I believe he is reacting to the severe run up in price of IMNX.
I am getting out totally today. From everything. The Asian markets
are also down. Japan is very bad. The analyst said that there are
many other effective drugs and less expensive. He believes the
improvement is marginal even if approved. The Motley site had the
following comments:
Take today's implosions in shares of Immunex (Nasdaq:IMNX - news) and Anesta (Nasdaq:NSTA - news) as cases in
point. Immunex plunged $6 5/8 to $63 1/2 after investors became concerned about how much of its new injectable rheumatoid
arthritis drug the company could sell. In a written report, two analysts at NationsBanc Montgomery questioned whether
Immunex could meet the high expectations investors are currently pricing into the stock given that the drug is expensive to
make and competes with equivalent products made by competitors. High costs combined with uncertain pricing power equal
questionable future profits, something that caused the share price to decompress.
Anesta also took a header, losing $3 9/16 to $16 15/16, on reports that the Food and Drug Administration (FDA) stated it
was not ready to approve its painkiller "lollipop" for use on cancer patients. The FDA demanded further data and analysis
before any approval could go through. The blow came completely out of the blue for Anesta, as the painkiller had been
unanimously approved by the FDA advisory panel that previously reviewed data surrounding the drug. As Anesta has been
losing money at an accelerating rate over the past few years, its entire valuation hinged on the cash flows the new product
could generate. When yet unseen dollars were questioned, the value of the company changed radically in just a few minutes.
Although plenty of investors maintain that the actual financials of the underlying business are insignificant when purchasing
stock, preferring instead to examine trading data for signs that shares are being accumulated by institutions, it is hard to deny
the reality of how businesses are priced when looking at reactions to news like this. Until today's debacle, shares of Immunex
had been rising on decent volume. After one research report questioned whether the company could actually make money with
its product given that cheap generic alternatives abound, the entire company is being valued at 10% less than it was the day
before. As Immunex has been losing money for the last few years, the valuation completely hinged on unknown future events --
nothing in its past indicated at all what kind of earnings power the company had.
In the end, Immunex and Anesta represent object lessons about how much risk investors assume when they buy a company
whose business model has never been proven. Even if these drugs are blockbusters, questions still remain about pricing, costs
of manufacturing, overhead costs related to other company endeavors, and the continued issuance of shares as a means to
finance future development. If a company has never shown a lick of cash on its balance sheet and does not generate substantial
revenues from an existing and proven product, the valuation becomes extraordinarily volatile and subject to massive shifts if
there are even tiny changes in future assumptions. By and large, unless an individual investor has a powerful knowledge
advantage due to education or experience, these kinds of investments would seem best avoided.
Good luck to all
Bruce |
