It’s been a rough day for a number of companies in the biotech space. Here are two of the day’s biggest losers, one big one small, and the reason behind their respective declines – Gilead Sciences, Inc. (NASDAQ:GILD) and CARDIOME PHARMA CORP(NASDAQ:CRME).
Cardiome Pharma Corp
Let’s kick things off with the smaller of the two, Cardiome Pharma. At market close on Monday, this company shut out the session for a little over $5 a share. By the open on Tuesday, Cardiome stock went for $3.05 – a 43% decline in valuation overnight.
For those not familiar with Cardiome, it’s a development stage biotech company that – as its name suggests – is working on a number of cardiovascular treatments. The company has two approved products. One which it currently markets in Europe, and is called Brinavess, targeted at the rapid conversion of recent onset atrial fibrillation to sinus rhythm in adults. The other, Aggrastat, a reversible GP IIb/IIIa inhibitor indicated for use in patients with acute coronary syndrome. It generated circa $20 million revenues from the two during 2015, but spent a considerable amount on this generation, and notched up a net loss of $24.4 million for the year.
Which brings us nicely to the reason for the decline.
The company just announced the pricing of a public offering that’s going to see it issue 10 million common shares at $3 a share, with the goal of generating $30 million proceeds. It wants to use these proceeds to in-license a drug called dalbavanncin, an ABSSSI antibiotic, from Allergan plc Ordinary Shares (NYSE:AGN), with the funds going towards the licensing fee and future milestones.
There’s value in this deal, but right now, it’s incredibly dilutive. Not only is the company adding 10 million shares to its existing outstanding base, but it’s doing so at what amounts to a 44% discount to last night’s close. As such, markets have responded by trading the stock down to the fresh issue valuation, and the chances are we will see further decline today on the back of the announcement. As we’ve said, there’s the potential long term that this value will recover based on the mitigating impact of a successful in licensing of the product in question. Near term, however, sentiment is likely to be heavily weighted to the sell side.
Gilead Sciences, Inc.
Moving on, let’s take a look at the second of our movers, the bigger one of the two (by far) – Gilead.
Gilead just put out its second quarter 2016 earnings, and has taken a hit on the back of the readout. The company is down around 8% at time of writing, trading at a little over $81 a share for a market capitalization of $109 billion. At the July 25 close, its stock traded for $88.55.
So what did the numbers tell us? Well, they weren’t good. For the three months to June 30, 2016, the company recorded revenues of $7.76 billion. This is a close to 6% decline on the revenues recorded during the me period a year earlier. Net income followed a similar pattern. The company generated $3.58 billion for the quarter in 2016, down 22% on the same period a year earlier.
It’s not all doom and gloom, however. The company’s cash position is strong, and strengthening, reported at $24.6 billion as of June 30, up from the $21.3 billion reported at March 31. The company also picked up an approval during the quarter for its lead hep C development program, and can now kick off the commercialization phase for its Epclusa drug – a combination of Sosbuvir 400 mg/velpatasvir 100 mg, or SOF/VEL, as it’s often referred to. This is a big deal, and the revenues potential from this approval outweigh should offset any decline in other product sales medium term. As such, we don’t expect Gilead to stay down too long. There may be some near term selling pressure as markets offload on the latest numbers, but longer term, Gilead remains strong. Cash is solid, its Hep C portfolio is industry leading and, despite the year over year decline, revenues and bottom line still look attractive.