Keep an Eye on Pacific Biosciences, Epizyme, and Merrimack Today
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
Rise and shine, fellow Foolish investors! It's time to check in on some of the top health care stocks on the move today.
Pacific Biosciences of California looks to be on the move up today after word hit the Street late yesterday that the company's chairman, Michael Hunkapiller, bought 200,000 shares on the open market. The buys ranged from $3.51 to $3.72 per share, with an average purchase price of $3.61 per share. After yesterday's purchase, Hunkapiller now owns 1,700,000 shares of the company.
Insider buys are generally a sign of good things to come. So the question that Foolish investors should be asking is: Why is the chairman buying up large chunks of his own company?
The answer isn't exactly apparent, but my take is that it's an attempt to help stave off the recent slide in share price that started after Pacific Biosciences' third-quarter earnings release. For those new to this story, Pacific Biosciences makes a next-generation gene sequencing system called PacBio RS II. The system uses Single Molecule, Real-Time (SMRT) sequencing technology that increases accuracy during the sequencing of long reads.
The problem is that sales of this next-generation sequencer have been sluggish to date. Specifically, the company reported only installing six new units in the third quarter, compared to seven in the second quarter. And this lack of sales growth is particularly problematic in the face of Pacific's high cash burn rate -- approximately $60 million per year. Consequently, the recently announced partnership with Roche -- which could be worth up to $75 million -- still isn't enough to turn the company cash flow positive any time soon.
The good news for long-term investors is that Pacific Biosciences does enough cash on hand to keep the company afloat until 2016. And the company looks like it will need the time to find an appropriate niche market for the PacBio RS II system.
Epizyme looks to continue its rebound today after the massive sell off that occurred on Nov. 14 when the company announced early stage trial results for its leukemia drug EPZ-5676. Although the drug showed a 50% response rate in this initial trial, the market panicked, with the stock cratering 43% in a single day. The problem is that the market broadly misinterpreted the point of this early stage trial, which was to establish the drug's toxicity profile, not efficacy. Generally, the effectiveness of a drug is assessed in a larger mid-stage trial after dosing issues have been resolved.
So, what did this early stage trial really show for EPZ-5676? The trial showed that four cohorts completed their treatment without dose limiting toxicities. Moreover, there were no adverse effects that will prohibit the drug from advancing in the clinical testing process. Now that the fog has cleared, shares of Epizyme are racing back to their former levels, popping more than 12% yesterday. I am personally not a big fan of investing in early stage clinical candidates, but EPZ-5676 is worth a deeper look by Foolish investors. The stock gave up so much ground based on a misunderstanding of the complex clinical trial process that it's reasonable to assume that the stock will make an equally impressive rebound in short order.
Merrimack Pharmaceuticals is poised to continue its move higher today based on the recent announcement that top-line results for the company's pancreatic cancer drug, MM-398, will be pushed back to the second quarter of 2014. Investors seem to believe that this means only one thing: Overall survival in the trial is going to beat the company's previous forecast. If true, that is excellent news for both pancreatic cancer patients and Merrimack investors alike. Even so, it's important to keep expectations in check. This delay in releasing the data is based on a "blinded" assessment of overall survival, which does not necessarily mean the drug is increasing survival. I think it's important for investors to heed the words of Merrimack President Bob Mulroy during a recent conference call when discussing the delayed data release. Specifically, he stated, "While we are encouraged by the trends toward later events I would caution that the timing of event rates can be influenced by many factors aside from the study drug."
The truth of the matter is that we won't know what's up until the data are released come the second quarter of 2014. Even so, these words of caution don't appear to have dampened investor enthusiasm in the least, and the stock will probably continue to trend higher.
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The article Keep an Eye on Pacific Biosciences, Epizyme, and Merrimack Today originally appeared on Fool.com.George Budwell has no position in any stocks mentioned. The Motley Fool recommends Pacific Biosciences of California. 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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