7 Pharma Stocks to Avoid at All Costs in 2019

7 Pharma Stocks to Avoid at All CostsPosted on Monday, November 26th, 2018 by Chris Markoch

The pharmaceutical sector has been on a roller coaster ride over the last several years. As recently as 2016, the industry was getting pinched by the double whammy of pressure to reduce drug costs and a corporate tax structure that was choking off topline growth. In the last year, many of the pharmaceutical companies have seen their stocks go through the roof as a result of the new tax policy. But not every pharmaceutical stock is showing strength.

Make no mistake, this is an industry that every investor – and every consumer – should want to see succeed. These companies are continuously introducing new drugs and treatments for cancer, Alzheimer’s, diabetes, and multiple sclerosis just to name a few. And that’s not to mention the drugs that help us manage our cholesterol, high blood pressure, and depression.

Not to mention, the baby boomer generation continues to reach retirement age. In 2018 alone, over three million people will be reaching retirement age and that pace isn’t expected to slow down significantly until 2029. As the number of retirees expands so too will their need for the products and services that come from this industry.

It’s expensive to develop these drugs, not to mention that it can take years for some of these products to reach the market. Our desire to want to believe in these treatments can allow investors to mistake an inflated valuation for a poor valuation.

But as an investor, we have to perform our due diligence, and there are some stocks that have qualitative or quantitative factors working against them. While the pharmaceutical is always changing, we’re providing a list of seven stocks that, for now, should stay out of your portfolio.

#1 - Eli Lilly and Co. (NYSE:LLY)

Eli Lilly And Co logo

Eli Lilly and Co. (NYSE: LLY) - Eli Lilly is in that space where they have a lot of products in development – and many are showing enormous promise, but the stock has been struggling with declining revenues since a series of patents expired in 2011. One of their newer drugs, Solanezumab, an Alzheimer’s drug, failed to produce the expected results. However, the company is resting a lot of their hope on two of their newest cancer drugs Cyramza and Portrazza, which have been approved but are not yet at the point where they are generating tangible revenue for the company. The company also recently suffered a setback when a court ruled against their appeal of a $20 million patent lawsuit in which the company was accused of infringing on a German patent with its Cialis product.

From a technical standpoint, the stock has an earnings per share (EPS) of 2.27 which is down -37% for the year. This has brought their EPS forecast for next year to 3.87%. And the P/E multiple for the stock is around 43 which is above its multiple of 33 two years ago that was considered high at that time. However, the performance of the stock year-to-date is 30.01%. What seems to be of more concern for investors is that Eli Lilly seems to be accepting its underperformance instead of aggressively combating it.

About Eli Lilly And Co
Eli Lilly and Company discovers, develops, manufactures, and markets pharmaceutical products worldwide. The company operates through two segments, Human Pharmaceutical Products and Animal Health Products. It offers endocrinology products for the treatment of diabetes; osteoporosis in postmenopausal women and men; and human growth hormone deficiency and pediatric growth conditions. The company also provides neuroscience products for the treatment of depressive disorder, diabetic peripheral neuropathic pain, anxiety disorder, fibromyalgia, and chronic musculoskeletal pain; schizophrenia; attention-deficit hyperactivity disorder; obsessive-compulsive disorder, bulimia nervosa, and panic disorder; and positron emission tomography imaging of beta-amyloid neurotic plaques in adult brains, as well as immunology products to treat Alzheimer's disease. In addition, it offers oncology products to treat non-small cell lung, colorectal, head and neck, pancreatic, metastatic breast, ovarian, bladder, and metastatic gastric cancers, as well as malignant pleural mesothelioma; and cardiovascular products to treat erectile dysfunction and benign prostatic hyperplasia; and migraine. Further, the company provides animal health products, such as cattle feed additives; protein supplements for cows; leanness and performance enhancers for swine and cattle; antibiotics to treat respiratory and other diseases in cattle, swine, and poultry; anticoccidial agents for poultry use; and chewable tablets that kill fleas and prevent heartworm diseases. Additionally, it offers vaccines to prevent bordetella, Lyme disease, rabies, and parvovirus. The company has collaboration agreements with Daiichi Sankyo Co., Ltd.; Incyte Corporation; Pfizer Inc.; AstraZeneca; Nektar Therapeutics; NextCure, Inc.; and Dicerna Pharmaceuticals, Inc., as well as has strategic collaboration with Sigilon Therapeutics and AC Immune SA. Eli Lilly and Company was founded in 1876 and is headquartered in Indianapolis, Indiana.

