Biotech Exit Rush: Investors Are Freaked Out by Biotech's Hurdles

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(Written by Alexander Crawford, list compiled by Eben Esterhuizen, CFA. Institutional data sourced from Fidelity, insider data sourced from Yahoo! Finance.)

No longer does FDA drug approval appear to be the stock price floor-setter it once was. Several biotech firms this year have seen severe drops in stock price following FDA marketing approval of their drugs, because of the uncertainty in being able to market them.

One of the best-known examples is Dendreon Corp. (DNDN), whose stock fell 67% in one day this August after the company withdrew 2011 sales estimates of its newly approved prostate cancer drug Provenge.

Bloomberg reports that Human Genome Sciences (HGSI), Savient Pharmaceuticals (SVNT), and Vertex Pharmaceuticals (VRTX) have also fallen this year after gaining FDA approval on their drugs.

The decline is driven by the idea that new biotechnology products are so expensive and complex it can take years for sales to grow as insurers and the U.S. government seek to cut medical costs and regulators tighten safety checks, said Michael Yee of RBC Capital Markets in an interview with Bloomberg.

He also lists the following as investor concerns: “underappreciated commercial logistical issues with the launch, as well reimbursement hurdles at the start, and physician comfort in the first few months.”

This is causing big pharma companies to wait until small biotech firms gain regulatory approval and the stock price falls before making an offer to acquire the company, CEO of NPS Pharmaceuticals (NPSP) Francois Nader told Bloomberg.

Despite the sales hurdles affecting the industry, we wanted to look for any pockets of extreme optimism among biotech stocks.

For ideas, we collected data on institutional and insider money flows. We tracked down companies with significant institutional and insider buying.

Smart money investors seem to think these biotech stocks will overcome the industry's barriers--do you agree?

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List sorted by market cap.

1. Theravance Inc. (THRX): Engages in the discovery, development, and commercialization of small molecule medicines for various therapeutic areas, including respiratory disease, bacterial infections, and central nervous system (CNS)/pain. Net institutional purchases in the current quarter at 1.8M shares, which represents about 4.14% of the company's float of 43.52M shares. Over the last six months, insiders were net buyers of 5,189,200 shares, which represents about 11.92% of the company's 43.52M share float.

2. Sequenom Inc. (SQNM): Provides products, services, diagnostic testing, applications, and genetic analysis products that translate the results of genomic science into solutions for biomedical research, translational research, molecular medicine applications, and agricultural and livestock research. Net institutional purchases in the current quarter at 11.4M shares, which represents about 12.71% of the company's float of 89.68M shares. Over the last six months, insiders were net buyers of 32,850 shares, which represents about 0.04% of the company's 89.68M share float.

3. Idenix Pharmaceuticals Inc. (IDIX): Engages in the discovery and development of drugs for the treatment of human viral and other infectious diseases in the United States and Europe. Net institutional purchases in the current quarter at 23.6M shares, which represents about 39.11% of the company's float of 60.35M shares. Over the last six months, insiders were net buyers of 38,076 shares, which represents about 0.06% of the company's 60.35M share float.

4. GTX Inc. (GTXI): Engages in the discovery, development, and commercialization of small molecules to treat cancer, osteoporosis and bone loss, muscle loss, and other serious medical conditions. Net institutional purchases in the current quarter at 11.9M shares, which represents about 56.51% of the company's float of 21.06M shares. Over the last six months, insiders were net buyers of 6,978,510 shares, which represents about 33.14% of the company's 21.06M share float.

5. Complete Genomics, Inc. (GNOM): Develops and commercializes a DNA sequencing platform for human genome sequencing and analysis. Net institutional purchases in the current quarter at 7.0M shares, which represents about 68.16% of the company's float of 10.27M shares. Over the last six months, insiders were net buyers of 1,650,000 shares, which represents about 16.07% of the company's 10.27M share float.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks

Referenced Stocks: GNOM , GTXI , IDIX , SQNM , THRX

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