Why Insmed Shares Soared

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Insmed , a clinical-stage biotechnology company focused on inhaled therapies for diseases of the lung, jumped as much as 18% after a pair of brokerage firms boosted their price targets on the company.

So what: Just hours apart from one another, Canaccord Genuity boosted its price target on Insmed from $12 to $17 while Leerink Swann raised its target all the way to $22 from $13. The impetus behind both price target hikes was similar: an expected approval of Arikace, the company's inhaled first-line treatment for non-tuberculosis mycobacterial infections. These two price target bumps come one week after Lazard Capital Management raised its price target on Insmed to $21 and the covering analyst, Joshua Schimmer, projecting sales of $600 million annually by 2020.


Now what: While certainly a good day for existing shareholders, let's remember that analyst actions should be taken with a grain of salt as they rarely have any long-term bearing on a stocks' share price or your investing thesis. The reality here is that Insmed still doesn't have a drug approved by the Food and Drug Administration, it's burning cash, and it could be at least two more years before it gets Arikace in front of the European Medicines Agency for an approval decision. A U.S. decision will be yet another year or two beyond that. With a cash burn rate that I anticipate will be right around $50 million annually, it won't be long before Insmed needs cash again and reaches to potentially dilutive offerings to accomplish this. I'd strongly suggest keeping your distance.

Craving more input? Start by adding Insmed to your free and personalized watchlist so you can keep up on the latest news with the company.

While you can certainly make huge gains in biotechs like Insmed, the best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

The article Why Insmed Shares Soared originally appeared on Fool.com.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of Lazard. 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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