The earnings season is in full swing and investors are flooded with fundamental information to reassess their investments. While fundamental information should be a basic component for any investment decision, it becomes irrelevant in the biotechnology industry. The companies in this sector are usually involved in development of candidates without much topline or bottom line information. The trades by institutions and insiders are a more effective way for potential investors to assess the upcoming catalysts and price trends for biotech stocks.
AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO) is a cancer therapeutics company and is involved in the discovery, development, and commercialization of various oncology treatments. The primary product of AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO) is tivozanib, which the company is pushing for the treatment of advances in renal cell carcinoma. As opposed to most small biotechnology companies, it has a pretty rich pipeline with a number of promising candidates. The leading candidates include TAURUS, Ficlatuzumab, and the exploratory study for tivozanib, BATON-RCC.
Despite a solid pipeline, the company has seen some heaving selling from institutions and light buying by insiders. In the last six months, institutional ownership has come down by a staggering 35%, which is the primary reason behind the major price slump. During the same period, insiders have increased their ownership by 6.4%. Despite major sales by institutions, only a single sell-side analyst has a “sell” rating on the stock, with others evenly distributed between “hold” and “buy.” At current levels, it is better that investor’s stay away from the company until more long term catalysts emerge.
InterMune Inc (NASDAQ:ITMN)
InterMune Inc (NASDAQ:ITMN) is involved in the discovery, development, and commercialization of drugs for the treatment of orphan fibrotic diseases and pulmonology. The leading drug of InterMune Inc (NASDAQ:ITMN) is Pirfenidone, which is an orally active drug for IPF.
In the last two years, the company has lost almost 80% of its value. The institutional investors are increasingly losing faith in the stock and have dumped almost 18 million shares in the last six months, reducing their ownership by 39%. Despite these issues, the sell-side still has stellar rating on the stock, with a target price of $14, 35% upside to current price levels. Investors should still avoid the stock because institutional selling has really beaten down the price and there are no major catalysts approaching that can force a rally.
Galena Biopharma Inc (NASDAQ:GALE)
Galena Biopharma Inc (NASDAQ:GALE) is a biotechnology company involved in the development of oncology treatments. The current valuations of Galena Biopharma Inc (NASDAQ:GALE) are tied to its leading product candidate, NeuVax. NeuVax is currently in Phase III clinical trials for the prevention of breast cancer recurrence. The company’s Folate Binding Protein-E39 is in Phase 1/2 trials for preventing the recurrence of endometrial adenocarconimas and ovarian cancers.
Galena Biopharma Inc (NASDAQ:GALE) is currently operating in a healthcare sector, which is facing some serious candidate shortage. This has increased the demand for small biopharmaceutical companies with promising drug candidates. In the last six months, the interest of institutional investors has significantly increased in Galena Biopharma Inc (NASDAQ:GALE) due to its acquisition prospects and cheap valuations.
Institutions have increased their holdings in Galena Biopharma Inc (NASDAQ:GALE) by 18% and have added almost 1.5 million shares. The sell-side also has a pretty favorable view of the company and is currently giving a unanimous “buy” rating for the stock. The mean target price is currently $4.90, which is an approximately 100% upside to current price levels.
Conclusion
Investors should avoid AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO) and InterMune Inc (NASDAQ:ITMN) for the time being because these companies are witnessing some heaving dumping by institutions, which will continue to beat down the price. Galena remains a top pick in the biotechnology industry due to its cheap valuations and high probability of an acquisition by major players like TEVA and AstraZeneca.
The article 2 Biotechs To Avoid, 1 To Buy originally appeared on Fool.com and is written by Mohsin Saeed.
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