Weekly Medical Stock Spotlight: Group still outperforming other sectors. My take.

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All three major US stock indices posted a weekly loss last week as the markets reacted to reports from the US-China trade summit, rising US government bond yields and increasing oil prices.

“I think everybody’s waiting on some sort of direction on American trade talks that are occurring right now, and there’s anxiety about oil prices,” said Oliver Pursche, vice chairman and chief market strategist at Bruderman Asset Management in New York.

Relatively tariff-immune healthcare stocks continued to outperform, with the Nasdaq Healthcare Index (IXHC) up 1.23% for the week. Here are the top movers.

1) Tandem Diabetes Care Inc. (Nasdaq:TNDM) led advancing issues, soaring 44% over the week to $12.83. The San Diego-based medical device company received a big boost from an analyst upgrade last Monday, with the positive momentum carrying over through the rest of the week. Piper Jaffray analyst J.P. McKim upgraded Tandem Diabetes stock from neutral to overweight. He also boosted his one-year price target for the stock from $8 per share to $13. The company has a product on the way that it thinks could leapfrog its competitors.

Tandem hopes to launch a “closed loop” system in the first half of 2019 that monitors blood glucose levels in patients and uses an algorithm to dose them with insulin when needed. McKim believes this new system could enable Tandem to rapidly gain market share in the booming diabetes-care market.

Steve’s Take: Tandem Diabetes has strong fundamentals. More than 70% of listed companies in the Medical Equipment, Supplies & Distribution Sector have a lower mix of growth, profitability, debt and visibility criteria. I rate it a Buy.

Strengths: The prospective high sales growth for upcoming fiscal years is among the most positive attributes of the company. Sales forecasts by analysts have recently been revised upwards. For the past twelve months, EPS forecast has been revised upwards. For the last week, the EPS forecast has been revised upwards. Historically, the company has been releasing figures that are above expectations.

According to recent estimates, analysts give a positive overview of the stock with an Outperform rating. Within the weekly time frame, the stock shows a bullish technical configuration above the support level at $5.63

Weaknesses: The company’s enterprise value to sales, at 4.88 times its current sales, is high. The appreciation potential seems limited due to the average target price of $8.36 set by the 7 analysts covering the stock.

2) Elsewhere, Eiger BioPharmaceuticals Inc. (Nasdaq:EIGR) surged 39% to $13.90. The Palo Alto, CA-based biotech, focused on the development and commercialization of targeted therapies for rare diseases, announced that it has expanded its licensing agreement with Merck & Co. to include rights to develop the investigational farnesyltransferase inhibitor lonafarnib for the treatment of Hutchinson-Gilford Progeria Syndrome (HGPS or Progeria), a rare and fatal genetic condition characterized by accelerated aging in children.

The expanded agreement provides Eiger with commercial and distribution rights to lonafarnib across the licensed and approved indications in the future. Concurrently, Eiger announced that it has completed a collaboration agreement with The Progeria Research Foundation (PRF).

Steve’s Take: Growth remains a strong attribute for Eiger. In their sales forecast, analysts sound highly optimistic with regard to sales prospects. The difference between current prices and the average target price implies a significant appreciation potential for the stock. I rate its stock a Buy.

Strengths: For the last week, the EPS forecast has been revised upwards. According to recent estimates, the 7 analysts covering the company give a positive overview with an Overweight or Buy rating on the stock and an average price target of $31.10. This represents a spread of 124% from its closing price last week.

For the last 4 months, the company has been enjoying highly positive EPS revisions, which were frequently and significantly raised. Same for the past year, as analysts covering the stock have been revising their EPS expectations upwards in a significant manner.

Weaknesses: The share price is close to its long-term resistance in weekly data. Therefore, the potential might be limited, despite what analysts think. However, a further bullish movement when crossing this resistance will be a positive signal.

Prospects from analysts covering the stock are inconsistent. Dispersed sales estimates suggest poor visibility into Eiger’s operations. The company usually releases earnings that are lower than estimated.

3) But Agile Therapeutics Inc. (Nasdaq:AGRX) plunged 74% to $0.69 on negative feedback from the Food and Drug Administration. The agency had already declined to approve Twirla, Agile’s stick-on contraceptive, on two occasions, and Agile said the agency still had “significant concerns” about the adhesion properties of the patch.

“In light of the feedback from the FDA, we also are re-evaluating our business plan to identify ways to extend our ability to fund the company’s operations,” Agile CEO Al Altomari said in a statement.

In an April 16 meeting with the Princeton, NJ-based company, the FDA proposed that Agile should reformulate certain properties of Twirla and carry out a new study. Twirla, which contains a combination of female hormones, is designed to be applied once weekly for three weeks, but the FDA says the patches tend to fall off and, as a result, may not deliver the amount of hormones necessary for effective birth control.

Steve’s Take: CEO Altomari said Agile “flat-out” disagreed with the FDA’s assessment, and that it expects to escalate the matter and pursue a dispute resolution process with the agency. Agile has enough cash to fund the appeal if it put other business activities on hold, he added. Agile had $28.3 million in cash as of March 31. Agile expects each step in the appeals process to take about 60 days, and while it hopes for a resolution by the end of the year, the company did not give a more specific timeline.

“Enough is enough. We need to go upstairs. We need a fresh set of eyes on this…patches don’t jump off women’s bodies in the middle of the process,” Altomari said on a conference call with analysts.

Strong words, and he’s right. I rate this stock a Buy. But it’s extremely risky given the uncertain path forward with the FDA–even for the highly risk-tolerant portfolio. It’s a classic gamble, not a rational bet.

Strengths: Agile’s share price is moving closer to its lower-bound range at a close of $0.69 last week. Share prices are approaching a strong support area in daily data, which offers good timing for investors. If the FDA fracas is resolved in the company’s favor, analysts expect a sharply increasing business volume, with growth rates high in the coming years.

Historically, Agile has been releasing figures that are above expectations. The average target price set by analysts covering the stock is 943% above current prices and offers a huge appreciation potential.

Weaknesses: Low overall profitability has weakened the company.

Prospects from analysts covering the stock are inconsistent. Such diverse sales estimates suggest poor visibility into the company’s operations.

The sales outlook for Agile was lowered in the last twelve months. This change in forecast points out a decline in marketing activity as well as pessimistic analyses of the company. Analysts have been regularly downgrading their EPS expectations and predicting worse results for the company versus their predictions a year ago.

Steve Walker has no position in any stocks mentioned. MedContent Inc. has no position in any stocks mentioned. MondayMorning.com has a disclosure policy.

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