Biotech Meltdown: Numbers Don’t Mean Much Until We See New Product Growth

We are almost through the earnings season and despite good results most biotech stocks tanked again today.The reason you know well by now-expectations for earnings and top line growth have been taken down because price increases are not likely for 2017 . Another grim scenario might be regulatory action to have the State and Federal Government negotiate prescription drug prices for Medicare, Medicaid and other Federal programs. So with this as constant backdrop investor sentiment has really turned against the biopharmaceutical and drug industry.

  • The large cap IBB is down 24% YTD and 11.3% over the past month.
  • The more speculative equal weighted XBI is down 20% YTD and 15.3% over the past month.
  • The Healthcare SPDR (XLV) is down 6.5% YTD and 6.6% for October.

Here are nine top-tier biopharma stocks and how they performed over the past week, over the past 30 days and YTD:

Surveying the Damage

Company Ticker Price Market Price
1/7/2016 Cap $B 10/3/16 10/31/16 % Perf PE %YTD
Abbvie ABBV 57.21 108.5 62.3 55.9 -11.4 15 -5.55
Alexion ALXN 174.37 29.73 121.17 130 6 79.9 -31.7
Amgen AMGN 158 129.2 165.2 142.3 -14.74 14.2 -12.5
Biogen BIIB 284.01 71 310.5 280 -10.35 15.9 -8.25
Bristol Myers BMY 65.27 101.2 54.31 51 -5.32 25.43 -25.7
Celgene CELG 111.89 87.3 103.22 102.5 -1.88 38.9 -14.2
Gilead Sci* GILD 96.25 104.8 77.6 73.6 -6.98 6.48 -27.2
Regeneron* REGN 501.96 43.8 402 345.8 -14 54 -36.5
Vertex VRTX 115  25 85.3 76.5 -12.3 n/a -39.2

*awaiting earnings reports

The stocks that were LEAST damaged for October were: Alexion (ALXN) up 6%, Celgene (CELG) down 1.88%, Bristol-Myers Squibb(BMY) down 5.3% and Gilead Sciences (GILD) down 7%.

Stocks taking the biggest hits in October were: Amgen (AMGN) down 14.74%,  Regeneron (REGN) down 14%,  Vertex (VRTX) down 12.3%, Abbvie (ABBV) down 11.4% and Biogen (BIIB) down 10.35%.

After the “biowreck” of October we should assume a washout and look for positive trends that could develop over the next few weeks after the election.  Any analysis prior to earnings season would not have found clues among the financial  metrics as it was a sector rout. Investors were looking for top line growth and when Amgen (AMGN), normally perceived as “good value” plummeted on earnings and concerns about 2017 pricing we were alerted to the magnitude of the problem. Amgen (AMGN) did outperform the IBB and has a yield of 2.8%. So there may be value in the AMGN stock but biotech investors want growth and new products.

Here is our last review of large cap Biopharmaceuticals on August 12 where we last looked at valuation metrics. Clearly we need a reset as growth prospects have dimmed and any perception of value is still clouded by lack of pricing power. At some point in time profitable companies like AMGN and GILD will generate deals or news to bring back investors.

The only wild card left is M&A and this week we will provide a list of small and mid cap stocks that are on analysts’ radar and are still up YTD. One example is Seattle Genetics (SGEN) up 15% YTD although down 4.3% for the month.

Risk Remains Off

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