Biotech Fades with Profit Taking: Is the pre-ASCO Momentum Gone? 

Technicals Matter 

Drug Pricing Scrutiny Continues

Biotechs faded today now that the rush of oncology drug news slowed down. NASDAQ retained momentum with the ETF leader QQQ up 19% YTD pulling ahead of the biotech ETFs. Large cap tech stocks rule. The large cap centric IBB is down 0.77% for the week while the small cap equal weighted XBI is down 0.61% for the week but still up 16% YTD. The XBI stalled once it hit $72 on May 1 then faded again on May 16. Technicals matter for now but hopefully we can get support from the ASCO Meeting during the Week of June 5.

Today was dominated by the “red screen” with profit taking mainly in smaller caps and momentum driven oncology stocks. Mid-caps were hard hit showing the impact of momentum traders:

Mid-Cap Movers

Alnylam (ALNY) down 5.3% to $65.80, Clovis Oncology (CLVS) down 5.2% to $52.17, Incyte (INCY) down 2.91% to $134.38, Tesaro (TSRO) down 2.66% to $149.11. BMRN, PBYI and VRTX stayed green.

Large Caps were more stable today albeit down a bit. Celgene (CELG) was flat at $116.78.Alexion (ALXN) was crushed over five days down 14% over a management shakeup. Merck (MRK) is up 3.54% over one month as its breakthrough drug KEYTRUDA emerges as a top drug in oncology.

Many big oncology movers over the past 10 days were hit by profit taking: Epizyme (EPZM) down 3.41%, GlycoMimetics (GLYC) down 6.4%, Juno Therapeutics (JUNO) down 8.7%, KITE Pharma (KITE) down 2.4% and ZIOPharm Oncology (ZIOP) down 4.2%.

The severity of today’s sell-off raises questions about the longer term risk appetite for longer term biotech investors. Is the sell-off today profit taking or concern about the Trump agenda? We had an ASCO rally but before the actual Meeting! We will review some of the MACRO and policy risks that continue emerge such as drug pricing and “repeal and revise” ACA, in our next post. The new FDA Commissioner Scott Gottleib has a plan to tackle high drug prices like providing more competition from generics and preventing specialty pharma from “gaming the regulations”.


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