Millions of people are diagnosed with cancer each year and it is now the world’s second-most common cause of death, following cardiovascular diseases. But many biotech and pharmaceutical companies are making significant progress in treating various types of cancers. Moreover, the integration of advanced technologies is helping biotech companies develop viable drugs and therapies for treating other critical diseases.
Although it contributed greatly to the fight against COVID-19, the biotech industry is focused more on finding cures for other critical diseases. Rising government investments and an aging population should keep driving the industry’s growth. Indeed, the global biotechnology market size is expected to grow at a 16.8% CAGR between 2021 – 2030.
However, not all stocks from this industry are well-positioned to capitalize on the tailwinds. Fundamentally weak and overvalued biotech stocks Genmab A/S (GMAB), argenx SE (ARGX), and XOMA Corporation (XOMA) were recently downgraded by analysts.
Genmab A/S (GMAB)
Headquartered in Denmark, GMAB is a biotechnology company that develops antibody therapeutics to treat cancer and other diseases worldwide. It has developed a broad clinical and preclinical product pipeline and owns four antibody technologies: DuoBody bispecific platform; HexaBody platform; DuoHexaBody platform; and HexElect platform. Morgan Stanley has recently downgraded GMAB’s rating from ‘Equal-weight’ to ‘Underweight.’
On June 22, 2021, the European Commission (EC) granted marketing authorization for GMAB’s DARZALEX SC in the European Union, in combination with bortezomib, cyclophosphamide, and dexamethasone (VCd) for the treatment of adult patients with newly diagnosed systemic light-chain amyloidosis, and with pomalidomide and dexamethasone (Pd) for treating multiple myeloma. With this approval, the company expects to profit from its expanding market reach in the coming months.
GMAB’s revenue has declined 63.8% year-over-year to DKK1.97 billion ($312.81 million) for its fiscal second quarter, ended June 30, 2021. The company’s operating income came in at DKK787 million ($124.84 million), down 82.5% from the prior-year period. While its net income decreased 90.9% year-over-year to DKK306 million ($48.54 million), its EPS declined 91% to DKK4.64.
Analysts expect GMAB’s EPS to decline 22.9% year-over-year in the current year. It has failed to surpass the consensus EPS estimates in each of the trailing four quarters. And the stock has declined 3.1% in price over the past month to close Friday’s trading session at $43.98.
In terms of forward EV/Sales, GMAB is currently trading at 20.52x, which is 193.2% higher than the 7x industry average. In terms of forward Price/Sales, GMAB is currently trading at 22.70x, 179.1% higher than the 8.13x industry average.
GMAB’s weak prospects are reflected in its POWR Ratings. The stock has an overall C rating, which equates to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
GMAB has a D grade for Growth and Momentum, and a C grade for Value and Quality. In the 509-stock Biotech industry, it is ranked #40.
To see additional POWR Ratings for GMAB’s Stability and Sentiment, click here.
argenx SE (ARGX)
ARGX is a Netherlands-based clinical-stage biopharmaceutical company that focuses on creating and developing therapeutic antibodies to treat cancer and severe autoimmune diseases, using its discovery platform, Simple Antibody. Its lead product candidate is efgartigimod, for the treatment of patients with myasthenia gravis. ARGX’s rating has also been downgraded from ‘Overweight’ to ‘Equal-Weight’ by Morgan Stanley.
In an announcement dated August 25, 2021, the European Medicines Agency (EMA) validated the marketing authorization application for ARGX’s investigational FcRn antagonist, efgartigimod, for the treatment of generalized myasthenia gravis (gMG). Under review with the U.S. Food and Drug Administration (FDA), the company hopes to witness high demand for efgartigimod in the coming months.
For the half-year ended June 30, 2021, ARGX’s total operating expenses increased 56.9% year-over-year to $403.51 million. The company’s cash, cash equivalents, and current financial assets totaled $2.73 billion as of June 30, 2021, down 6.1% sequentially from the prior quarter. Its EPS is expected to remain negative in the coming quarters of the current year and next year. ARGX ended Friday’s trading session at $327.
In terms of forward EV/Sales, ARGX is currently trading at 27.12x, which is 287.3% higher than the 7x industry average. ARGX has a 32.29x forward Price/Sales, which is 297.1% higher than the 8.13x industry average.
ARGX’s POWR Ratings are consistent with this bleak outlook. The stock has an overall C rating, which translates to Neutral. In addition, ARGX has a D grade for Momentum and Quality, and a C grade for Value and Stability. Moreover, it is ranked #84 in the Biotech industry.
In addition to the POWR Rating grades I’ve highlighted, one can see ARGX’s ratings for Growth and Sentiment here.
XOMA Corporation (XOMA)
XOMA is a development-stage biotechnology company that focuses on the discovery and development of monoclonal antibody-based therapeutics internationally. The Berkeley, Calif., company has five products in its endocrine portfolio, two of which are developed as part of its XOMA Metabolism (XMet) platform. It also licenses antibody discovery, optimization, and development technologies. Wedbush Securities has recently downgraded XOMA’s rating from ‘Outperform’ to ‘Neutral.’
NIS793, a novel antibody specifically made by XOMA and Novartis AG (NVS) for Transforming Growth Factor Beta (TGFβ), in combination with standard of care chemotherapy, was granted Orphan Drug Designation in pancreatic cancer by the U.S. FDA on July 28, 2021. Upon receiving regulatory approval to commercialize NIS793, XOMA will receive tiered royalties on any net product sales. XOMA expects to witness high demand for NIS793 in the coming months.
XOMA’s loss from operations was $3.06 million for its fiscal second quarter, ended June 30, 2021, representing a 2.8% decline from the prior-year period. The company’s net loss was $2.24 million, down 36.7% from its year-ago period. Its loss per share declined 6.1% year-over-year from the prior-year period. As of June 30, 2021, the company had $78.95 million in cash, down 6.3% from the full year-ended December 31, 2020.
Analysts expect XOMA’s EPS to remain negative in the coming quarters of the current year and next year. A $9.96 million consensus revenue estimate for the current year indicates a 66.1% year-over-year decline from the prior-year period. XOMA has lost 41% in price year-to-date and 17.7% over the past month. It ended Friday’s trading session at $26.04.
In terms of forward EV/Sales, XOMA is currently trading at 21.44x, which is 206.3% higher than the 7x industry average. In terms of forward Price/Sales, XOMA is currently trading at 29.56x, 263.5% higher than the 8.13x industry average.
It’s no surprise that XOMA has an overall C rating, which translates to Neutral in our POWR Ratings system. In addition, the stock has a D grade for Growth and Momentum, and a C grade for Stability, Sentiment, and Quality. The stock is ranked #99 in the Biotech industry.
Click here to see additional POWR Ratings for XOMA’s Value.
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GMAB shares were trading at $44.17 per share on Monday morning, up $0.19 (+0.43%). Year-to-date, GMAB has gained 8.63%, versus a 20.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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