After a nasty October correction of 10%, biotech stocks are in a recovery mode and poised for a Q4 rally extending to early January. This trend was intact in the past (check ’05,’06, and ’07 trends) but was disrupted by the recent financial crisis of ‘08/09. A nice base has formed around the IBB level of 75-79 so a rally would take this popular ETF beyond 80
seeking the September highs of 85. Partnerships and good clinical news have given support to biotech stocks lately and the sentiment has improved especially with biotech financing.
Burrill and Company (www.burrillandco.com) recently reported growing momentum in the sector( November 1 Genetic Engineering News) with financings of $35.6B through Q3 2009. This compares to a total of $18.4B in the same period of 2008. Partnering was particularly strong with financings of $22.2B through Q3 compared to $10.4B in 2008. Venture Capital financings were $3B about the same level as 2008. At a recent BIO Investor Conference on October 28 in San Francisco, a financial roundtable discussed a trend toward more “bio to bio” partnerships as both large and small companies in the space focus on strategic aspects of their respective technologies and Intellectual Property. In the meantime the M&A trend should continue with big pharma seeking technology and late stage products.
The Rayno Life Science Portfolio is up about 7% YTD and significantly more with rebalancing trades that were recommended. Recently we added Cephalon (CEPH) as a new large cap position and additional weighting of Cubist (CBST), Supergen (SUPG) and Viropharma (VPHM).
The Mid Cap sector has been difficult to play due to binary affect of disappointing clinical news and high valuations/expectations. We recommend a balanced portfolio with an overweight of large caps and the IBB ETF supplemented by smaller caps wit good balance sheets.
Additional smaller cap positions that should be added are: Alnylam (ALNY), a core play in RNA interference therapeutics for infectious disease and cancer, Idera (IDRA) a core play in immune response therapeutics through targeted Toll Receptors for infectious and inflammatory disease and SeraCare (SRLS) a biological products and services Company in a turnaround mode with revenues growing to the $50M range and a profitable quarter.
Rod Raynovich www.raygent.com