Are Yesterday's Small Cap Biotech Losers Long Term Losers?

On Wednesday, small cap biotech stocks Arena Pharmaceuticals (NASDAQ: ARNA), ERBA Diagnostics (NYSEAMEX: ERB), Albany Molecular Research (NASDAQ: AMRI) and Impax Laboratories (NASDAQ: IPXL) all ended the day down anywhere from 7% to almost 10% for the day. Moreover, two of these stocks were also falling in after hours or premarket trading on Wednesday. So why were these small cap biotech stocks falling and more importantly, will they continue falling? Here is a quick look before you invest or start trading:

• Arena Pharmaceuticals. A biopharmaceutical company focused on discovering, developing and commercializing novel drugs for weight management, cardiovascular disease, inflammation and other disorders, Arena Pharmaceuticals received FDA approval in June 2012 for its internally discovered drug, BELVIQ.On Tuesday, Arena Pharmaceuticals fell 9.72% to $8.82 for a market cap of $1.92 billion plus it was still falling in after hours trading. Arena Pharmaceuticals is up 444.44% over the past year and up 11.9% over the past five years – so at least on a year-over-year basis, a 9.7% is a drop in the bucket. What investors have to worry about is the news that caused Arena Pharmaceuticals to dip – basically that the European equivalent of the FDA was raising questions about the safety of BELVIQ. Of course, that won’t automatically mean that the Europeans will refuse approval of BELVIQ, but it will make it harder for Arena Pharmaceuticals to get the drug approved.

• ERBA Diagnostics. Formerly known as IVAX Diagnostics, Inc., ERBA Diagnostics is involved (through subsidiaries) in developing, manufacturing and marketing diagnostic test kits, reagents and instruments for use in hospitals, reference laboratories, clinical laboratories, research laboratories, doctors' offices and other commercial companies. On Tuesday, ERBA Diagnostics fell 7.69% to $0.720 for a market cap of $31.43 million, but the stock is still up 44% over the past year and up 26.3% over the past five years. I am not seeing any reason for the sudden drop, but 29,000 shares traded on Tuesday instead of the normal 22,412 shares per day. So maybe the chart technicians should take a closer look at ERBA Diagnostics’ charts.

• Albany Molecular Research. A provider of fully integrated drug discovery, development and manufacturing services, Albany Molecular Research has locations in the United States, Europe and Asia and has successfully partnered R&D programs where its actively seeking to out-license remaining programs for further development. On Tuesday, Albany Molecular Research fell 7.17% to $5.57 for a market cap of $172.25 million, but the stock is still up 79.1% over the past year and down 57.4% over the past five years. Albany Molecular Research made a big dip in early morning trading on Tuesday and the trading volume for the day was 568,806 verses the normal 136,464 per day trading volume. I don’t see any reason for Albany Molecular Research to be dropping although another blogger suspected that it had something to do with differences between what AMRI announced it would invest in New York (in exchange for subsidies) and what the government of New York initially said the company was going to invest in order to get the subsidy or tax break. Otherwise, Albany Molecular Research is scheduled to report earnings before the market opens on Tuesday, February 12, 2013.

• Impax Laboratories. A technology-based specialty pharmaceutical company utilizing controlled-release and other in-house development and formulation expertise, Impax Laboratories says it has a balanced business model that consists of a successful generic business targeting high-value Abbreviated New Drug Applications (ANDA) and a brand strategy with the potential to drive higher long-term growth. On Tuesday, Impax Laboratories fell 7.09% to $19.53 for a market cap of $1.33 billion and the stock was falling in after hours trading. Impax Laboratories is down 2.35% over the past year, but its also up 261.7% since March 2009. Impax Laboratories had announced over the weekend that the FDA had issued a complete response letter regarding the company’s New Drug Application (NDA) for RYTARY™ (IPX066), a potential Parkinson's disease treatment. The letter indicated that the FDA would need a re-inspection of a Impax Laboratories’ facility because of a May 2011 warning letter – after which, the company had removed the facility from the list of sites where RYTARY would be produced at. So it appears that while Impax Laboratories’s drug is just fine and will eventually be approved, the bureaucrats at the FDA for now decided to find and throw up a few roadblocks for the company to figure out how to navigate around.

My hunch is that all Arena Pharmaceuticals, ERBA Diagnostics, Albany Molecular Research and Impax Laboratories just had a bad day on Tuesday. However, investors might want to watch what is happening with Arena Pharmaceuticals’ BELVIQ drug in Europe.