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Biotech Stocks to Watch as Sector Sells Off

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Some companies are short on cash levels and could have difficulty issuing shares.

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The sharp drop in the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) in the last month erased all the gains made for the year. The fund is now down around 14% for the month. IBB's greatest weightings are in Amgen Inc. (NASDAQ:AMGN) at 9%, Gilead Sciences (NASDAQ:GILD), and Celgene Corp. (NASDAQ:CELG). The drop in these firms could be mild in comparison to other companies. Speculative, smaller market capitalization firms may experience bigger declines.

There are two biotech firms that the market could be selling off despite sound fundamentals.

Theravance Inc. (NASDAQ:THRX) is planning to separate into two: a development and a royalty holding. The separation will take place in Q2/2014. Theravance has a partnership with GlaxoSmithKline plc (NYSE:GSK) for Breo Ellipta and Anoro Ellipta. These drugs are used to treat COPD, or chronic obstructive pulmonary disease. Theravance dropped 20.4% in 2014.

Idenix Pharmaceuticals Inc. (IDIX) is down 13.6% this year. Shares peaked at $8. The firm has a market cap of $779.7 million. The hepatitis C drug maker is suing Gilead Sciences in Europe for patent infringement. The lawsuits allege that "Gilead infringes Idenix's recently granted, co-owned European patent EP 1 523 489 that covers 2'-methyl-2'-fluoro nucleosides for treating the hepatitis C virus."


Click on chart for interactive version.

Firms that are short on cash levels and could have difficulty issuing shares due to the sell-off include Dendreon (NASDAQ:DNDN) and Amarin (NASDAQ:AMRN). Dendreon makes drugs to treat prostate cancer. Its cash levels are dropping. Cash declined to $92.53 million (in the quarter ended December 31, 2013), compared to $130.6 in the quarter ended March 31 2013. It has 28 million in debt due this June, and its cash burn rate will strain the balance sheet.

Amarin failed to gain five-year exclusivity for marketing Vascepa, a fish-oil pill to treat cardiovascular diseases. Net common stock increased over the last four years, while retained earnings dropped. An appeal to the judgment is not expected until Amarin's Q2 or Q3. Amarin is reducing sales and marketing expenses this year, due mostly to a headcount reduction. R&D expenditure was $73 million in 2013. In 2014, the firm expects to reduce these costs by $20 million.

Editor's note:  This story by Chris Lau originally appeared on Kapitall.

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