Buy, Sell, or Hold: Peregrine Pharmaceuticals
Jan 28th 2013 9:13AM
Updated Jan 28th 2013 9:20AM
When considering any stock for your portfolio, don't be swayed by just the positives. Examine its pros and cons, and decide whether it's possible upside outweighs its risks. Let's take a look at Peregrine Pharmaceuticals today and see why you might want to buy, sell, or hold it.
Founded in 1981 and based in California, Peregrine is a biotechnology company, focused mainly on diagnosing and treating cancer and viral infections. With a market capitalization of about $275 million recently, it's a small-cap company -- somewhat unproven, but with a lot of room to grow. The company's stock has more than doubled over the past year, though its 10-year average annual return is negative 3%.
One reason to consider buying Peregrine Pharmaceuticals is its business. With the world's population growing, getting older, and living longer, demand for health care products and services is likely to remain in demand.
As you'll see below, despite many cautions to consider, the company appears to be performing well, recently blowing away Wall Street expectations by reporting a smaller-than-expected loss.
A key disease it's tackling, non-small-cell lung cancer, meanwhile, is a major one, representing roughly 80% to 85% of all lung cancer cases. Successful NSCLC drugs are likely to generate big profits -- but developing such treatments is easier said than done.
One reason to consider selling, or walking away, is Peregrine's stock price, recently around $2 per share. That's firmly in penny-stock territory, where extra-risky companies abound and many fortunes have been lost. It's not a definite portent of doom, but it's a red flag to consider.
Another reason to stay away from Peregrine -- and other biotech companies -- is that most of us know very little about biotechnology and related fields. Thus, it can be especially hard for us to discern which companies are best poised for success, and what the risks are for each. It can make a lot of sense to just steer clear, or to invest in a bunch of biotech companies at once, via an ETF. SPDR Biotech, for example, can instantly have you invested in more than 40 companies, such as Exelixis , which received FDA approval for its thyroid cancer drug, cabozantinib -- which may also get approved to treat prostate cancer and, if the company's plans pan out, other diseases, as well.
One biotech thing to know, for example, is that the non-small-cell lung cancer it's targeting with its bavituximab drug is a tough nut to crack, and plenty of competitors also trying to crack it, some without much success so far. Geron , for example, wasn't able to find enough patients for a clinical trial and canceled it, taking a stock-price hit. Infinity Pharmaceuticals is looking into whether it can combat NSCLC with its heat shock protein 90 inhibitors, and Clovis Oncology is focusing on an early stage oral inhibitor, but it's also been running low on cash and got whacked when a pancreatic cancer drug proved insufficiently effective. Successes include Celgene's Abraxane. Celgene is looking to expand Abraxane's use across other indications, as well as other geographic regions.
If you don't like uncertainty and volatility, you might not like Peregrine. It's been on a bit of a rocky road lately, due to a clinical trial data mix-up for bavituximab. Some recent phase 2 results are reportedly promising, but some remain wary and there's still phase 3 trials to get through. Still, the drug may perform well.
Peregrine's valuation numbers aren't too pretty, either, with a recent price-to-sales ratio of 13.1, nearly double its five-year average of 6.8. Its P/E ratios aren't too meaningful, given its negative earnings.
Dilution is a concern with Peregrine, too, as the company's share count has risen from 44 million in 2008 to about 100 million recently. Rising share counts shrink the value of each share, and this bears watching.
Meanwhile, short interest in Peregrine has been rising, though it's not at sky-high levels at this point. Still, that reflects growing skepticism about the company's future -- which may or may not be proven warranted. One issue troubling shorters is shareholder lawsuits the company faces. Even if it ends up victorious, lawsuits can consume a lot of company time, money, and attention.
Given the reasons to buy or sell Peregrine Pharmaceuticals, it's not unreasonable to decide to just hold off on it. You might, for example, want to wait for bavituximab to make it through FDA approval, or for other promising drugs to approach or receive approval. You might also wait for it to get above penny-stock levels.
I'm holding off on Peregrine Pharmaceuticals for now. Everyone's investment calculations are different, though. Do your own digging and see what you think. The company may perform spectacularly in the coming years, but remember that there are plenty of compelling stocks out there.
With Celgene's broad portfolio of drugs and a strong pipeline, to boot, many investors see it as a smart way to play the biotech investing game. While Celgene might be a safer stock than its small biotech brethren, investors need to know about the key opportunities and risks facing the company. We run through them all in The Motley Fool's brand new premium report on Celgene. To claim your copy today, simply click here now.
The article Buy, Sell, or Hold: Peregrine Pharmaceuticals originally appeared on Fool.com.Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool recommends Exelixis. The Motley Fool owns shares of Exelixis. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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