Large Cap Biopharma Buffeted By Big Gov, Choppy Days Ahead …Update-2

Update-2 Flashback from 1/19 and 2018 Performance. Big winner in 2018 was MRK up 33% to $76.41 but 2018 was a bad year with the XBI down 15% to $71.75. But Regeneron was a bargain on 1/19 at $373.

Update-1 6/27…A bad day for Biotech but a nice rally day for Tech

Most biotech shares were weak today with the IBB down 1.25% to the $125 level almost at the midpoint of the 52 week range almost bearish. The large cap winners were LLY and RHHBY but the 1%+ losers are more numerous: ABBV, GSK, PFE, and REGN was down 8.71% to $716.09 after the FDA rejected its high dose version of Eylea. This could be temporary setback but the pipeline can deliver positive news this year including data for DME diabetic macular edema. XBI held but barely at $83 level.

But the QQQs found support today at 363.83 with chips coming back strong with its usual large cap winners: AMZN,MSFT,AAPL,NVDA,AVGO,META etc.The rally did broaden today to include: materials, consumer and especially housing.Small caps also rallied.

Mid cap tools and diagnostics were hit hard: DHR, ILMN, TMO etc. Madrigal (MDGL) was down 13%!

Looks like a risk -off situation so be cautious.

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Large Cap Biopharma Buffeted by Big Gov Fighting Big Pharma

• Momentum in Tech Easing but with hope for a broader  rally.
• Earnings coming Up in July Needs to Support High Multiples.
• Innovation is strong for Diabetes and Immunology

As you may know by now, the U.S. Government is being sued by Merck and the PhRMA on drug pricing legislation that gives Medicare the power to negotiate drug prices. This battle started with the Inflation Reduction Act (IRA) and has had a significant negative impact on stock prices. This is on top of legal actions by the FTC blocking the acquisition of Horizon Therapeutics by Amgen. Today as of 2P EDT.  Today most of these stocks are in the red except Regeneron and Vertex which had positive news on their Type 1 Diabetes cell therapy.  Diabetes has had several breakthroughs with LLY and VRTX potentially. But Pfizer stock took a 3.68% hit on its decision to discontinue its obesity drug.

After a huge run-up in stocks since January investors have come to realize that most of the gains have come from the so called “Magnificent Seven” tech stocks: AAPL, AMZN GOOGL, META, MSFT, NVDA, TSLA.  And despite increases in interest rates from the FED inflation is still high enough with strong demand for jobs to consider another quarter point raise in July. And we still have an indeed yield curve  with the 2 year at 4.75%.

We would like to see an expansion of leadership in the market especially given all the government stimulus. Today we see a weaker tech market but some gains in industrials, energy, materials and real estate. One of the issues with life science stocks could be that the tech rally particularly AI has  so much momentum that it has drained funds and enthusiasm for other plays.

Healthcare has lackluster performance down 2.83% YTD but UNH looks like a bottom. Traders prefer the innovation and newsy plays of the XBI up 2.55% YTD. For example seemingly out of nowhere Moonlake Immunotherapeutics (MLTX) shot up 77% on Phase 2 results for its Nanobody drug,

Performance leaders in order for 2023: LLY, VRTX, AZN MRK, REGN.

Prices as of 6/24. Disclosure long ABB, AZN, BMY, GILD, LLY, MRK, REGN, and VRTX.