Biotech Bear Market Looking For Relief From Q3 Large Cap Growth…Update-3

Update-3… 10/28 9:30 am… No Relief From Earnings- Biotech Stocks Get Crushed By More Pricing Commentary on Earnings Calls

  • Amgen (AMGN) down 11% on pipeline, revenue growth, Enbrel pricing concerns despite beat.
  • Softer pricing environment from McKesson (MCK).
  • All large caps are red except Alexion (ALXN) up 1.83%.
  • Abbvie (ABBV) down 6% on revenue miss;Humira growth slows.
  • IBB down 2% -six straight days of selling; down 12% for month.
  • Green stocks of note: AGIO up 1.8%, TSRO up 2.2%, VRTX up 3.1%

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Update-2 at close…. 10/27 Large Cap Biopharmas Get a Boost on Earnings, but IBB is Flat

NASDAQ 5216 down 0.65%

Alexion (ALXN) up 8% to $131.37. Beats on revenues.

Amgen (AMGN) barely up 1% to $16.57 (Lower after hours). Earnings and revenue beats.

Biogen (BIIB) down 1.88% to $290.89

Bristol-Myers (BMY) up 5.4% to $51.96. Beats on Q3 earnings.

Celgene (CELG) up 6.4% to $104.72

Roche (RHHBY) up 1.73% to $28.85

The XBI is down 1.48% to $57.13 indicating market favors larger caps with revenue growth and for now avoid more speculative MO plays until after the election. Mid-caps were also down over 2% today: ALNY ALKS VRTX. We need to see a broader rally in smaller caps before adding to positions. Supporting this risk off mentality is the iShares Russell 2000 IWM off 1.7% this week. Now that we are getting positive earnings reports we need to see some support for the IBB at $265-270 range.

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Pre-Market 10/27…9:15 am EDT- looks good for biotech rally:BMY and CELG Beat Estimates

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Biotech Bear Market-Stocks Remain Weighed Down By Pricing Rhetoric

Can Large Cap Biopharma Deliver Growth to Spark the Sector?

On October 12, I reviewed Key Trends to watch that might portend a Q4 rally.Here is a quick review of those trends:

  1. Momentum remains weak with successive days of the dreaded red screen. Although trading is active most stocks remain weak and are down YTD.Today a mixed market offers glimpses of green in large and mid-caps, but many MO stocks are down: BLUE JUNO PBYI RDUS TSRO etc. Even ALKS is down after a great start for the week.
  2. Technicals have gotten worse with the IBB at $265 below support of $270 but still 25 points above the BREXIT bottom. The XBI broke support of $60 and now at $58 is only 8 points above the BREXIT bottom. The bellwether stock Celgene (CELG) illustrates the bear condition down 18% YTD and 7.4% over the past month but up today.
  3. Earnings from several large cap biopharma companies are coming up beginning this week so we will get a clearer picture of revenue growth. Vertex (VRTX) was down almost 2% today to the 77 level near its 52 week low on lower than expected Q3 results but bounced back. Sales for Cystic Fibrosis drugs rose 34% and losses were lowered to $41.8M. Biogen (BIIB) was up 3.6% on better Q3 Net of $1B due to lower costs and higher revenues of MS drugs to  $3B, 6% over same quarter in previous year. AMGN, BMY and CELG will report tomorrow.
  4. The healthcare sector (XLV) remains under a barrage of market and political pressures on drug pricing. The healthcare sector is among the weakest YTD,  down 4.7% over one month in a downward trajectory compared to the S&P up 4.4% YTD. The NASDAQ recently hit new highs YTD and is now up 4.7% bolstered by tech stocks.
  5. M&A is still the major driver of selected stocks with the “food chain” effect in place. Companies can complement revenue growth and fortify market positions with pipeline acquisitions. Since “inversion” deals have been made uneconomical by new government rulings U.S. deals are picking up like Medivation $14B deal with Pfizer (PFE). Various M&A sessions from the BIO Investor Forum were also encouraged by M&A prospects.(more to come on M&A)

Hot stocks (many of which are in XBI) that were leading the way with innovative technologies such as immuno-oncology, gene therapy, orphan drugs,Next-Gen sequencing (NGS), antibody-drug conjugates have cooled down because of profit taking, slowing sales growth and disappointing clinical trial results. Cannabinoid medicines are still hot with GW Pharmaceuticals (GWPH) up 69.7% YTD! Former high flier Illumina (ILMN) looks attractive down here at the $139 level but at a P/S of 8.8 and a PEG of 3.25 it still looks expensive. Nonetheless EPS and Sales Q/Q growth is there with a gross margin of 70%.

Risk remains off. Value is due to show up with AMGN and GILD.

XBI SPDR S&P Biotech ETF daily Stock Chart

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