Current Price: $122.66
Consensus Rating: Buy
Ratings Breakdown: 10 Buy Ratings, 10 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $110.8750 (-9.6% Upside)

#2 - GW Pharma (NASDAQ:GWPH)

GW Pharmaceuticals PLC- logo

GW Pharma (NASDAQ: GWPH) - GW Pharma had a big moment this summer when it received historical approval for Epidiolex, a pharmaceutical that is the first of its kind to be derived from cannabis. But since then the company has failed to sustain the momentum that pushed its stock up to its all-time high shortly before the launch. The stock is up just 2% for the year and is lagging behind others in the sector. If this was a short-term problem it would be one thing. However, in the last three years, the stock has consistently lagged behind the performance of the S&P Biotech ETF which has returned approximately 35%.

One of the reasons for the stock’s lackluster performance is a case of irrational expectations. The stock rose rapidly from $9 to $111 after its initial public offering (IPO) which may have created expectations the stock could not sustain. Although Epidiolex received approval in a very short timeframe, some analysts suggest it could have been shorter, and more importantly, the drug is experiencing some headwinds regarding pending competition from Zogenix and a question of whether major insurance companies will get behind the new drug. GW Pharma is a stock with a lot of potential, but right now it may be wise to wait until the picture gets clearer.

About GW Pharmaceuticals PLC-
GW Pharmaceuticals plc, a biopharmaceutical company, focuses on discovering, developing, and commercializing cannabinoid prescription medicines using botanical extracts derived from the Cannabis plant. Its lead product is Epidiolex, an oral medicine for the treatment of refractory childhood epilepsies, as well as for the treatment of Dravet syndrome, Lennox-Gastaut syndrome, tuberous sclerosis complex, and infantile spasms. The company also develops and markets Sativex, an oromucosal spray for the treatment of spasticity due to multiple sclerosis. In addition, it develops various product candidates for the treatment of glioblastoma, neonatal hypoxic-ischemic encephalopathy, and schizophrenia. Further, the company has license and development agreements with Almirall S.A.; Bayer HealthCare AG; Ipsen Biopharm Ltd; and Neopharm Group. It primarily operates in Europe, the United Kingdom, the United States, Canada, and Asia. GW Pharmaceuticals plc was founded in 1998 and is based in Cambridge, the United Kingdom.

Current Price: $145.88
Consensus Rating: Buy
Ratings Breakdown: 9 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $178.00 (22.0% Upside)

#3 - Gilead Sciences (NASDAQ:GILD)

Gilead Sciences logo

Gilead Sciences (NASDAQ: GILD) - Gilead has had some big missteps in the past few years. For starters, they started seeing sales of their Hepatitis C products decline as far back as 2015. While some companies would respond to this by seeking out new sources of revenue, Gilead looked at what they perceived to be the high valuations across their industry and chose instead to take their pile of cash and put billions into a shareholder-rewards program. Things got worse when, at the beginning of 2018, new Hep C drugs came onto the market which has put further downward pressure on Gilead’s sales. In response to this, Gilead made what some analysts consider to be a curious acquisition of Kite Pharma which does not seem to provide them with competitive protection, nor will it provide them with an easy remedy for their declining top-line which is leading some analysts to question the opportunity cost. Kite Pharma specialized in adoptive-cell therapy which will be new to Gilead’s portfolio. This makes it hard to see Gilead becoming a leader in this space.

