Not A Good Time To Overweight Biotech Positions

We are still in a holding pattern and recommend that caution be exercised regarding new positions. Although biotech stocks have made a nice run over the past five days driven by  News from Vivus (VVUS) and Threshold (THLD) the IBB ($119.78) is still off its one year high of $122.45, and the early February peak. Aggressive traders who want to milk every last dollar from the current rally, and still have biotech weighting,  could buy the QQQ ($64.70) which is outperforming the IBB by 4% over one month with less news risk from biotech.

While there is still plenty of good price action in the life sciences over the past few days, speculative issues are more volatile with high fliers like Medivation (MDVN $65.81) down 1.83%, Threshold (THLD $5.21), Vivus (VVUS $21.26) down 10.6%.Threshold closed a big deal on Feb 3 with Merck KgaA and positive results with TRH-302 in a Phase 2b Pancreatic Cancer clinical trial.The stock was under $2 on Feb.1. Vivus, as everyone knows, received FDA Advisory Committee approval recommendation for treatment of obesity in adults for theirQnexa drug with a PDUFA date of April 17, 2012. Today the Company announced an offering of public stock of 8.5M shares. VVUS stock was at $10.55 just a week ago. The Rayno Mid Cap Index of 33 mid-cap biopharmaceutical stocks was flat to down today with Dendreon (DNDN $11.11) a big loser down 5.93% on weaker-than expected near term sales.

The Rayno Life Science Portfolio was flat today with Gilead(GILD $46) stabilizing in the $44 range and ViroPharma (VPHM $32.24) up 1,7% (a new high) on record $544M in Sales , reiterated guidance, and GAAP income of $141M.Colon cancer diagnostic developer Exact Scientific (EXAS $9.47) was up 4.4% close to its 52 week high of $9.79 with no recent news except reiterating last week that their clinical trials are on track. Alere (ALR $25.63) continued shopping for revenues announcing that they will purchase eScreen with $120M in revenues in the toxicology and employee related health screening tests.The purchase price was $270M in cash or 2.25x sales.

As the earnings season closes out we will summarize financial metrics of our focus Dx and Tools companies which have rallied significantly since early January. Response Genetics (RGDX $2.03)  was added to the portfolio on Feb 2 at a price of $1.50.

Although we may see an acceleration in biotech stock performance in Q4, no one expects a bubble similar to 1999 when the industry was less mature in product sales. Here is what one stock (HGSI)  looked like in the bubble days(select max).


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