A great week for the overall market didn't trickle down to every stock. Here are three of the most horrendous health-care stocks this week.
Not so merry
Merrimack Pharmaceuticals shareholders have had reason to party since early May, with the stock surging more than 60%. The merriment came to a stop this week, though, as shares tanked by 27%.
As is often the case with small pharmaceutical companies, the culprit was the sale of new shares. On Wednesday, Merrimack announced a secondary offering to sell $50 million of new stock and plans to issue $75 million in senior notes maturing in 2020. Those numbers changed the following day, though, when the company announced that it would instead sell $25 million worth of shares and issue senior notes of $125 million.
The initial figure represented potential share dilution of around 10%, with the revised number half as large. Merrimack plans to use the cash it raises primarily to fund development and to seek regulatory approval for its pancreatic cancer drug MM-398.
War of words
In the stock market, the old saying that "sticks and stones may break my bones, but words can never hurt me" doesn't hold water. GTx investors experienced that reality firsthand this week, with shares dropping 15% from an online article published on Wednesday.
The Street's Adam Feuerstein wrote about why a fund manager he knows is shorting GTx stock. This fund manager has accurately predicted negative clinical results for other biotech stocks recently. Investors quickly dumped shares of GTx in response to the article.
Wedbush responded to the article the next day, calling the criticisms of the phase 2 study of GTx's Enobosarm "unfounded." Wedbush analyst David Nierengarten said, "While we usually do not respond to a journalist repeating a short-seller's thesis on a covered stock, the 25% drop intraday compels us to respond." The firm reiterated its outperform rating on GTx and its price target of $9 per share.
Down on da Vinci
Long a health-care technology darling, the market doesn't feel the love so much these days for Intuitive Surgical . Shares fell 15% this week after the company announced disappointing preliminary second quarter numbers.
Sales for Intuitive's da Vinci robotic surgical systems declined around 6% in the last quarter compared with a year ago. The company attributed the drop to "increased economic pressure on hospitals" and to "moderating growth" in benign gynecologic procedures. Intuitive's statement that the slowdown in gynecologic procedure growth is due to "a trend by payers toward encouraging conservative management and treatment in outpatient settings" caused lots of eyebrows to rise.
Analysts piled on with more bad news after Intuitive's announcement. Several downgraded the stock, including Canaccord Genuity, Goldman Sachs, and JMP Securities. Lazard Capital maintained its "buy" rating on Intuitive but lowered its price target to $480 from $625.
Of this week's three horrendous stocks, I suspect that Merrimack has the biggest opportunity to mount a strong comeback in the coming months. The share dilution is only a temporary setback.
Over the long run, though, I think Intuitive Surgical is still a solid investment. My view is that this week's sell-off was overdone. I like that the company gets nearly $0.60 from every dollar it makes from recurring revenue. The old razor-and-blades business model works for robots, too.
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