Equites have drifted lower in the first two trading sessions of the week as investors mostly have sat on their hand waiting for today's CPI report, which will be followed by a reading of the monthly PPI on Thursday. Hopes for a 'pivot' from the Federal Reserve in the coming months continue to run high and, based on futures, are predicted to start by the summer despite the commentary coming from the Fed.
There has not been a whole lot of trading conviction in the market in recent weeks. I have noticed that biotech has been one area of strength lately. The SPDR® S&P Biotech ETF (XBI) has rose approximately 15% since successfully retesting its June lows in March. That said, the sector is still down by half from its all-time highs set at the beginning of 2021.
Today, a couple of biopharma stocks go under the spotlight for your consideration. One is an old 'friend' of mine that I have made money on via covered calls in the past and that I just initiated a new holding through that simple strategy yesterday.
That stock is Eagle Pharmaceuticals (EGRX) . The shares opened higher on Tuesday as Eagle reported better than expected top and bottom-line results. Unfortunately for existing shareholders it was all downhill from there as the shares fell 13% on the day.
There are a couple of reasons for this. First the company adjusted full year earnings guidance to $4.20 a year, which was slightly below the floor of current analyst estimates. Investors also might have gotten spooked by management stating it was likely to do an acquisition even if it would be 'accretive'.
The pullback in the shares left the stock trading at just over six times the company's revised profit guidance. Sales will be down in the mid-teens this fiscal year as the company is withdrawing from the vasopressin market, which is an antidiuretic hormone. That seems more than baked into valuation at this point and the company has a somewhat interesting pipeline.
I also added to my holdings of Zymeworks (ZYME) . The company provided a solid Q1 update on Tuesday. This small Canadian based biotech has a somewhat unique development model. The company uses a diverse set of partners to help fund R&D and plans to eventually manufacture drugs to reduce risks and costs. Its most significant partnership is with Jazz Pharmaceuticals (JAZZ) .
The lead program in the company's pipeline is a candidate called Zanidatamab, which is a Bispecific Antibody targeting HER2 expressing cancers. Zanidatamab has encouraging early-stage trial results. So positive that Jazz Pharmaceuticals opted into their collaboration deal with Zyme late last year. Jazz will now will handle development for this candidate for its primary indication.
An option that cost Jazz $325 million as a payment to Zyme Therapeutics, which is also eligible for regulatory/milestone payouts (up to $1.75 billion) as well as royalties on commercialized sales. If all goes well, commercialization should start sometime in 2025.
With the upfront payment, Zymeworks has a huge cash hoard (over $410 million) to advance the rest of its pipeline and is well-funded for all planned activities well into 2026 if not longer. Even with yesterday's 12% rally, the stock has a market capitalization just under $650 million which appears too cheap from a 'sum of the parts' valuation.
