By Val Brickates Kennedy, MarketWatch
An earlier version of this report misspelled the name of Nabi’s drug NicVAX.
BOSTON (MarketWatch) — If investors have become more risk-averse toward drug stocks in these economically unsettling times, Nabi Biopharmaceuticals did little to allay their fears last week.
Last Monday, Nabi investors watched as the company’s stock plunged 70% to $1.89, making it the latest example of what a cold, cruel world biotech-stock investing can be.
/zigman2/quotes/210598458/delayed BTK 5,790.81, +131.78, +2.33%
The collapse in Nabi shares, now trading at about $2, highlighted what has been a largely negative month for drug-stock investors.
Larger-cap pharmaceutical stocks — traditionally a defensive play for investors — managed to fare better than their biotech brethren, as the broader market weakened over heightened concerns that the U.S. might default on its loan obligations.
The Amex Pharmaceutical Index /zigman2/quotes/210598443/delayed DRG +0.91% , as of midday, had slid 1.5% since the beginning of July, with Wednesday an unusually bearish day for the sector. Higher-risk biotech stocks have been hit much harder, with the Amex Biotechnology Index /zigman2/quotes/210598458/delayed BTK +2.33% falling 6.8% over the past month.
Back to 1987
Our Trading Deck has been home to a spirited debate over whether we're in for a crash.
• L.A. Little: Don't worry | Michael Gayed: Worry
• The warning signs of a 1987-style crash
• Hulbert: Stocks as overvalued as at 2007 high
Nabi’s implosion, meanwhile, just seemed to underscore how risky biotech investing can be. And according to analysts, investors shouldn’t expect Nabi to rebound any time soon.
The source of Nabi’s misery is a Phase III clinical trial that Nabi needed to win approval for NicVAX, its innovative smoking-cessation product. Unlike other quit-smoking products, NicVAX is a vaccine that researchers believe can help block the flow of nicotine to the brain, thereby making smoking far less pleasurable.
But despite investors’ high hopes over the years, results from the study released July 18 showed that NicVAX wasn’t any more effective than a placebo. A second required Phase III trial, results of which are expected later this year or early next, is likely to yield similarly grim results, as they’re reportedly identical in design.
According to C.K. Cooper & Co. analyst Jeffrey Cohen, Nabi investors would be best off holding their shares, at least for now.
“It looks like NicVAX is dead in its current form,” said Cohen, who dropped his rating of the stock from buy to hold. He added that he doesn’t expect the second ongoing Phase III trial to product favorable results, either.
What Cohen does expect is management to cut spending to conserve cash, which should help the company stay afloat for the foreseeable future.
Also supporting Nabi’s shares is the company‘s partnership with U.K. giant GlaxoSmithKline /zigman2/quotes/209463850/composite GSK -0.05% for the development nicotine-addiction therapies.
Nabi’s also expecting a modest revenue stream from milestone and royalty payments for Phoslyra, a drug that recently won U.S. approval. Phoslyra will be marketed by Fresenius USA Manufacturing /zigman2/quotes/208962635/delayed DE:FME +0.41% .
Factoring in such costs as a reorganization and the ongoing Phase III trial, Cohen values Nabi at between $2.70 and $2.90 a share. Until the stock crashed, Cohen had a price target of $12.50.
Likewise, analyst Joseph Schwartz of Leerink Swann believes that NicVAX’s second Phase III trial will be a bust, according to a recent note to clients. Late last week, Leerink dropped Nabi’s 12-month price target to $3 a share from $12.
Nabi’s shares closed at $2.02 on Tuesday.