Update 7/30 at close-Large Caps Outperform-Very Weak Tape

  • NASDAQ continues slide down 1.39%
  • Large Cap Leaders ABBV up 0.89%, BMY up 3.53%, CELG up 2.87%,MRK up 2%,REGN up 1.06%, VRTX up 1.35%. BIIB down 2.63%.
  • Mid-Cap Red Screen:  ACAD down 4.08%, ALNY down 7.37%, BLUE down 4.46%, IMMU down 3.45%, NBIX down 7.68%
  • IBB down 1.11%, XBI down 1.63%

Big shift among investors to value as mid-caps momentum stocks are sold and large cap depressed value stocks with dividends are bought.


Investors Turn Cautious on Biotech and NASDAQ Growth Stocks

Earnings Are Not Good Enough, Biotech Stocks Are Down for the Week

Macro and Industry Concerns Remain: drug pricing, generics, interest rates, tariffs

A Biotech sell-off began around mid-week just as it began pushing above February YTD highs. Earnings were generally good but not good enough to bring new highs in major indices after a big run in the sector that began before ASCO. Moreover a major correction in NASDAQ-100 (QQQ) down 2.1% and the Russell 2000 (IWM) down 2.5% for the week today probably brought down sentiment in the more speculative life science small caps.

The XLV lost traction as well. Here is the rundown of major  biotech ETFs performance YTD and the past five days :

FBT up 16.49% YTD to $148.45 best life science ETF; lost only 0.45% in a bad week.

IBB up 5.55% YTD to $115.41 outperforming FBIOX; could not hold $120 top,down 2.5%.

XBI up 8.9% YTD to $94.98 lost 5.6% this week as small speculative stocks sold off.

This was a major earnings week for large cap biopharma and we updated some of these in our last post. Here is an earnings and stock performance summary of additional large caps reporting this week:

Abbvie (ABBV) reported Q2 GAAP based revenues of $8,278B that showed top line growth of 17.1 % on a operational basis. Q2 Humira sales were $5.184B an increase of 10%. IMBUVICA sales are $850M. Adjusted diluted EPS was $2.00 an increase of 40%. EPS guidance was raised.Longer term concerns about Humira sales growth and competition hit the stock now back to Q4 2017 levels near $90.

Alexion (ALXN) reported growth of 14% in Q2 revenues compared to 2017.GAAP diluted EPS was (2.07). Beat estimates and all products grew: Solirus, Strensiq and Kanuma.

Amgen (AMGN) had a relatively good week down only 0.83% as the Company beat estimates with 5% growth and GAAP earnings (EPS) up 20% to $3.48. New product sales are off to. fine start. Free cash flow was up to $2.1B for the quarter. The Company also announced it would hold off on any price increases.

Celgene (CELG) reported net product sales of $3.8B an increase of 17% YoY. Total revenue guidance for was raised to $15B. Diluted EPS was $1.43 compared to $1.36 in 2017. Good value here because of large pipeline and partners.

Gilead Sciences (GILD) announced product sales of $5.5B compared to about $7.1B in 2017 and GAAP diluted EPS of $1.39. Net income was $1.8B compared to $3.1B in 2017. HIV product sales were 3.7B, HCV sales were $1B. CEO Milligan and Chairman Martin will step down. The results beat estimates but product sales growth has declined over the past two years from a peak of $32B. The Company recently acquired Kite Pharma with a CAR-T clinical pipeline. Forward PE is a low 12.11 and the dividend is 2.92%

Vertex Pharmaceuticals (VRTX) reported Q2 CF product revenues of $750M compared to $544 in Q2 of 2017, beating estimates. Vertex is a favorite of many analysts because of its leading position in cystic fibrosis and EPS improvement but it is an expensive stock.

Top Stock performers % YTD: MRK 12.9%, VRTX 12.5%, AMGN 8.72%.

Bottom Performers % YTD: CELG -18.59%, ABBV -7.98%, BMY -7.16%.

It is too early to call whether this is a major market correction or just profit taking from the big move off the April bottom. But if you were tracking the “technicals” you could see weakness developing at mid-week on 7/26. So as they say these days “we’ll see” if buyers come in at these levels next week.

Here are Valuation Parameters and 2018 Stock Performance for Large Cap Biopharmaceutical stocks. For comparison here are prices and valuation data from 2016 when many prices were much higher (ALXN,CELG, GILD). Peak prices for the IBB was mid-July 2015 with the IBB at $132.

Company Ticker Price 2017 Price MCap Rev$B % Perform
1/15/18 Rev$B 7/28 2018 2018 YTD
P/S Fwd PE
Abbvie ABBV 100.34 27.27 90.56 152.6 29.61 -7.98 5.15 10.13
Alexion ALXN 122.71 3.47 131.83 29.33 3.61 6.27 8.15 15.45
Amgen AMGN 185.04 23 192.44 128.9 22.94 8.72 5.62 13.51
Biogen BIIB 335.95 11.84 340.4 71.83 12.59 1.86 5.7 12.83
Bristol Myers BMY 62.81 19.92 56.92 93.04 21.04 -7.16 4.44 15.38
Celgene CELG 106.0 12.5 86.43 62.65 13.59 -18.59 4.65 8.46
Gilead Sci GILD 79.02 27.48 76.81 76.81 24.69 3.66 4.03 11.9
Merck MRK 58.66 39.8 63.49 170.8 40.73 12.93 4.22 13.96
Regeneron* REGN 366.96 5.52 367.6 39.61 6.06 -3.92 6.4 17.49
Vertex VRTX 158.0 2.3 172.1 43.86 2.41 12.55 18.54 36.95
XBI 94.98 8.9
IBB 115.41 5.55
FBT 148.45 16.49
FBIOX 231.90 3.24

Roche ADR (RHHBY) was not included in the above chart but it is a portfolio pick and was up 4.3% this week and 3.65% YTD.

* Regeneron Earnings will come in next week.

Disclosure: long ABBV, BMY, CELG, FBIOX, GILD, MRK.

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