While the market jittered this week over what the Federal Reserve will do next, some stocks didn't flinch. The fortunate investors were those who held shares in one or more of these three humongous health-care stocks.
Best-performing biotech IPO
Stemline Therapeutics (STML) has only traded publicly this year, but what a year it's been. The stock's performance ranks Stemline as the best-performing biotech IPO so far in 2013. This week has been pretty good also, with shares moving up by 28%.
The catalysts for Stemline over the past few days came from analysts. First, Ladenburg Thalmann initiated coverage on the biotech with a "buy" rating. Later in the week, Aegis Capital reiterated its "buy" recommendation for the stock and also raised its price target from $35 to $40 per share.
All the excitement stems mainly from Stemline's experimental drug SL-401. Earlier this month, the FDA gave orphan drug designation to SL-401 for the treatment of blastic plasmacytoid dendritic cell neoplasm, a rare blood disease. Stemline previously received orphan drug designation for the drug for the treatment of acute myeloid leukemia.
No dilution worries here
Often when a biotech announces a new share offering, its stock will fall because of investor concerns about dilution. There were no worries for Intercept Pharmaceuticals (ICPT) with its recently announced offering, though. Shares jumped 20% for the week.
The main driver for the stock came from Oppenheimer's initiation of coverage for Intercept with an "outperform" rating and a $60 price target. That price level makes the announced secondary offering price of $33.01 per share sound really good, even though the secondary offering will dilute the number of outstanding shares by around 10%.
Oppenheimer's optimism on Intercept stems from its view that Intercept will report good news in 2014 from its phase 3 study of obeticholic acid in treating primary biliary cirrhosis. The investment firm also likes the added potential for the drug to treat other follow-on indications.
How sweet it is
Nektar Therapeutics (NKTR -4.35%) shareholders saw sweet gains this week. The stock climbed 18% on positive clinical study results.
The good news for Nektar was that patients didn't like its experimental painkiller, NKTR-181. How is that good news? The problem with current opioid analgesics used to reduce pain is that patients enjoy the euphoria produced by the drugs so much that they become addicted to them. NKTR-181 is designed to enter the brain slowly, thereby reducing the levels of euphoria that can lead to addiction.
Outside of this human abuse liability study, NKTR-181 is in a phase 2 study for patients with moderate to severe chronic pain from osteoarthritis of the knee. The market for opioids tops $10 billion annually in the U.S., but the drugs' side effects and potential for addiction are problematic. Should Nektar ultimately gain approval for its drug, its lowered euphoric effects should present a sizable revenue opportunity.
Easing on down the road
Which of this week's humongous performers are the most likely to do well as they ease on down the road? I'll go with Nektar. The biotech is further along in clinical development with several of its products than the other two companies and has partnerships with several strong pharmaceutical firms.
Having said that, I think all three of these companies have solid potential. My hunch is that the actions of the Federal Reserve won't be of too much concern for shareholders in any of these companies. Potential FDA actions? Definitely. Ben Bernanke's decisions? Doubtful.
