Rayno Life Sciences-Biopharmaceutical Update: Turbo Boost From Vertex (VRTX)

Vertex Pharmaceuticals Gives Biotech Sector A Turbo Boost

Vertex (VRTX $82), a laggard in the frothy biotech universe rose an astonishing 58% on positive Phase 2 clinical news from its cystic fibrosis drug VX-661. The study showed statistically significant improvement in lung function among adults who have two copies (homozygous) of the most common mutation in a gene called CFTR. Vertex(VRTX) up only 10% through April 1 was not in the spotlight among biotech movers, but since April 1 has soared from $55.5 to $84!  Vertex was one of the original biotech leaders since the 80′s, has a $18B market cap with revenues of $1.16B forecasted in 2013. Vertex has been a major player in the development of small molecule drugs to treat HCV and cystic fibrosis. Forecasts for the cystic fibrosis drug are in the $5B range and analysts have already jumped on the bandwagon proclaiming this mid-cap is ready to move into the majors as it now has a market valuation comparable to Regeneron (REGN $207) which has forecasted revenues of $1.9B.

As of midday trading the IBB was up 3.6% and the portfolio held 3.8% of VRTX shares.The XBI held 2.6% of VRTX and was also up about 3.5%.

Rayno Portfolio-Biotechnology Stocks Soar Over 20% YTD

Many Large and Small Cap Stocks Are Up Much More—

  • Astex (ASTX) up 112%
  • Albany Molecular (AMRI) up 73%
  • Seattle Genetics (SGEN) up 51%
  • Gilead Sciences (GILD) up 38.5%
  • Biogen-Idec (BIIB) up 35.7%
  • Pharmacyclics (PCYC) up 29%
  • Alkermes (ALKS) up 27%
  • Amgen (AMGN) up 25%

With these kind of returns even in the largest cap $47B + companies like Amgen, Gilead and Biogen, the run is even more impressive. On Monday of this week we flashed the caution flag because of the huge returns and the market jitty-ness caused by the gold crash. This proved to be right because the NASDAQ continued weak with three down days of >1% this week. The IBB is still up over 20% this YTD compared to the heavy tech laden QQQ which is up only 3% but lately they are trading in tandem. As tech stocks announce perceived earnings shortfalls the sentiment could carry over to frothy biotechs. We are also concerned about seasonality which can be weak in early spring, technicals which have broken down in some MO stocks and excessive pumping by financial media on the marvels of biotech stocks which was not apparent in 2012.

We have not made any changes in our portfolio except as noted below, for example the two paired trades long and short,with the shorts covered and the longs held. The biobull or “bubblet” is still intact but now must be tempered by any overall market weakness.  Speculation remains robust. We regret not adding Vertex (VRTX) and it could be that the market will seek out mid-caps that are “hidden gems” (like Alkermes ALKS) not yet being pumped by the hedge funds and analysts. And sure enough as we take a quick look at the 35 mid and small cap biotechs on our screen today, it is mainly green so they are taking their lead from Vertex.

 Rayno Biopharmaceutical Portfolio as of 4/18/13

2013 Price Original P Price %Ret Price Price % Ret Price
Summary Jy’10 Recomm Dec’10 2010 Apr’11 Dec’12 YTD April 19
 2013
Achillion ACHN  new 3/4/13 8.6 -13 7.46
Alexion ALXN 50.45 2/2/09 35 80.6 130 100.8 95.4 -1.8 92(spl)
Alkermes ALKS  new 3/22/13 23 18.5 27 29.2
Albany Mol AMRI 2/10/11 4.68 added 4.32 5.3 73 9.15
Astex ASTX 12/27/11 1.63 2.7 112 6.17
Amgen AMGN 51.7 2/2/09 55 54.9 0 54 87.4 25 107.46
Biogen BIIB 49.42 2/2/09 48.5 67.1 37 73.25 149 35.7 198.66
Cephalon CEPH 55.95 2/2/09 76.5 61.7 -19 76.92 80.18 30 acquired
Cubist CBST 20.7 2/2/09 21.5 21.4 -3 28.35 42.4 8 45.42
Exelixis EXEL trade 9/2/10 3.3 8.21 148 11.12 4.58 3.7 4.74
First Trust FBT 30.4 4/15/10 37.5 39.1 3 41.3 46 17 53.88
Gilead GILD 34.9 2/2/09 51 36.2 -29 42.81 72.7 38.5 50.86(spl)
iShares ETF IBB 76.6 2/2/09 70.5 93.4 32 101.1 137.8 20 164.95
SPDR Bio XBI 86.38 15 101.22
Micromet MITI 6.28 2/2/09 4 8.12 103 5.46 10.91 272 acquired
ImmunoGen IMGN 12/22/11 12.4 12.5 11.7 14.25
Optimer OPTR trade 2/18/11 11.8 added 13.8 9.2 64 14.86
Pharmacycl PCYC 6/8/12 38.2 58 29 74.77
Regeneron REGN 21.6 2/2/09 17.5 32.8 82 45.43 173 21 206.66
SeattleGen. SGEN 11.85 2/2/09 9.5 15 57 15.72 23.3 51 35.08
ViroPharma VPHM 10.88 2/2/09 12 17.3 44 20.05 22.9 9.9 25.02
Paired
Trades
Pharmacycl PCYC long 6/8/12 38.2 60 51 88.78
Medivation MDVN short 6/8/12 86.8 closed 50 7 47.85(split)
net 58
Alkermes ALKS long 3/22/13 23 18.5 27 29.2
Infinity INFI short 3/22/13 48.7 closed 35 18 39
net 45

 

 

 

 

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