Update-3 12:30 P EDT ASCO Rally seems too be kicking in.Green Screen!

Update-2 5/15 10;45a EDT Gene therapy and mid-cap biopharma getting traction this am.XBI up 0.7% to $82.44.

Update-1 5/14 3:30P EDT,Mid and small cap biotechs rally with NASDAQ, XBI up over 2%.

  • Per our comments below selective small caps are up: AMRN up 3.63%, GNMK up 1.97%, ILMN up 1.61%,MGTX up 20%,
  • Mid-caps strong across the Board.
  • Large caps green except REGN.ABBV up 2.8%.

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Bad Week in Biotech-Tariffs and Trade Create Market Uncertainty- Risk Off

SeeSaw Week Off Mid-Week Lows

Drug Pricing Outrage Hits Media Hard

Biotech stocks weathered another nasty week helped by a Friday rally. The geopolitical turmoil triggered by tariffs was hard to assess on a day by day basis given the staccato of Trump tweets and “breaking news”. But expectations for a major US/China trade deal have been lowered and maybe a scenario of extended negotiations will reduce volatility for the market in the short-term.

Regeneron, (REGN) did not help the biotech tape this week down 9.4% to the $313 level having missed slightly on top line growth and missed on EPS due to higher R&D expenses.

Biotech stocks have been hit by the double barreled threats of macro events and drug pricing reform. Just recently U.S. States filed a lawsuit against TEVA and other drug makers of price fixing to stifle competition on generic drugs. Healthcare was among the S&P sectors that did not do well this week down 1.5% but not as bad as Financials down 2.3%, Industrial down 2.8% and InfoTechs down 3.6%.Nonetheless in our experience the lower in the market cap range you invest the better chance for stock gains because of less earnings sensitivity and not being hit by ETF inclusion.

Here is a snapshot of selected healthcare and biotech indices for the volatile week:

  • Major biotech ETFS:  FBT down 4.64% up 7.93% YTD, IBB down 2.53% up 7.69% YTD, XBI down 2.66% up 15.73% YTD.
  • iShares U.S. Healthcare Providers (IHF) down 0.68% at $166.94.
  • iShares U.S. Medical Devices (IHI) down 2.47% at $222.67.

So although we are still up YTD most major healthcare ETFs have fallen to another support level that is in danger of breaching. Given that we can’t expect much from large caps with all the negative sentiment of slow growth and analyst downgrades we need help from smaller caps and the XBI now at $84.

Trading Strategy 

Small cap stocks are volatile so trading is a good strategy for these stocks if you are focused.We have made many profitable trades among the small caps over the past month and we have recently added CRSP and MGTX in the gene therapy area and Moderna (MRNA) a recent IPO in messenger RNA therapeutics.  Among our large caps only MRK and RHHBY shows stable value but we expect good news from BMY after the Celgene merger has settled.Another core holding is ILMN and our picks from JPMorgan Conference :AMRN GNMK TDOC

The upcoming ASCO Meeting in early June offers the next shot for positive clinical news.

 

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