Update -3 Bearish trends in biopharma continue with both the IBB and XBI down with 30 min of trading to go. We will do a review of the healthcare sector later this week continuing the theme after the AACC of the need for diversification within healthcare e.g. medtech, diagnostics and tools.
Update-2…8/24-Alexion (ALXN) speculators get whiplashed by tweet storm. Stock took a 6.6 % hit on Friday’s trade war rants.
Many traders have been buying Alexion Pharmaceuticals’ stock on rumors of a buyout. The stock bounced from $111 on Tuesday as momentum players came in and drove the stock to a high of $125 on Thursday until trade war trash talk intervened causing the broad market and ALXN to sell off on Friday.Even biotech stocks are susceptible to the treacherous news of global trade and volatility of the bond market.
Update summary: Chaotic messaging from the Administration regarding the trade war and the FED has made it very difficult to manage risk in any portfolio. Given an uncertain global economy and daily tweets that buffet the market we need to maintain a “risk off” mentality. The (SPY) is essentially flat over 12 mos. now at $287. Biopharma stocks have fared much worse down over 12% over twelve months.
Daily Charts from 8/23:
Update-1…8/21-Traders Buy into Choppy Market for Biotech and Healthcare Stocks.
Stocks were higher for most sectors today despite some yield curve nervousness. NAZ was up 0.9%. Retail stocks strong with TGT and LOW.
- Healthcare- XLV up 0.74%, IHI med devices up 0.54%, IHF providers up 0.61%.
- Biopharma/life science- IBB up 0.91%, XBI up 0.96%, FBT up 1%.
- Mid-caps go green, large caps solid with ALXN up 3.06%,
- AMRN up 4%, ILMN up 2.06%,
Bearish Trends in BiopharmaEmerge in 2019
Need Drivers for Q4 rally like M&A, clinical breakthroughs and respite from macro and trade news.
Time to rebalance life science portfolios with services, tools and diagnostics.
Biopharma Stocks topped out in April 2019 and despite some big wins with individual stocks the long term trend looks even worse with all time highs in the IBB hit in mid-July 2015. Biopharma stocks were hit with political bashing from drug pricing late in 2018 and most recently stocks were engulfed in the macro sell-off. The healthcare sector holds promise over the near term because of demographics and the promising breakthroughs of molecular medicine and targeted therapies in oncology but considerable uncertainty has been raised by the “payor politics” of the upcoming 2020 election.
Ten Year Monthly Chart for XBI and IBB
We are currently in a volatile market where intermediate trends are in flux and driven by the bond market and global trade uncertainty. Healthcare and particularly large cap drug stocks in the past were more of a defensive sector because of reliable growth and high dividends. However this model is being challenged lately by drug pricing and high costs of medical care.
- The Healthcare sector (XLV) is up 8.48% YTD but most of the gains occurred in first two months of 2019 with no perceptible trends.
- The small cap equal weighted (XBI) biopharma ETF soared through early April driven by expectations of M&A and clinical breakthroughs and although in a choppy downtrend is still up 15.8% YTD.Trade XBI in uptrends.
- The large cap weighted (IBB) pretty much tracks the (XLV) and has been in downtrend since July up only 7.16% YTD.
Over two years the picture looks worse with the XLV eking out a 14.69% return while the IBB is up only 1.2%. So for relative safety look at the XLV and for bullish trading the XBI has more momentum. For large caps you need good stock picking like Roche ADR (RHHBY) up 9.78% with a 3.11% Div. and Merck up 14.88 % with a 2.64% Div.; otherwise you might have picked big losers like Bristol-Myers (BMY) and Gilead Sciences (GILD). Roche is unique in having strong positions in biopharma and clinical diagnostics.Amgen (AMGN) soared recently after a patent win against Novartis on Enbrel.
If you don’t manage your own money and want mutual funds that could cover the sector then here are two well known funds. However they should be used in combination with ETFs for diversification.
Two Well Known Life Science Mutual Funds to Compare
Fidelity Select Biotech (FBIOX) up 15% YTD, down 6.3% over one year, up 6.88% over 3 years ave annual returns.The TopTen Holdings are well known large caps plus SRPT, IONS and SAGE.
T.Rowe Price Health Sciences (PRHSX) up 5% YTD, up 14.22% over 3 yrs. ave annual returns by qtr.Major holdings are more diversified in life science and healthcare including services (UNH), devices (ISRG), providers (ANTM) and tools (TMO).
Tools and Diagnostics- A Growth Market
We recently attended the AACC Lab Expo Meeting the focused on clinical diagnostics for laboratory medicine as well as R&D tools. Assuming the NIH Budget and drug discovery R&D continues to get aggressive funding many of these players will grow the top line and get a boost from M&A.There have been many big winners in the Tools and DX sector because of market growth, new genetic tools and biomarkers and synergy with drug therapies. Growth rates for molecular diagnostics are forecasted above 7% through 2024.
We will provide performance of selected companies large and small that are representative of the laboratory medicine sector similar to data we presented in the past.
Here are some top performing Tools And Diagnostics stocks over the past 12 months:
Guardant Health (GH), Techne (TECH, Thermo Fisher (TMO), Invitae (NVTA), Hologic (HOLX), Danaher (DHR).
Here are three laggard stocks with good potential for gains: Amarin (AMRN), Illumina (ILMN) and Veracyte (VCYT).
disclosure long: ABBV, AMRN, BMY, GILD, ILMN. MGTX, MRK, RHHBY etc.