Update-2 10/13…Biotech IPOs Remain Weak-Recent rally was weak for small cap biotechs
Vir Biotechnology (VIR): A clinical stage immunology and infectious disease Company focused on new therapies for hepatitis (HBV), Influenza A, HIV and TB went public on Friday. Despite aa broad experienced management team and the Gates Foundation as partners the stock plummeted 29.9% to the $14 level. We will see whether this unwelcome reception was due to the lackluster appetite for smaller cap biotech stocks or a hangover from other 2019 IPOs. Track the Renaissance IPO market with their ETF (IPO) that is down 7.2% over six months but p YTD..With lock-up period expiration coming for many IPOS, stocks could remain weak.
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Update-1 10/12… Interim China Deal Sparks Rally
Stocks were broadly up on Friday as investors bought into the temporary detente to the trade war. Most averages were up over 1% and the Nasdaq Composite was up 1.34%. So what could have been a bad week was saved by the so-called “Phase -I Accord’ with China. Among the leaders for the week were European and China indices but the laggards were healthcare, precious metals and treasuries.On Friday the XLV was up only 0.83% and the XBI did better up 1.41% to $77.12 out of the bear zone below $75 for now.
Many of our large cap biopharma holdings were up :BMY up 1.63%, GILD up 1.15% and MRK up 0.64%.Mid-cap biopharmas were green with many up 3% ut they are near their 52 week los except for Seattle Genetics (SGEN) up 1.29% to $82.60. The Russell 2000 was up 1.79% on Friday and is an important indicator for biotech stocks in general.
So this truce with China offers relief to the market but remains a background concern until the accord is in writing and more details are disclosed.
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Biotech Stocks Mired in Uncertainty-Random Churning of trades with a down-sloping trend
Volatility with churning choppy pattern.
Some technicals breached.A rolling bear market?
Are large cap biopharmas defensive with a major correction?
As we have written in previous posts, investing in biotech can be very difficult in the current political environment where healthcare costs are under assault, the trade war with China dominates the news and top line revenue growth apparently slowing. Despite a strong start in Q1 the biopharma sector is now lagging despite a strong performance from the NASDAQ-100 up 21% YTD. Healthcare stocks are trailing the market YTD with the XLV up only about 6% YTD at the $90 level as investors realize that many of these large cap companies are no longer defensive in a volatile market. The IBB is flat for the year and the high flying XBI has dropped from $92 to YTD lows of $75. Even if large cap financial reports in the coming weeks provide revenue guidance that is well received we still would need clinical pipeline news that could re-ignite investor interest. in new technology themes such as gene therapy have ebbed: EDIT NTLA and SRPT are near 52 week lows.
Selected Healthcare ETF and FUND performance is as follows:
- IHI iShares Medical Device up 26.9% YTD. MedTech has been the best way to invest in healthcare stocks. But lately the IHI is weak.
- Healthcare providers (IHF) is a laggard sector down 2.7% YTD wracked by politics. UNH is down 6.2% YTD.
- A Top Rated T.Rowe Price Health Science Fund PRHSX is up 6.24% YTD and offers a diversified portfolio of health science stocks like AMGN BDX DHR TMO and VRTX.
Here are some trading and investing strategies to consider in this lackluster biotech sector.Currently underweight:
- Stay long with large cap biopharma companies with proven management and dividends on the assumption that evaluations are favorable and over the long run they are more defensive. Our core portfolio with some rebalancing holds ABBV,BMY,GILD, GSK,MRK, RHHBY, Another core position is ILMN. Aggressive traders could consider adding laggards such as ALXN REGN both former high fliers at the bottom of their 12 month range but it might be better to wait until Q3 earning reports.
- Trade small and mid-cap stocks weekly per news events or longer term or using the XBI. As we have said before, Q1 2019 was a hot market for small cap speculative stocks with the XBI peaking in April . My small cap portfolio peaked around that time and after some rebalancing I still hold the following positions in biopharma and medtech: AMRN , BSGM, CFMS, GNMK, MGTX, TDOC, VCYT and XBI as a short-term trade.
Technicals matter more than ever as no trends have emerged. Caution until Q3 earnings roll-out. Should you consider day-trading smaller caps??
Today biotech stocks rallied with notable gains in: ALXN, AMRN,ANAB,GILD,GWPH, IONS,NVCR,REGN among the stocks we follow.