There's an old saying that a rising tide lifts all boats. That's true -- but only if the boats don't have holes in them.
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With the S&P 500 index hitting an all-time high recently, most stocks are performing quite well. Not all of them, though. A few are sinking like leaky boats in a rising tide. Three healthcare stocks, in particular, have fallen to 52-week lows in the last few days: Endologix (NASDAQ: ELGX), Lannett (NYSE: LCI), and Teva Pharmaceutical (NYSE: TEVA). But could these big losers be bargain buys for long-term investors right now?
Endologix: Delays malaise
Endologix stock is down 65% over the last 52 weeks and 27% year to date. The company, which develops and manufactures minimally invasive treatments for aortic disorders, first ran into a big roadblock late last year. In November 2016, the Food and Drug Administration told Endologix that it would need to provide additional data from a study of its Nelix endovascular aneurism sealing system. At that time, Endologix expected to give this data to the FDA in the second quarter of 2017 and be on track for potential approval in 2018. However, the delay caused Endologix to lose around half of its market cap over the following months.
Things didn't work out quite so neatly. In May of this year, Endologix met with the FDA and received more bad news. The FDA told the company that it would need to conduct a confirmatory study before approval of the Nelix system could be given. This pushed back a potential launch of the product to 2020. Endologix stock plunged 36% immediately following the announcement.
Where does all of this leave Endologix? The company continues to lose a lot of money, with a net loss of more than $16 million in the second quarter. Endologix had a little under $92 million in cash, cash equivalents, and marketable securities at the end of June. The company also entered into an agreement with Deerfield Management for a $170 million credit facility in April 2017. Cash shouldn't be a problem in the near term, but it's possible that Endologix could need to raise more money before it wins U.S. approval for Nelix.
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Lannett: Pricing pressures
Lannett has lost nearly half of its market cap over the last 52 weeks. However, the generic drugmaker's problems started earlier than that. Lannett's decline began back in the middle of 2015 with a revenue miss in the second quarter. Some Wall Street analysts were also skeptical about the company's acquisition of Kremers Urban Pharmaceuticals, especially after Lannett announced that Kremers had lost a major customer before the acquisition was finalized.
The Kremers deal added a lot of debt to Lannett's balance sheet at a really bad time. Softness in the generic drug market hurt plenty of generic drugmakers, including Lannett. Although Lannett's revenue has increased (as it should with the addition of Kremers), earnings have fallen. The company continues to face intense pricing pressures in the generic drug market.
Lannett's biggest problem is that no one knows when things will turn around. Wall Street analysts project continued earnings declines over the next five years of more than 7% annually.
Teva: Competitors and crises
Teva stock is down more than 60% over the last 52 weeks. Nearly half of that loss has come in 2017. The Israel-based specialty and generic drugmaker faces multiple headwinds.
Perhaps the most significant challenge for Teva relates to its top-selling product, Copaxone. The multiple sclerosis drug generates nearly 18% of the company's total revenue and roughly half of its specialty drug revenue. Second-quarter sales for Copaxone dropped 10% year over year, and Teva faces the prospects of generic challengers.
The company also is struggling with overall softness in the generic drug market (like Lannett). In addition, the political and economic crisis in Venezuela has hurt Teva significantly. All of this is going on while the company searches for a new CEO after the abrupt departure of Erez Vigodman in February.
Bargains or busts?
There's too much time on the calendar before the possibility of approval of Nelix for Endologix to be a good pick, in my view. Although the stock is cheaper than it's been in quite a while, I don't see a big positive catalyst on the horizon right now.
Teva has one good thing to offer investors: its dividend, which currently yields 5.73%. The company still has a solid cash flow despite its problems, so the dividend is probably safe temporarily. However, my concern with Teva is that Copaxone revenue will continue to deteriorate, while the generic drug market remains weak. Teva could rebound, especially if it wins approval for promising migraine drug fremanuzemab. My take is to stay away for now, though.
That leaves Lannett. I have owned the stock for a while, thinking that the company's woes were only temporary. I still think that's true, but I really don't know how long it will be before things turn around. I'm holding on to my Lannett shares, though. There's a good chance, in my opinion, that Lannett could be bought out.
Lannett stock trades at less than six times expected earnings. Even with earnings continuing to fall, that's dirt cheap. Out of these three big losers, I think Lannett has the best opportunity to become a winner in the next 52 weeks.
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