About Gilead Sciences
Gilead Sciences, Inc. discovers, develops, and commercializes therapeutics in the areas of unmet medical needs in the United States, Europe, and internationally. The company's products include Biktarvy, Descovy, Odefsey, Genvoya, Stribild, Complera/Eviplera, Atripla, Truvada, Viread, Emtriva, and Tybost for the treatment of human immunodeficiency virus (HIV) infection in adults; and Vosevi, Vemlidy, Epclusa, Harvoni, Sovaldi, Viread, and Hepsera products for treating liver diseases. It also provides Yescarta, a chimeric antigen receptor T cell therapy for adult patients with relapsed or refractory large B-cell lymphoma; Zydelig, a PI3K delta inhibitor for blood cancer; Letairis, an oral formulation of an endothelin receptor antagonist for pulmonary arterial hypertension; Ranexa, a tablet to treat chronic angina; and Lexiscan, an injection for use as a pharmacologic stress agent in radionuclide myocardial perfusion imaging. In addition, the company offers Cayston, an inhaled antibiotic for the treatment of respiratory systems in cystic fibrosis patients; Tamiflu, an oral antiviral capsule for the treatment of influenza A and B; AmBisome, an antifungal agent to treat serious invasive fungal infections; and Macugen, an anti-angiogenic oligonucleotide to treat neovascular age-related macular degeneration. Further, it develops product candidates for the treatment of HIV/AIDS and liver diseases, hematology/oncology, inflammation/respiratory diseases, and others. The company markets its products through its commercial teams; and in conjunction with third-party distributors and corporate partners. Gilead Sciences, Inc. has collaboration agreements with Bristol-Myers Squibb Company; Janssen Sciences Ireland UC; Japan Tobacco Inc.; Galapagos NV; Tango Therapeutics, Inc.; AELIX Therapeutics S.L.; TARGET PharmaSolutions, Inc.; Scholar Rock Holding Corporation; and Agenus Inc. The company was founded in 1987 and is headquartered in Foster City, California.

Current Price: $66.98
Consensus Rating: Buy
Ratings Breakdown: 10 Buy Ratings, 8 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $83.4375 (24.6% Upside)

#4 - Alnylam Pharmaceuticals (NASDAQ:ALNY)

Alnylam Pharmaceuticals logo

Alnylam Pharmaceuticals (NASDAQ: ALNY) - The Cambridge, Massachusetts biotech firm specializes in creating techniques that can help block out the effects of harmful genes. Its initial application to showcase its techniques will be in the treatment of amyloidosis with a drug called Onpattro. If the company succeeds, they may become a very intriguing play, but right now the company is still working through a valuation problem. In 2017, the company’s $89.9 million revenue was largely the result of payments made from potential partners. However, Alynlam’s market value is $12.2 billion – that’s a pretty staggering 125 times revenue. The stock has risen from $42 in late 2016 to a 52-week high of around $123. The stock is down considerably from that point and is currently trading around $67. However, in their last earnings report, they showed an 87.9% decline in year-over-year revenue. Two reasons for this are value-based agreements (VBA) that make it less clear how much revenue their new drug will bring in. Particularly since it's impossible to predict how effective Onpattro may be. Further clouding the picture is that the FDA nixed the company's ability to market potential cardiac benefits of the drug which further clouds the picture of how Onpattro will fare against its competition.

About Alnylam Pharmaceuticals
Alnylam Pharmaceuticals, Inc., a biopharmaceutical company, discovers, develops, and commercializes novel therapeutics based on RNA interference (RNAi). Its pipeline of investigational RNAi therapeutics focuses on genetic medicines, cardio-metabolic diseases, and hepatic infectious diseases. The company's clinical development programs include Patisiran, which is in Phase III clinical trial for the treatment of hereditary transthyretin-mediated amyloidosis; Givosiran that is in Phase III trial to treat acute hepatic porphyrias; Fitusiran, an investigational RNAi therapeutic that is in Phase II open-label extension and Phase III clinical trial for the treatment of hemophilia and rare bleeding disorders; and Inclisiran, which is in III clinical trial for hypercholesterolemia. Its clinical programs also include ALN-TTRsc02, an investigational RNAi therapeutic targeting TTR, which is in the Phase I clinical trial for the treatment of various forms of ATTR amyloidosis; Lumasiran (ALN-GO1) that is in Phase I/II clinical trial for the treatment of primary hyperoxaluria type 1; and Cemdisiran (ALN-CC5), which is in the Phase II clinical trial for the treatment of complement-mediated diseases. The company has strategic alliances primarily with Sanofi Genzyme; The Medicines Company; Monsanto Company; Takeda Pharmaceutical Company Limited; Ionis Pharmaceuticals, Inc; and Regeneron Pharmaceuticals, Inc. Alnylam Pharmaceuticals, Inc. was founded in 2002 and is headquartered in Cambridge, Massachusetts.

