Why Did My Stock Just Die?

European ministers continued fixing their financial house giving encouragement to rattled markets. Although your stock took a nosedive, don't panic. First, let's see whether it had good reason to fall. Sometimes, panic-fueled drops can make excellent buying opportunities. Here's the latest crop of cratered stocks that could provide a possibility for profit.


CAPS Rating(out of 5)

Monday's Change

Insmed (NAS: INSM)



Allos Therapeutics (NAS: ALTH)



Lihua International (NAS: LIWA)



With the Dow Jones Industrial Average (INDEX: ^DJI) soaring 330 points on Columbus Day, or 3%, stocks that went down by even larger percentages are pretty big deals.

Forget what I told you
After the FDA forced Insmed to put on hold its lung-infection therapy Arikace until it could examine more closely how it affects rats, I suggested it might be just a bit of bravado by management that it exuded such confidence in saying it would be able to get its trials back on track sometime during the fourth quarter of this year. Yet when analysts weighed in soon after agreeing that they had a better-than-even shot of achieving this goal, I figured maybe there was something to it.

Turns out those opinions were little more than hope and a prayer, as the regulatory agency is keeping Arikace on ice without responding to Insmed's previous inquiry about the original hold notice. In addition to more data about how the drug affects rats, the FDA wants the biotech to run a nine-month dog study to see whether the carcinogenicity results are comparable.

Insmed acquired Arikace when it bought privately held Transave last year, and though the FDA considers it to be a new chemical entity because of the proprietary technology used for delivering drugs directly to the lungs, the key active ingredient is amikacin, a previously FDA-approved antibiotic.

Once-a-day Arikace compares favorably with the inhaled tobramycin treatment Tobi from Novartis, a twice-a-day therapy for cystic fibrosis, and if ultimately approved, it could give it a large slice of a potential $1 billion market.

My problem now with Insmed is its management, which seemed to be weaving a compelling story for jump-starting the drug based on nothing. Analysts got burned by buying into its tale, but worse, investors bought in too.

Some 94% of the CAPS members rating Insmed thought it could still beat the Street, but you can let us know on the Insmed CAPS page whether the latest development changes your opinion -- of management. Also add it to your watchlist to be notified of when (or if) the FDA finally approves Arikace.

On second thought, never mind
Spectrum Pharmaceuticals (NAS: SPPI) apparently had second thoughts after having a weekend to think over the opposition from two of AMAG Pharmaceuticals' (NAS: AMAG) biggest shareholders.

Spectrum was rumored to be the mystery suitor trying to lure Allos Therapeutics away from AMAG's clutches, a move that two AMAG investors weren't thrilled about to begin with. One in particular began accumulating an even larger stake in the biotech as a means of thwarting the bid, which had investors thinking that would make those overtures fall through. Now that Allos says the mystery bidder has pulled out of talks with it, there may be no one who wants to buy the company.

Considering sales of its one marketed drug Folotyn have been less than inspiring and its drug pipeline isn't very advanced, an investment here seems like it would be dead money for some time.

Yet the stock still commands respect from the CAPS community, where 93% of the All-Star members weighing in on Allos believe it will outperform the broad market indexes. You can add Allos Therapeutics to your watchlist and let us know in the comments section below what you think of its future.

Rusting from within
Troubled Chinese copper-products maker Lihua International tumbled another 10% yesterday, on no apparent news. In the past, its credibility and corporate-governance practices have been challenged, but no allegations of fraud have been leveled against it. Still, many investors operate these days under the thinking of "where there's smoke, there's fire," particularly when it comes to small-cap Chinese RTO stocks.

Lihua attempted to push back against the criticism by assisting an "investigation" into the allegations against it by a disinterested third party, China 360, though some immediately questioned how far removed the company was from the investigator. The organization issued another positive report this morning.

Copper prices had been staging a rally until today, which might give hope to Lihua investors. But considering that investors like CAPS member bdescent thinks Lihua is "one audit away from oblivion," you might have better luck backing Taseko Mines or Freeport-McMoRan (NYS: FCX) if you're looking for a copper play. Tell us in the comments section below or on the Lihua International CAPS page whether you think it can surmount the doubt, and add it to your watchlist to be notified if it occurs.

At the time thisarticle was published Fool contributorRich Dupreyholds no position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold.Motley Fool newsletter serviceshave recommended buying shares of Novartis. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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