THLD, ZLCS, CHTP: Any Value in Oversold Biotech Stocks?

While most stocks related to the healthcare sector are doing well on the bourses, investors in Threshold Pharmaceuticals Inc (NASDAQ: THLD), Zalicus Inc (NASDAQ: ZLCS), and Chelsea Therapeutics International (NASDAQ: CHTP) have turned cautious and bearish leading to significant correction in the last 15 days.

Californian biotech company Threshold Pharmaceuticals Inc (NASDAQ: THLD) is a perfect example of a stock that attracts lot of supply at higher levels. The company focuses on discovery and development of therapeutics that selectively target cancer tumors leaving the healthy ones unharmed and even though the company has shown progress with its drug program, investors keep on booking profits as soon as the stock looks ripe for a rally. It currently trades at $1.31 and has a 52 week range of $1.18 - $3.34. It has largely been in a declining trend within a narrow range. During the last 15 days, it has gone down by 13 per cent on account of a share offering filing. However, investors may be caught off guard as the stock is heavily oversold and has an important discloser lined up as soon as the next month.  

Zalicus Inc (NASDAQ: ZLCS) develops drugs for the treatment of pain and inflammation. The first half of 2011 was good for the company and the stock also traded higher in the range of $3. However, its Q2 results changed a lot of things and the stock tumbled to the low of $0.82 in October. After recovering partially in the subsequent months, it again lost 11.5 per cent in the last month for no apparent reason. On the contrary, investors can expect a decent rally in the stock during the first half of 2012 as it s likely to sign new contracts with Novartis, Amgen and Eisai. We will have more details in a couple of months but the stock is unlikely to remain depressed for that long.

Chelsea Therapeutics International (NASDAQ: CHTP) has also lost 12 per cent in the last 30 days and trades with an RSI value of 34. The company has an important event coming up in the form of an accelerated FDA approval decision for its drug Northera, proposed for treating  orthostatic hypotension.

Without doubt, most biotech companies end up in the ‘net shareholders’ value’ destroyers in the long term but once in a while, a selected few would have a blockbuster discovery too. Biotech stocks, though risky, are excellent tools for speculation and often tend to move between extremities. Since these stocks are currently heavily oversold without a compelling reason, a bounce in the next 15 days is a strong possibility.