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mid-cap

Should You Exit These Biotechnology Stocks – NBIX, CRIS

Feb 25, 2022 | Team Kalkine
Should You Exit These Biotechnology Stocks – NBIX, CRIS

 

Neurocrine Biosciences, Inc.

Neurocrine Biosciences, Inc. (NASDAQ: NBIX) is a neuroscience-focused biotechnology business dedicated to discovering and developing novel medicines for patients suffering from severe neurological, endocrine, and psychiatric disorders. The company's commercial products include INGREZZA (for the treatment of tardive dyskinesia), ONGENTYS (for Parkinson's disease), ORILISSA (for severe pain associated with endometriosis), and ORIAHNN (for uterine fibroids). NBIX developed ORILISSA and ORIAHNN in collaboration with AbbVie Inc.

Why should investors make an exit?

  • Declining Profitability: The company reported a net loss of USD 7.3 million in Q4FY21 vs. a net profit of USD 347.9 million in Q4FY20.
  • Weak Margin Profile: In FY21, NBIX's reported EBITDA and net margins were 19.3% and 7.9% lower than the 32.1% and 38.9% reported in the previous financial year.
  • Weak Liquidity Profile: The company's current ratio at the end of FY21 is 3.96x, compared to the industry median of 6.31x. This implies a relatively lackluster liquidity profile against the industry median.
  • Product Concentration Risk: INGREZZA's revenue and earnings are highly dependent on product sales, putting the company at risk of product concentration.
  • Technical Weakness: On the daily chart, NBIX prices sustain below the downward sloping trend line and face the same resistance. Furthermore, the momentum oscillator RSI (14-period) is trading at ~64.06 level, reversing from the higher levels. On the weekly charts, the prices are trading below the trend-following indicators 21-period and 50- period SMA, which may act as a resistance level for the stock. A critical support level for the stock, is placed at USD 74.50, while the key resistance level is set at USD 98.50.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

NBIX's share price has surged 17.40% in the past month and is currently leaning towards the lower band of the 52-week range of USD 71.88 to USD 111.75. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 77.97.

Considering the company's declining net margins, weak liquidity profile, current valuation and associated risks, we recommend a "Sell" rating on the stock at the current price of USD 88.65, up 1.74% as of February 25, 2022, at 02:02 PM ET. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing.              

Three-Year Technical Price Chart (as of February 25, 2022, at 02:02 PM ET). Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

 

Curis, Inc.

Curis, Inc. (NASDAQ: CRIS) is a biotechnology business dedicated to developing cancer medicines. Everidge, a treatment for advanced basal cell carcinoma, is its main product, which it commercializes in collaboration with Genentech and Roche. Other CRIS therapeutics under development include CI-8993, a monoclonal anti-VISTA antibody, and certain oral small molecule antagonists of immune checkpoints such as CA-170 (VISTA/PDL1 antagonist), CA-327 (TIM3/PDL1 antagonist), and CA-4948 (IRAK4 kinase inhibitor).

Why Should Investors Make An Exit?

  • Declining Fundamentals: Total revenues fell 1.72% YoY to USD 10.65 million in FY21 (ended December 31, 2021) from USD 10.84 million in FY20. It also reported an expansion of net losses in FY21 to USD 45.44 million vs. USD 29.91 million in FY20.
  • Stiff Competition: CRIS faces significant competition from Sun Pharmaceutical Industries Ltd.'s sonidegib for Erivedge (Odomzo). If the rivalry worsens, the company's royalty revenues and overall performance could suffer.
  • Technical weakness: On the daily chart, CRIS prices are sustaining below the downward sloping trend line and facing the same resistance. Furthermore, the momentum oscillator RSI (14-period) is trading at ~42.70 level, showing the indecisiveness of stock at the current level. However, on the daily chart, the prices are trading below the trend-following indicators 21-period and 50- period SMA, which may act as a resistance level for the stock.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

CRIS' share price has declined 77.78% in the past nine months and is currently leaning towards the lower band of the 52-week range of USD 2.78 to USD 17.40. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 2.71.

Considering the significant dip in the stock price, declining fundamentals, current valuation and associated risks, we recommend a "Sell" rating on the stock at the closing price of USD 3.20, up 0.95% as of February 25, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. 

Three-Year Technical Price Chart (as of February 25, 2022). Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.