Current Price: $77.75
Consensus Rating: Buy
Ratings Breakdown: 13 Buy Ratings, 3 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $133.00 (71.1% Upside)

#5 - Bluebird Bio (NASDAQ:BLUE)

bluebird bio logo

Bluebird Bio (NASDAQ: BLUE) - Another Cambridge, Massachusetts makes the list. Like Alnylam, Bluebird specializes in the area of gene therapy. In the case of Bluebird, they are focusing on applications for neurological disorders. The problem that investors are mulling over with Bluebird is the competitive landscape around its most promising drugs. In the pharmaceutical space, the window of exclusivity is very narrow and the space for Bluebird continues to be very crowded. Having said that, Bluebird also has valuation concerns. Their 2017 revenue was just under $40 million however its market value was $10.5 billion for a price/revenue ratio of 272. After the stock reached a record high of $236.17 in March of 2018, it has steadily retreated and is now selling around $119. The stock still has a market cap of $6.51 billion. If investors are looking for a positive sign, it's that Bluebird's pipeline is loaded. If only a few of these drugs take off, it could make the stock a buying opportunity. However, for now, the better play may be to let this one fly away.

About bluebird bio
bluebird bio, Inc., a clinical-stage biotechnology company, focuses on developing transformative gene therapies for severe genetic diseases and cancer. Its product candidates include Lenti-D that is in Phase II/III clinical trials for the treatment of cerebral adrenoleukodystrophy, a rare hereditary neurological disorder; and LentiGlobin, which is in various clinical studies for the treatment of transfusion- transfusion-dependent ß-thalassemia and severe sickle cell disease. The company's lead product candidates in oncology include bb2121 and bb21217, which are anti- B-cell maturation antigens in Phase I clinical trials for the treatment of relapsed/refractory multiple myeloma. bluebird bio, Inc. has a strategic collaboration with Celgene Corporation to discover, develop, and commercialize disease-altering gene therapies in oncology; and Regeneron Pharmaceuticals, Inc. to discover, develop, and commercialize various immune cell therapies for cancer. It also has collaborations with Medigene AG for the research and development of T cell receptor product candidates directed against antigens for the treatment of cancer indications; TC BioPharm Limited to research and develop gamma delta chimeric antigen receptor modified T cell product candidates for cancer immunotherapy; Inhibrx, Inc. to research, develop, and commercialize CAR T Cell immunotherapies; and Gritstone Oncology, Inc. to research, develop, and commercialize products for the treatment of cancer using cell therapy, as well as a partnership agreement with Celgene European Investment Company LLC. The company was formerly known as Genetix Pharmaceuticals, Inc., and changed its name to bluebird bio, Inc. in September 2010. bluebird bio, Inc. was founded in 1992 and is headquartered in Cambridge, Massachusetts.

Current Price: $133.44
Consensus Rating: Buy
Ratings Breakdown: 15 Buy Ratings, 7 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $186.7059 (39.9% Upside)

#6 - Adamas Pharmaceuticals (NASDAQ:ADMS)

Adamas Pharmaceuticals logo

Adamas Pharmaceuticals (NASDAQ: ADMS) - Adamas has an approved Alzheimer’s drug in the market, Namenda, that has started to generate revenue for the company. In 2017, the drug’s revenue was less than $1 million. The drug is designed to treat Alzheimer’s related dementia. While analysts are estimating revenue from the drug could rise to $92 million in the next two years, it seems that investors were overly generous in their valuation of the company driving it up as high as $868 million. That’s a price/revenue ratio of 9 times estimates two years out. Investors though seem to be more concerned about their recently introduced Parkinson’s drug, Gocovri. They are questioning the commercial prospects for the drug which is entering a very competitive space with Osmolex. While there is a reason to believe Gocovri may prove to have a competitive advantage that will allow Adamas to be a big winner, there is a lot of uncertainty that seems to be manifesting itself in 2018. The stock has come back down to earth this year, falling from a high of $44 per share in early 2018 to its current price of right around $11.

About Adamas Pharmaceuticals
Adamas Pharmaceuticals, Inc. discovers, develops, and sells therapies for chronic neurologic disorders. The company's approved/commercial product is GOCOVRI, an amantadine therapy for the treatment of levodopa-induced dyskinesia in patients with Parkinson's disease. Its partnered approved/commercial products include Namzaric (memantine hydrochloride extended-release and donepezil hydrochloride) capsules; and Namenda XR (memantine hydrochloride) extended release capsules for the treatment of moderate to severe Alzheimer's disease. The company's product candidates under development includes ADS-5102, which is in Phase III clinical trials for the treatment of multiple sclerosis walking impairment; and in Phase II clinical trials for additional indications, such as the treatment of wearing OFF and delaying motor complications in Parkinson's disease, tardive dyskinesia, Huntington's chorea, and Tourette syndrome, as well as non-motor disorders consisting of depression, and anti-psychotic induced weight gain. Its products under development also includes ADS-4101, a modified-release lacosamide that has completed Phase I clinical study for the treatment of partial onset seizures in patients with epilepsy. The company was formerly known as NeuroMolecular Pharmaceuticals, Inc. and changed its name to Adamas Pharmaceuticals, Inc. in July 2007. Adamas Pharmaceuticals, Inc. was founded in 2000 and is headquartered in Emeryville, California.

