Auryxia has just been added to two major insurers’ Part D Medicare fomularies. That means insurers will now begin to cover the cost of Auryxia for patients with chronic kidney disease on dialysis.
That will certainly help the company expand its use for patients with renal disease.
But behind the story is something that could be extremely troubling. KERX may be facing an FDA warning letter over how it’s been marketing Auryxia off label. It claims the drug will provide and “iron benefit” and a cost savings that other treatments don’t. The problem is, those claims haven’t been cleared by the FDA.
If a warning letter is issued, KERX could end up in the crosshairs of FDA and DOJ investigations, which would seriously hurt the stock. It may not spell the end of the company, but it will certainly have some bad consequences for the stock.
7 Healthcare Stocks to Kick to the Curb: MannKind (MNKD)
MannKind (MNKD) is are real head versus heart story. It’s one of those biotechs you are rooting for; it’s just not worth investing in.
Its only product is Afrezza, an inhalable insulin for diabetics. This is certainly revolutionary and if it works — and sells — as expected could be a major game changer. A rise in diabetes in the U.S. means an growing number of insulin users, so it’s certainly a major growth market. And the ease of using an inhaler versus an injection is a no-brainer.
Also, the inhaler technology is proprietary to MNKD, so it could theoretically convert other injectibles into inhalables. That’s the heart side.
The head side of this is ominous. About half the stock is being shorted — that’s an enormous amount. The stock has been bouncing all over the place, with volatility increasing and with a short position that size, it is bound to stay volatile. And sales of Afrezza are slower than expected because it doesn’t seem that doctors are opting for the new delivery option as much as had been expected.
There will be plenty of time to chase your heart on this one. For now, listen to your head and stay away.
7 Healthcare Stocks to Kick to the Curb: Ironwood Pharmaceuticals (IRWD)
Ironwood Pharmaceuticals (IRWD) has pioneered Linzess, a drug to treat irritable bowel syndrom and chronic constipation with a new, proprietary agent.
But last week Synergy Pharmaceuticals (SGYP) announced successful Phase III results for its competitive drug. That may well add competitive pressure and lower revenue and margins when that drug is released.
IRWD also just issued $300 million in convertible bonds to grow the business. But it doesn’t have anything in the pipeline at the moment, so Linzess is going to be the engine that drives the company. The question is, can it pull the original load plus an extra $300 million?
Given these developments, it’s no surprise short interest is up to 18% on the stock. There are some short- and long-term challenges ahead for this biotech — with limited opportunities.
Perhaps IRWD will acquire another firm with a decent, complementary drug to add to revenue. Regardless, things are going to be tough in coming quarters.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.