For a number of companies, the close of last week brought with it considerable volatility in biotech. For some, the volatility added some much needed strength against a backdrop of the weakening wider biotech space. For others, there came no such reprieve, and for one in particular, Friday will be looked back on as a black day. So, with this said, let’s take a look at what went on in biotech.
Nobilis Health Corp. (NHC.TO)
First then, let’s look at Nobilis. From highs a little ahead of $7 flat on Friday morning, Nobilis crashed to close out the day at $4.93 – a 30% decline in a matter of hours. As is its prerogative, the Investment Industry Regulatory Organization of Canada (“IIROC”) halted trading mid session, stemming what could have been an even deeper decline. The organization reinstated trading at market close, which gave Nobilis the weekend to report its take on the drop. Despite having this time, however, the company kept quiet, only reporting that it was not aware of any material development that drove the decline. For those not familiar with Nobilis, the company is a healthcare marketing company that delivers pharmaceutical marketing direct to patients via hospitals it owns, manages and partners with. The question we need to ask now is whether the decline is the beginning of a larger bear trend, or whether it is an anomaly that, in turn, offers an opportunity to pick up an exposure at a discount. Well, in the last 12 months the company has grown its revenues from less than $20 million to more than $60 million as reported last quarter. The recent decline means the company is trading at a market cap of a little over 6 X revenues, which if the decline does turn out on anomaly, looks attractive. Of course, there may be something we don’t know. It might be worth waiting on any updates before taking on this amount of risk.
LDR Holding Corporation (NASDAQ:LDRH)
Next up, LDR. This company designs and develops medical devices targeted at improving the surgical biotech space, with a specific focus on the spine. The company is set to report its Q3 2015 earnings on November 4, 2015, and it announced some preliminary expectations on Friday. The expectations missed considerably on the numbers offered as guidance by analysts that follow the company, and this translated to an immediate downside hit for LDR throughout Friday’s US session. The company declined from Friday’s open at $36 flat to close out the day a little over $26 – a 28% decline across the session. Exactly what the markets will make of LDR as we head into a fresh session is unclear, but from an objective perspective the decline looks a little harsh. Yes, the company missed on expectations, but only by a few percentage points, and still expects to report quarterly revenues of a little over $40 million – a circa 10% gain on the comparable quarter last year. With this in mind, the decline may be an exaggerated response to an earnings surprise in the wake of the bearish wider biotech sentiment, and once again, might offer a nice discounted exposure for the more risk tolerant biotech investor. Just as with Nobilis, however, there is an addendum. Selloffs will often breed collateral selloff, so a little patience might be worth a lot before deciding on, or against, an exposure.
Eli Lilly and Company (NYSE:LLY)
Moving to the mega caps, let’s close this one out with Eli Lilly. As with the other two, Eli lost a considerable portion of its market capitalization, in this instance pre market today – declines that look set to continue as we head into today’s session. The company announced before market open that it was pitching to discontinue the development of evacetrapib – its lead cholesterol candidate. Eli announced its phase III trial, which has taken place across more than 500 sites and more than 12,000 patients, will be discontinued on the back of a lack of demonstrable, statistically significant efficacy. Investors had been looking to the drug as a potential exposure to a multi billion-dollar industry, and having spent triple digit millions on evacetrapib to date, have taken a big hit on its discontinuation. The company’s stock has reacted accordingly, with premarket showing a close to 8% decline on Friday’s close. Expect further declines during today’s US session, as investors that picked up an exposure in anticipation of the treatment’s phase III success cut losses and limit damages.