According to military archives, the life expectancy of a U.S. Army platoon leader during the Vietnam War was two weeks. That harsh statistic in many ways could apply to the volatility of biotech stocks.
Often hanging on the whim of a single-product pipeline, it’s a feast-or-famine world for mid-level biotechs. A successful launch of a medical therapy could net fortunes. On the other hand, disaster is only a clinical review away.
First and foremost, biotechs are a different animal from most other financial securities. By the default nature of their “all eggs in one basket” approach, traditional stock analysis may not be so effective.
Fundamentals? You can do a deep dive into the books, but all too often, biotech stocks are about survival until their big — and hopefully positive — announcement. By the same logic, technical analysis should be used with a dose of caution.
It then wouldn’t be too much of a stretch to say that biotechs are incredibly capricious. News that would otherwise clip an inch from the top of a blue chip could potentially cripple biotech stocks.
Not helping matters is the fact that they attract the daytraders and speculators who may not understand the science, and are only in it for the quick buck. If their patience wears thin, so too does the market value for affected biotech stocks.
But if you can stomach the risk, the sector does have tremendous profitability potential. Filtering out the hopeless losers can really enhance your odds.
Here are three biotech stocks that have been knocked down, but are still in the fight.
Battered Biotechs to Buy: Novavax (NVAX)
Click to Enlarge Novavax, Inc. (NASDAQ:NVAX) is easily going to go down as one of the biggest losers among biotechs in 2016. In just a single day, NVAX stock dropped 85% off a disappointing late-stage clinical trial.
The devastation was such that it brought out the dark humorists. Renowned Wall Street guru Dennis Gartman commented coldly that NVAX stock investors won’t be able to send “junior” to college.
While I wouldn’t want the karma that comes from schadenfreude, there’s no mistaking that this was a tough pill to swallow. But the question becomes, was the fallout in NVAX stock justified?
Investors clearly panicked over the Phase 3 results of Resolve — Novavax’s proposed vaccine for respiratory syncytial virus (RSV). The disappointment was twofold. First, the latest test revealed that Resolve was no more effective than placebo. Second, the prior Phase 2 trial was very promising, and expectations were raised. Exacerbating the situation is that Resolve is the company pipeline’s flagship product. People saw the writing on the wall, and dumped out of NVAX stock as quickly as they could.
However, that argument ignores the other products in the pipeline that are making progress. One should especially look at Novavax’s emerging viruses division, which includes research on ebola and Middle East Respiratory Syndrome (MERS). As the Zika virus is demonstrating, biological threats can impact anywhere at any time. That means there’s still a case for NVAX stock as a viable opportunity.
For now, Novavax is the biggest loser among biotech stocks. However, it also has a chance to be one of the more remarkable comeback stories in 2017.
Battered Biotechs to Buy: Geron (GERN)
A majority of the losses came from January, and shares never recovered. A dramatic spike in market value earlier this month lifted hopes, but they were quickly dashed by unfavorable news.
The latest overhang on GERN stock stems from Geron’s research into myelofibrosis treatments. The clinical studies are sponsored by Janssen Biotech, which is owned by Johnson & Johnson (NYSE:JNJ). Of the two treatment options, one has already been deemed ineffective. Thus, everything is riding on the other treatment. Should results later disappoint, Geron risks losing a major sponsorship for this study.
That also makes GERN stock an all-or-nothing affair.
From a trading perspective, the risky setup is not at all ideal for beginner or conservative investors. Then again, biotech stocks have never been known for their steadfast constitution. What can be said from a scientific point of view is that efficacy data from Geron’s myelofibrosis pilot study shows encouraging performance. There are also positive signs from the company’s therapy for myelodysplastic syndromes.
Of course, when it’s show time, anything could happen. Still, GERN stock has a decent chance of pulling off a surprise.
Battered Biotechs to Buy: Regulus (RGLS)
After a promising start from its October 2012 initial public offering, RGLS stock had a nightmare year in 2015. Shares lost nearly half their market value before turning things around in November. That turned out to be a bull trap, as RGLS stock never gained control this year.
Then, in late June, Regulus imploded. Again, market value for RGLS stock was halved, but this time, it occurred over a one-day time span.
Biotech stocks are, of course, news sensitive, and Regulus was hit with a whammy. The U.S. Food and Drug Administration put a clinical hold on RG-101, the company’s treatment for hepatitis C.
The hold was necessitated by a severe reaction to the drug by two patients participating in Phase 1 trials. But because of the sharp losses in RGLS stock, investors naturally became irate. The resultant furor led to multiple law firms opening investigations as to whether or not Regulus materially misled the public.
Not too many biotechs can handle such adverse news and survive. But RGLS stock is doing exactly that, and more. Since the RG-101 fiasco, shares are up 34%. There’s still a 32% gap from where it was pre-crisis, but it’s still a very good start.
For what it’s worth, Wall Street analysts are strongly bullish on RGLS stock. That likely stems from its multiple partnerships with major biotechs. Additionally, Regulus is considered a leader in microRNA therapies.
RGLS stock is volatile even when compared to other biotech stocks. However, it’s also well-positioned to turn things around.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.