With a 5% bounce during Monday’s session, shares of Alexion Pharmaceuticals (NASDAQ: ALXN)
halted and for the most part undid a 10% slide from the past two weeks. It’s Q2 earnings are due out this Thursday and yesterday’s pop could well be viewed as some bullish positioning for an upside surprise.
The Boston based drugmaker, known for its autoimmune disease treatments, last reported earnings in the first week of May. EPS and revenue both came in ahead of analyst expectations with the latter showing year on year growth of 26%. Management were able to cap off the quarter with several updates on acquisitions and approval processes.
For example, their acquisition of Achillion was completed and their latest acquisition, this time a biotech called Portola, was agreed. In terms of pipeline development, the European Medical Agency’s (EMA) Committee for Medicinal Products for Human Use (CHMP) issued a positive opinion on Alexion’s Ultomiris drug, which is being seen as the follow-up treatment to the company’s blockbuster Soliris treatment. Soliris has been the fuel on which the company has been running in recent years. Revenues from that drug alone have more than doubled since 2015.
However, like many pharma companies, some of their trials were paused with the onset of the coronavirus pandemic but some have also been initiated as a result. May’s report showed that a Phase 3 trial of Ultomiris as a treatment for patients with severe cases of COVID-19 has already been started.
While all of this is the kind of momentum investors want to see in a $20 billion pharma company, Alexion’s stock has traded sideways for much of the past four years. After peaking around $200 a share during the biotech boom of 2015 and then falling 50%, shares have since consolidated and traded largely in a range of $100 - $140 since. For context, the benchmark iShares Biotechnology Index (NASDAQ: IBB) has finally managed to get back above its 2015 highs in recent weeks while Alexion treads water 40% below.
It will be interesting to see if this week’s earnings can spark a bit of life into the stock that once rallied the guts of 1,000% in just five years. The sluggish performance in shares despite what appears to be decent strategic progress by management might be setting Alexion as an acquisition target itself. Back in May, Elliott Advisors noted that Alexion shares were trading at a 40-50% discount to fair value, the kind of metric that makes the bigger players in the industry sit up and take notice.
Recent headlines, the kind that no investor wants to see, might help explain the slide into earnings which is only now being reversed. Earlier this month, the company agreed to settle bribery-related charges made by the SEC. It was alleged that subsidiaries of Alexion bribed officials in Turkey and Russia to secure favorable treatment of Soliris in those countries. While the company neither admitted nor denied the charges, and the $22 million settlement isn’t astronomical, it’s still a weight that shares could do without.
Strong Support Line
For investors looking to get involved before earnings and or for a potential buyout in the coming months, there are worse levels to buy at than where the stock is trading currently. The $110 level, plus or minus 10%, has been a consistent level of support for shares for much of the past decade. In so much as a pre-earnings trade can be considered low risk, there is a degree of safety based on technicals here.
Aside from a blip in March due to the wider market crash, shares haven’t liked trading below the $100 mark for long since they first broke through it in 2012. Unless Thursday’s report is a major disappointment, the buyers who’ve consistently been present at these prices aren’t going anywhere.
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Companies that are in a shaky financial position may sometimes attract investors in a bull market. Traders seeking a short-term profit can often use an oversold condition to capture a quick gain. But in a bear market, these companies frequently are left on the sidelines.
But a declining stock price by itself should not be enough to scare investors off. What investors really need to pay attention to is the company’s ability to finance existing debt or take on additional debt. Companies with low credit ratings face the problem of having too much debt on their books and an inability to finance it at more favorable rates.
That’s one reason we’ve put together this presentation that highlights 6 companies that may not survive the coronavirus. These companies have low stock prices. In fact, many of them are, or will be, in danger of being delisted if they cannot bring their stock above the $1 threshold. And on top of that, these companies each carry credit ratings of CCC+ or lower and are at risk of seeing those ratings even go lower.
Each of the companies presented here are considered to be among the weakest, if not the weakest, in their sector. If you have any of these falling knives in your portfolio now is the time to cut your losses and walk away.
View the "6 Stocks That May Not Survive the Coronavirus".