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Given their enormous cash burn and long development cycles, biotech stocks tend to be a very risky bunch. However, not all biotech stocks are created equally, as they all exists on a risk spectrum. Some blue-chip names can be counted on to crank out cash in good times and bad as they have multiple products that providers depend on to keep their patients healthy. Other biotechs are still years away from ever seeing their first dollar of revenue, and their future is completely dependent on the success of a single drug.
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We asked our team of biotech experts to share one biotech name they think investors should avoid. Read below why we think MannKind , Aegerion Pharmaceuticals, andGalena Biopharmaare names you should keep your investment dollars far away from.
Todd Campbell:Biotech is prone to jaw-dropping drops, and when those drops occur, investors ought to fight off the temptation to buy until they've done a bit of research. That's particularly true in the case ofAegerion Pharmaceuticals, a biotech company that has seen its shares tumble 45% since last September.
Aegerion markets the lipid-lowering drug Juxtapid, which is used to treat heart disease patients with homozygous familial hypercholesterolemia, a rare genetic condition that makes it difficult to clear cholesterol from the bloodstream.
Juxtapid's eye-popping $295,000 per year price contributed to Juxtapid's sales jumping 59% to $57.1 million in Q2, but before that convinces you to step in and buy shares on sale, know that the FDA just approved two new cholesterol-busting drugs that could significantly dent Juxtapid's sales.
In the past month, the regulator has given the green light to PCSK9 drugs Praluent and Repatha, and in both cases, these drugs, which curbed cholesterol in tough-to-treat patients during trials, have been priced at roughly $14,500 per year -- a fraction of Juxtapid's cost.
Granted, doctors may stick with Juxtapid, or Aegerion may cut prices significantly to protect script volume, but the uncertainty of the impact of these new PCSK9 therapies on Juxtapid revenue makes Aegerion far too dangerous for me to buy it.
Brian Feroldi: When I think of a "dangerous" biotech stock, I immediately think of one that has an ugly balance sheet and is completely dependent on a single drug for its success. Using that as my criteria, there is no better example of a stock investors should avoid than MannKind.
Looking at the company's balance sheet as of the last quarter, we see $342 million in current liabilities versus only $107 million in cash. While not great, that combination might be acceptable if the company was just about to turn profitable, but given that its only approved drug, Afrezza, is off to anawful start, it's likely to be quite some time before the company will turn a profit (if ever). It looks even worse when you consider that the company burned more than $28 million in the last quarter alone.
Afrezza, an inhaled insulin, has been a huge disappointment to many who believed the drug heldblockbuster potential. Whilemanagement believesthere are several short-term barriers holding the drug back from its big sales ramp, I'm skeptical that it will ever be able to hold up to its true potential.
If Afrezza sales do come alive in the coming quarters and give investors hope that blockbuster status is still a possibility, then its stock might still be a home run from here. However, until we see demonstrated proof of that happening, I think the stock is one investors should avoid.
George Budwell:Galena Biopharmais a high-risk, high-reward biotech that investors may want to simply avoid for the time beingfor a couple of reasons.
First off, the company's fate largely hinges on the success -- or failure -- of its experimental breast cancer vaccine, NeuVax. Galena's pivotal late-stage trial is reportedly now fully enrolled, and an interim analysis is expected to be performed in either late 2015 or early 2016. Aside from the fact that NeuVax's mid-stage trial was a bit of a mixed bag, the most concerning issue is that cancer vaccines in general have a worrisome track record in late-stage testing.
That's not to say NeuVax's present late-stagetrial is doomed to fail, only that the odds of success aren't in investors' favor moving forward. But if this trial does prove futile, Galena could run into serious trouble funding its other clinical candidates, or NeuVax's other ongoing trials as part of a combo treatment withRoche's Herceptin.
In the second quarter, for instance, Galena's net loss stood at over $15 million for the three-month period, showing that its portfolio of approved products, consisting of Abstral and Zuplenz, is unlikely to turn the company into a cash-flow-positive operation as currently constructed. All eyes are therefore going to be on NeuVax's upcoming interim analysis, and that's a risky proposition in light of how poorly cancer vaccines have historically performed in pivotal studies.
The article 3 Dangerous Biotech Stocks originally appeared on Fool.com.
Brian Feroldi has no position in any stocks mentioned. George Budwell has no position in any stocks mentioned. Todd Campbell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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