The markets certainly felt a bit under the weather yesterday. Thursday, the Dow Jones Industrial Average dropped 250 points, while the S&P 500 fell 2.23 percent. The sell-off began a day after the Federal Reserve failed to launch another quantitative easing program and moments after Goldman Sachs (NYSE:GS) recommended selling the S&P 500. Are some pharmaceutical stocks the prescription during the pullback.
Due to speculation and a flight to safety, several biotech names avoided the majority of the pullback and others are just plain volatile. Shares of Dendreon Corp. (NASDAQ:DNDN) are trading flat again today on rumors that suggest the company could become a takeover target. Meanwhile, Arena Pharmaceuticals Inc. (NASDAQ:ARNA) shares popped more than 8 percent Thursday, as investors have stronger evidence behind the company’s recent FDA speculation, but quickly turned negative today as investors are selling shares aimlessly with the stock dropping 20%!
The Street’s latest FDA Drug Approval Contest received record participation from investors who were asked to predict the likely outcome of five significant FDA events expected in June and July. The previous contest had a respectable success ratio of 60 percent in the predictions thrown up by its participants. In the study, Arena Pharmaceuticals’ anti-obesity lorcaserin drug received a 46 percent expected approval rate for the June 27 decision. Should the drug receive approval, it will be the first weight loss prescription drug to enter the market in over a decade, reported InvestorPlace. Shares of the company have surged more than 400 percent year-to-date and now just 11 percent in the past week.
Investors are also seeking comfort in less speculative drug companies, such as Johnson & Johnson (NYSE:JNJ) and Pfizer Inc. (NYSE:PFE). Both are outperforming the broad market and pay a dividend close to 4 percent. J&J also received an upgrade last week to Buy from Hold by Jefferies. The firm explained, “Management has beaten expectations by re-engineering the financing of the Synthes merger. Instead of a dilutive stock issuance followed by a share buyback program, the company has borrowed stock through an accelerated share repurchase agreement, which transforms the transaction into an accretive deal. The net effect is to raise our mid-term earnings estimates by 4-5 percent and we have upgraded the shares to Buy from Hold as a result.”
Merck & Co. Inc. (NYSE:MRK) shares are trading higher around 2% in Friday trading, making it one of the strongest Dow performers in the green today. The global pharmaceutical company has gained 6.68 percent year-to-date, and hit a fresh 52-week high of $40.28 on Friday following Credit Suisse’s bullish analyst note on the company’s outlook and product pipeline strength.
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