Five down days and counting... and still the Fed won't inject more liquidity into the market. Oh no! Since it's clear now to almost everyone that it's been the Fed that's pumped stock prices higher, if Bernanke won't allow even more funds to flow, then it's time to get out of the market. But with the companies below falling even further than the markets, first let's see whether they had good reason to drop. Sometimes, panic-fueled declines can make excellent buying opportunities.
The markets fell 214 points or 1.7% yesterday, the worst day so far this year (but the year's still young!), so stocks that went down by larger percentages are pretty big deals. Here are two of stocks that fell that could provide a possibility for profit:
ViroPharma (NAS: VPHM)
Halozyme Therapeutics (NAS: HALO)
That's going to leave a mark
With the introduction of a generic version of Vancocin, which accounts for half of ViroPharma's revenue, the havoc that will be wreaked on the company is almost tangible. It had sought further exclusivity on the drug based on changes to its label, but the FDA rejected the appeal, allowing Watson Pharmaceuticals (NYS: WPI) and Akorn (NAS: AKRX) to launch their generics. But ViroPharma said it believes the FDA didn't follow its own regulations regarding in vitro bioequivalence testing by generic drug companies. It plans to sue the agency over its decision. And then to top it all off, the biotech was further beset by allegations that it used unfair methods of competition with respect to Vancocin and was under investigation by the FTC.
It seems unnecessary to say that a company involved in such tumult is hardly worth pursuing as an investment, which underscores the drop in its shares yesterday. A lot more dust would have to settle before we can determine whether its stock price is cheap or a value trap.
The other part of ViroPharma's equation is Cinryze, a drug used to treat the potentially fatal genetic disease known as hereditary angioedema, and which accounts for the balance of its annual revenues. Last year it entered into an agreement with Halozyme Therapeutics to use its proprietary drug delivery platform Enhanze, yet there was no indication it was ViroPharma's troubles that led to Halozyme tumbling yesterday. Rather, an analyst at Jeffriescut its ratings to hold from buy, saying he saw little upside in its stock price.
Last month the company reported losing $18 million in the fourth quarter, or $0.18 a share; however, the company has seen insider buying and still has valuable partnerships including one with Baxter International (NYS: BAX) for HyQvia. Halozyme is also developing an injectable version of cancer therapy Herceptin in partnership with Swiss pharmaceutical giant , which has a near $6 billion market. Roche is looking to get approval in Europe and paid Halozyme a milestone $4 million on the filing.
Some 86% of the CAPS members who rated Halozyme expect the biotech to overcome these hurdles and the higher expenses it faces in 2012, though its low two-star rating suggests they do think there are better places for your money. In comparison, 97% were rating ViroPharma to outperform the markets and bestowed a four-star rating, perhaps believing it would be successful in its FDA appeal.
While that battle isn't over yet, Halozyme seems the safer bet of the two based on its relationship with Roche. Tell me in the comments section below or on either the Halozyme Therapeutics' CAPS page or ViroPharma's CAPS page which you believe will come out ahead in 2012. Add both stocks to yourwatchlist to get the latest developments on their situations.
Ready for a resurrection
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At the time thisarticle was published Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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