If ever there were a time to be nervous about future uncertainties that could either ruin or bolster the health sector, this is one of those, especially for investors. Concerns about President Trump’s persistence to scrap Obamacare and new legislative proposals to institute Medicare for All and cut drug prices have taken their toll on stock prices.
Through today, June 5, 2019, the XLV, an ETF that tracks the healthcare industry’s biggest companies, was up just 3.57% year-to-date. That contrasts with the S&P 500, up a stellar 12.74%, year-to date. The Dow is up 9.48%, and the Nasdaq, an eye-popping 14.17%.
Let’s take a look at top winners and losers among healthcare stocks the week of May 27, 2019 and what investors should ponder moving forward:
Medical device company Soliton Inc. (Nasdaq:SOLY) led advancing issues, soaring 228% over the week to $18.82. Shares took off after the Houston, TX-based company secured Food and Drug Administration approval on May 28, 2019 for a device that may improve tattoo removal. An estimated 70 million Americans have tattoos, and according to Soliton, over 60% of them would consider full or partial removal.
Currently, tattoo removal is commonly done using lasers that breakup ink into tiny particles that can be removed from the body naturally. But this process can take up to 10 visits at an out-of-pocket cost of $100 to $500 per visit, and its results often fall short.
In clinical trials, Soliton’s Rapid Acoustic Pulse (RAP) device produced superior results when used alongside laser treatment versus laser treatment alone. Specifically, 72% of the tattoos treated with the laser and RAP achieved 25% or greater fading at 12 weeks; when treated by laser alone, only 40% of tattoos faded by 25% or more.
Steve’s Take: With some 70 million Americans having tattoos, and many aging boomers (like yours truly) with—sagging–skin all to ready to rid the “art” for pool and beach-goers’ sake, there’s an opportunity here for further price appreciation. Especially now with FDA approval of SOLY’s device. There aren’t any analysts’ forecasts or rating I could dig up, but the lack of a competing product at the moment bodes well. Shares gave up some of the massive appreciation last week, closing Wednesday off 8% at $17.38.
Elsewhere, DelMar Pharmaceuticals Inc. (Nasdaq:DMPI) rocketed 119% to $4.08 after announcing clinical updates presented at the 2019 American Society of Clinical Oncology, or ASCO, annual meeting. The Vancouver, BC-based company presented data from the ongoing first- and second-line trials in patients with MGMT-unmethylated glioblastoma multiforme.
At the KOL presentation, the company provided an update on the ongoing Phase 2 clinical study investigating the front line treatment of VAL-083 with radiation therapy in newly diagnosed MGMT-unmethylated GBM. For the fifteen patients who have received at least one assessment of the treatment, eight patients were assessed with a best response of “Complete Response,” and seven patients were assessed with a best response of “Stable Disease.” Fourteen of the eighteen patients were still alive at the data cut-off date.
Steve’s Take: So much for the good news. On Monday, June 3, 2019 DelMar Pharmaceuticals plunged in reaction to its direct offering of units to institutional investors. Specifically, it has agreed to sell 1.17M common shares and 0.76M warrants yielding gross proceeds of C$3.6M. Each unit consists of one common share and one five-year warrant to purchase one common share at $3.10. The consequential dilution to current shareholders sent prices down ~50% as of Wednesday, June 5, 2019 to $2.05. Net proceeds will be used for its clinical trials and for general corporate purposes.
The Barchart Technical Opinion rating is a 48% Sell with an Average short-term outlook on maintaining the current direction. Longer term, the trend strength is Average. Long-term indicators fully support a continuation of the trend. The market is approaching oversold territory. Be watchful of a trend reversal.
And thinly traded microcap Valeritas Holdings Inc. (Nasdaq:VLRX) leaped 62% to $3.75 in reaction to new data from its VERDICT study, a real-world retrospective analysis of electronic medical records from a large diabetes center. Patients with HbA1c (Hemoglobin A1c) levels greater than 9% are considered to have poor diabetes control. After five months of the company’s V-Go use, reductions in HbA1c of 1.5% were observed. V-Go is a disposable insulin delivery device (patch) that is placed on the skin where it delivers basal/bolus insulin over a 24-hour period. Shares gave back 10% so far this week to $3.38 at close on Wednesday, June 5, 2019.
Steve’s Take: The average rating of Valeritas from Wall Street analysts is a Buy. In addition to the average rating from Wall Street analysts, VLRX stock has a mean target price of $22.50. This means analysts expect the stock to gain 666% over the next 12 months. You do the math. It’s very risky in these early days of the development of the V-Go. But this name is a rational bet rather than an all-out gamble. Only for the highly risk-tolerant portfolio.
But microcap Kezar Life Sciences Inc. (Nasdaq:KZR) plummeted 44% to $9.47 in reaction to preliminary data from the first two cohorts in an open-label, dose-escalation study of lead drug KZR-616 in patients with systemic lupus erythematosus (SLE). The results were presented at the European Congress of Rheumatology (EULAR) annual meeting in Madrid.
The drug’s efficacy was less than impressive and two healthy volunteers who received the 60 mg dose required hospitalization. The drug showed a similar adverse event profile to Takeda’s Velcade (bortezomib). KZR-616 is an immunoproteasome inhibitor that the South San Francisco-based company says delivers a broad anti-inflammatory response and has shown potential efficacy in reducing certain autoimmune diseases (e.g., lupus, rheumatoid arthritis, IBD, MS, and type 1 diabetes) in animal models.
Steve’s Take: KZX shares gave back another 7% this week to $8.85. The Barchart Technical Opinion rating for Kezar is a cringeworthy 96% Sell, with a Strengthening short-term outlook on maintaining the current direction. Longer term, the trend strength is Maximum. Long-term indicators fully support a continuation of the trend.
However, the market is in highly oversold territory. And the 4 analysts covering the company give it a mean consensus of Buy. Their average price target is $23.70, leading to a 268% spread from its current price. Still, it’s far too risky to buy this name until truly positive data emerge from further trials of its KZR-616 candidate.
And Inovio Pharmaceuticals Inc. (Nasdaq:INO) skidded 27% to $2.39 after the clinical-stage biotech revealed in a regulatory filing that its partner, AstraZeneca PLC, is scaling back its collaboration on several clinical programs. The small Plymouth Meeting, PA-based biotech doesn’t have any products on the market to generate revenue. Most of its revenue in the first quarter came from a milestone payment received from AstraZeneca. However, AstraZeneca isn’t pulling out of the most important program included in its Inovio collaboration.
The two companies continue to work together in developing MEDI0457. AstraZeneca is evaluating the experimental drug in combination with its immunotherapy Imfinzi in several Phase 2 clinical studies. Inovio remains eligible to receive milestone payments related to the development and commercialization of MEDI0457.
Steve’s Take: Inovio shares gave back just another 2 cents to $2.37 as of close Wednesday, June 5. Like Kezar, the Barchart Technical Opinion rating for Inovio is a 96% Sell with an Average short-term outlook on maintaining the current direction. Longer term, the trend strength is Maximum. Long-term indicators fully support a continuation of the trend.
The market is approaching oversold territory.
Again, like KZR, the 8 analysts covering Inovio give it an Outperform rating and an average price target of $10.30. That leads to a 435% spread from its current price. Considering that big pharma AstraZeneca is still convinced enough to evaluate INO’s MEDI0457 candidate in combination with its Imfinzi, and with such a huge spread on analysts’ average price target, I believe buying a modest piece of this name is a rational bet for the high-risk tolerant portion of your portfolio.