Current Price: $11.24
Consensus Rating: Buy
Ratings Breakdown: 7 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $30.7143 (173.3% Upside)

#7 - Nektar Therapeutics (NASDAQ:NKTR)

Nektar Therapeutics logo

Nektar Therapeutics (NASDAQ: NKTR) - The company continues to struggle with its latest cancer drug, NKTR-214. The combination treatment helped the stock soar in early 2018 when Bristol-Myers Squibb agreed to license rights to NKTR-214. However, after reaching that height, investors have become less than enthused about the drug's potential. The response rate with declined for both melanoma patients and kidney cancer patients. Why is this important? If the numbers don’t improve, the stock may not receive FDA approval.  What may be even more concerning is that the company withheld objective response rate (ORR) data for up to 69% of dosed patients. One of the primary rules of biotechnology is that a company does not withhold data unless it’s bad. The stock has fallen to around $37 per share from a lofty high of around $111. Until investors get more firm data over a series of reports, Nektar seems like one stock that should be avoided.

About Nektar Therapeutics
Nektar Therapeutics, a research-based biopharmaceutical company, discovers and develops drug candidates for cancer, auto-immune disease, and chronic pain in the United States. The company offers ONZEALD, a topoisomerase I inhibitor that is in Phase III clinical trial for advanced metastatic breast cancer in patients with brain metastases; NKTR-181, an orally-available mu-opioid analgesic molecule, which is in Phase III clinical trial for moderate to severe chronic pain; NKTR-214, a cytokine immunostimulatory therapy that is in Phase I/II to treat cancer; NKTR-358, which is in Phase I to treat autoimmune diseases; and NKTR-262 for solid tumors, as well as NKTR-255 that is under research/preclinical stage for immuno-oncology. It is also developing MOVANTIK for opioid-induced constipation in adult patients with chronic non-cancer pain, and who have an inadequate response to laxatives; ADYNOVATE for hemophilia A; Somavert to treat acromegaly; and Neulasta for treating neutropenia. In addition, the company develops PEG-INTRON for the treatment of hepatitis-C; Macugen for age-related macular degeneration; CIMZIA to treat rheumatoid arthritis, Crohn's disease, and psoriasis/ankylosing spondylitis; and MIRCERA for anemia related to chronic kidney disease in patients on and not on dialysis. Further, it is developing SEMPRANA to treat migraine; dapirolizumab pegol for systemic lupus erythematosus; PEGPH20 for ancreatic, non-small cell lung cancer, and other tumor types; and longer-acting blood clotting proteins for hemophilia. The company has collaboration agreement with AstraZeneca AB, Shire plc, Pfizer Inc., Amgen Inc., Merck & Co., Inc., Valeant Pharmaceuticals International, Inc., UCB Pharma S.A., F. Hoffmann-La Roche Ltd, Allergan, Inc., Halozyme Therapeutics, Inc., Baxalta Incorporated, Bristol-Myers Squibb Company, and Takeda Pharmaceutical Company Limited. The company was founded in 1990 and is headquartered in San Francisco, California.

Current Price: $43.03
Consensus Rating: Buy
Ratings Breakdown: 9 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $84.2222 (95.7% Upside)

Investing in pharmaceutical stocks is not for the faint of heart. In addition to understanding the technical data that underpins every stock, investors are charged with understanding the science behind the stock. This can be difficult because it’s hard to not want to believe in these stocks. Because beyond the hope they provide for diseases that many families have been affected by such as cancer, Alzheimer’s, and multiple sclerosis, can cause these stocks to attract investor money as they see a growing market for these drugs as the world’s population continues to age.

But it’s important for investors to take the emotion out of these stocks. Because the drugs still have a high failure rate. When they fail, the decline in a company’s stock price can be disastrous. Many of the stocks in this report are down more than 50% from record highs just recorded this year.

These seven pharma stocks may have better days ahead of them, but for now, investors may want to take a pass.

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