Update -3 … Nice biotech rally today; green screen in gene therapy and mid-cap sectors. XBI and IWM up over 1%.

Update-2...Small cap reversal IWM up 1.67% to $157 level; our small cap portfolio winners:

AMRN CFMS GNMK MGTX VCEL etc. but XBI still lags stuck at $85 level.

Gold and silver miners very hot. 

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Update-1.. 7/23-Better Performance for Large Caps-Green Screen–Biogen Beats

Biogen Q2 Revenues up 8% to $3.6B, EPS up 58%, SPINRAZA Revs contributed $488M in Q2.

Most large cap biopharmas were up today with BIIB up 4.9% on earnings beat, REGN up 4.3%, GILD up 2.3%, MRK up 1.01%. We added to GILD today near $66.

Gene therapy was mixed, mid-caps were weak, XBI was down 0.68%, QQQ was up 0.68%.

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Biotech Trading Trends 2019-Sideways Since April Highs

  • Technology and semiconductors stocks are leaders in 2019; healthcare and large cap biopharma are laggards.
  • Higher risk small and mid caps outperform large cap biopharma but with unusual volatility.
  • Genomics and gene therapy plays are still attractive for biotech trading and investing.

2019 was a good year for biotechnology stocks if you were a trader and a good stock picker but the general indices peaked in April hit lows in early May and have pretty much stalled over the past 45 days as we get into earnings season and the summer doldrums. The sector has been buffeted by macro and trade issues with drug pricing attacks from all political sides and “Medicare For All” rhetoric rattling healthcare providers. Below is a brief performance scorecard. Most of the gains in the sector were early in 2019 January through April. Higher risk stocks outperformed as represented by the XBI.

  • XBI is the biotech leader up 21% YTD ahead of other major ETFs but lagging tech stocks with the QQQ up 28%. The large cap weighted IBB gained only 8% hit hard by drug pricing issues and tepid growth. Among our large cap universe the 52 week leaders were CELG,MRK and RHHBY. Top Losers were ABBV, BIIB,BMY, REGN- all well-known biopharmas.
  • The FBT was hit hard after April now up only 12% YTD . The FBT was the leading ETF but peaked in August 2018.
  • The S&P 500 up 22% and the DJIA up16% beat the IBB. Tech stocks were leaders.
  • Investing and trading outside of biopharma and healthcare (XLV) up 10% brought excellent returns. The XLK Technology Select SPDR is up over 38% YTD and the SMH Van Eck Semiconductor ETF is up 43% YTD.

We provided updates on gene therapy stocks and nimble traders have done well throughout 2019. 52 week leaders are BOLD, CRSP, ILMN, MGTX, SRPT and VYGR. Gene editing and CAR-T technologies are evolving with many products in the clinic but at an early stage.

More recently (past 3 mos.) the ARK Genomic Revolution ETF (ARKG) pulled ahead of the XBI  despite taking a big hit in June from its top holding Illumina (ILMN) which was down 15% on a JY 12 revenue warning. Other top holdings include genomics tools stocks NSTG, NVTA, VCYT as well as gene therapy stocks CRSP, EDIT and NTLA.Net assets of ARKG are only $448M but this relatively new 5 yr. old  ETF is up over 40% YTD.

Trading Trends-Unusual Volatility in Small Caps

Of some concern lately is the “pump and dump” chart pattern of many high flyers and a lagging Russell 2000 (IWM) now in correction territory at $153. Another example is the iShares Micro Cap (IWC) ETF which peaked in March at the $97 level. An orthopedic medical device stock we trade and still hold a small position is Conformis (CFMS) which hit a peak of $4.71 on June 10 and is now $2.71! One of our picks from the JPMorgan Healthcare Conference Amarin (AMRN) peaked on JY 5 at $23 on a financial update and is now at the $18 level.

We expect Q4 will be bullish for the sector assuming more M&A, clinical news and licensing deals as large cap biopharma needs access to technology and products for their long term pipelines.But with geopolitics always in the news, China trade deal expectations hitting the tape we should expect more volatility. Paradoxically the weekly updates on a potential trade deal may be supporting the market.Stay tuned for financial reports by the end of July and we will have better guidance for 2019.

Disclosure long AMRN , CFMS, BMY,  CRSP, GILD,MRK, MGTX, RHHBY.

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