Biggest Winners in Health Care Last Week
Health-care stocks have had a good year, with the iShares NASDAQ Biotechnology Index rising more than 59% year to date. With that in mind, here's a Fool's look at three stocks that led the sector last week.
United Therapeutics soared over 30% last week after receiving approval from the Food and Drug Administration for its extended-release oral tablets for pulmonary arterial hypertension, or PAH, known as Orenitram. This approval marks the company's fifth with the FDA for PAH, which is currently the company's primary revenue generator. Looking ahead, this approval should help to grow United Therapeutics revenue by 5% to 10% next year.
With United shares trading at only 10 times the company's cash position, I think this approval could help propel the stock in the New Year. That said, there is a dark cloud hanging over United in the form of an investigation by the U.S. Department of Justice into its marketing practices. In my experience, these types of investigations take years to wrap up.
Questcor Pharmaceuticals is a prime example. Despite Questcor being investigated by multiple agencies, there has yet to be a single charge brought against the company in over two years. In short, I don't see this investigation being a major risk for shareholders next year, and United looks like it will continue to outperform.
NPS Pharmaceuticals continued its torrid ascent jumping another 10% last week. NPS shares have now risen 225% year to date, propelled primarily by the commercial launch of the company's orphan drug for short bowel syndrome, or SBS, called Gattex. Gattex was approved by the FDA in 2012 and launched last February.
Nevertheless, you should keep in mind that Gattex is only on track to generate around $30 to $40 million in its first year on the market, and the bulk of the company's revenue still comes in the form of Royalty payments for products licensed out to Amgen and Takeda Pharmaceuticals. NPS is expected to generate about $130 million in total revenue this year, yet the company's market cap has now breached the $3 billion mark.
What's particularly notable is that its sales have actually dipped this year from a year ago. This leads me to believe that investors are looking ahead to the potential approval of NPS Pharmaceuticals next orphan drug candidate Natpara as a treatment for hypoparathyroidism in 2014.
In short, I believe NPS's fast and furious run is built largely on the potential of its clinical pipeline. As such, Foolish investors might want to look elsewhere for companies whose valuations are more in line with their underlying business metrics.
Acadia Pharmaceuticals is picking up steam heading into the New Year by closing up over 8% last week. Acadia shares have been on a wild ride, shooting up 457% year to date. Nonetheless, gravity has begun to take its toll on Acadia this quarter, with shares heading lower by more than 6%. Last week's jump helped to stave off the recent slump, but it illustrates the current volatility in Acadia right now.
My take is that the Street is uncertain how to value this biopharma who's lead clinical candidate, pimavanserin, is still over a year away from a possible approval with the FDA. Moreover, there are still clinical and regulatory hurdles for the company to overcome before that approval is granted. Until the approval is in the bag, I expect Acadia shares to remain volatile, meaning there will probably be another year of this seesaw type action.
Personally, I believe a fair amount of pimavanserin's peak sales are already factored into Acadia shares right now, given its market cap of over $2 billion. As such, I believe there are better bargains in the sector with inherently less risk.
Keep an eye on the long-term potential
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report, "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.
The article Biggest Winners in Health Care Last Week originally appeared on Fool.com.George Budwell 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.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.