Why Did My Stock Just Fall Apart?
CAPS Rating(out of 5)
Change on Oct. 14
|DepoMed (NAS: DEPO)||*****||(21.3%)|
|AVI BioPharma (NAS: AVII)||***||(14.3%)|
|FXCM (NYS: FXCM)||**||(12.3%)|
With the Dow Jones Industrial Average (INDEX: ^DJI) rising 166 points on Friday, or 1.5%, stocks that went down by substantial percentages are pretty big deals.
Running hot and cold
Drug developer DepoMed suddenly ran cold on Friday after late-stage clinical testing of the drug Serada, which is used to treat menopausal hot flashes, failed to meet one of the four primary objectives of the trials, representing just the latest speed bump the drugmaker has encountered in the past year or so.
Previously, DepoMed's partner Abbott Labs had declined to bring its post-herpetic neuralgia drug Gralise to market, despite getting FDA approval. Although DepoMed regained the rights to the drug and can bring it to market itself, which it will try to do by year's end, DepoMed suffered a separate setback when its CEO up and quit for "personal reasons."
The drugmaker is also battling Sun Pharmaceuticals, which is challenging its patents in an effort to bring a generic version of Glumetza to market, while also waging an infringement suit against another rival, Lupin, which wants to offer a generic version of the drug as well.
The failure of Serada to meet all of its endpoints is hardly something investors in DepoMed really needed at this moment, though the stock did bounce off the worst of the lows it hit on Friday. What's worrisome is the fact that this is the third try at late-stage jiggering to get Serada through the goalposts, getting closer each time but still failing in the end. DepoMed says the results are worthy enough to discuss with the FDA about filing an application.
No doubt it's because DepoMed does have a number of drugs in its pipeline that all but one of the 52 CAPS All-Stars rating the drugmaker believe it will ultimately outperform the broad market averages, but setbacks like this do take their toll. Let us know in the comments section below or on the DepoMed CAPS page how long it will take to bounce back from this debacle, and add it to your watchlist to be notified of the latest developments.
It was a similar but different failure for AVI BioPharma, which was notified by the Defense Department that its proposal for the full clinical development of its influenza drug candidate, AVI-7100, did not qualify for a contract award. AVI said it had previously been told it did meet the technical requirements for acceptance and additional consideration. Defense apparently thought about it and decided it didn't after all.
While this is a disappointment for sure, AVI has other contracts with DoD, including one to develop ways to fight ebola and Marburg viruses. Last year, AVI signed contracts with the potential for generating $291 million worth of revenue to develop therapies applying its novel RNA-based therapeutics for rare and infectious diseases.
Still, AVI-7100 was AVI's big drug combating the H1N1 virus, otherwise known as swine flu. Along with a number of other biotechs like BioCryst Pharmaceuticals (NAS: BCRX) and Sinovac Biotech, AVI was swept along by the warnings of a worldwide pandemic that has thus far not come to pass. The therapy relies on AVI's proprietary treatment of the illness, as do its candidates for treating ebola and Marburg, but it has yet to become commercially successful. The biotech is going to have volatile swings in its stock.
That could explain why 89% of the CAPS members rating AVI think it will ultimately outperform the market indexes. Add AVI BioPharma to your watchlist and let us know in the comments section below what you calculate the risk will be to your portfolio.
Open for trading
When discount brokerages like E*TRADE Financial (NAS: ETFC) or Charles Schwab (NAS: SCHW) report monthly trading volumes, you'll often find investors bullish when trading volumes grow. Foreign exchange brokerage house FXCM recently reported record September volumes, rising 1% from August and 47% from last year. In fact, the third-quarter volume of $1.042 trillion was FXCM's highest in company history.
The problem facing FXCM is that those high volumes are coming from its low-margin customers. That results in revenues actually being constrained even though it is increasing its retail market share. An analyst downgraded the stock on Friday, saying that tilt in its business mix made exceptional revenue growth unlikely, particularly at current valuations.
Well, the resulting drop in the stock price ought to bring it back closer to a more reasonable level, and with the market valuing the stock at just 10 times next year's earnings and at about half its sales, it could soon be a bargain again.
Earlier this year, CAPS member Prodders pointed to insiders buying large blocks of stock when it dropped due to lower profits from lower average trades.
Way oversold following disappointing data in April. Sizeable insider purchase in the wake of that in the low $9s, buyback in place equal to 1/5 of the mkt cap, and May metrics show big % improvement from April, both retail and institutional. Some smart HFs now involved too. Need I go on? Target $14.
It went on to surpass those doubts and now trades some 25% higher, even after the shearing it took. Add the broker to the Fool's free portfolio tracker and tell us on the FXCM CAPS page if you think investors will exchange their cash for shares again.
At the time this article was published Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Abbott Laboratories.Motley Fool newsletter serviceshave recommended buying shares of Abbott Laboratories and Charles Schwab. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not 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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