Rayno BioBeat #4: Biotechs Weaken on Profit Taking…Update-2

Update-2 7/31 After Close: Biotechs Remain Weak But No Sell Signal

As we track the XBI over the past 5 days we are about 3.2% off highs from $82 down to $78.17. Although the XBI has been our top ETF pick since January 2017 we recently put new buys on hold and suggested last week that the XBI be avoided for now. The IBB has held up better down only 1.78% over 5 days. We will update valuations and financial metrics on Large Cap Biopharmaceutical stocks at our next post. Our Top Large Cap Picks BMY and GILD have held up well since their earnings reports. However ABBV has sold off down 6.3% over five days but up 11.64% YTD.

Given the potential of weak seasonality through August/September we remain on hold for biotech.  Despite weakened momentum there are many small cap trading opportunities.

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Update-1 6/27 12:45p…Biotech Stocks Wavering Near 2017 Highs

  • Gilead Sciences (GILD) up 2% to  $75+ level on better than expected earnings and raise on guidance to $24 -$25.5B.Hep C sales were stronger. Q2 revenues were $7.046B compared to Q2 2016 of $7.651B, $2.33 EPS compared to $2.58 EPS 2016.
  • Both major biotech ETFs are down about 0.8% near 2017 top. The XBI is at $80 with a pick-up in selling at 12:30 p. CNBC pundits are pumping biotech but no catalysts were mentioned.
  • AstraZeneca (AZN) is down over 14% on failed lung cancer study with a combination immunotherapy drug. The results also brought down BristolMyersSquibb (BMY) which has a similar drug. Merck (MRK) was up because of previous trials on its Keytruda drug for non-small cell lung cancer (NSCLC).
  • Biogen (BIIB) was down 2.33% to $288.79 despite an upgrade from Goldman Sachs yesterday.
  • Bellwether mid caps are weak: ALKS down 4.33%, INCY down 2.17%,VRTX down 3.76%
  • NASDAQ was down 0.45% at 1P EDT.

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Biotechs Weaken on Profit Taking Despite Bullish Underpinnings

Amgen and Biogen Beat But Guidance Offers Little Support

Look For Possible Sector Shift And More Balance For 2017

The nine month biotech rally hit a bit of a sell-off today after leading all sectors of the market through the first half of 2017. The healthcare sector was also the laggard today as money shifted to basic materials, energy and cyclicals.

  • The leading ETF the equal weighted SPDR S&P Biotech (XBI) was down 1.39% and the large cap weighted iShares NASDAQ Biotechnology Index (IBB) was down 1.08%.
  • The Healthcare SPDR ETF (XLV) was down 0.72% after hitting an all time high of $81.21 at the opening. The XLV is up 16.6% YTD.
  • Several biotech pundits and analysts on CNBC are calling for further gains in the sector but we would like to see a pullback before adding positions.We are a long way off the all-time 2015 IBB highs of $400 but midsummer trading can be choppy without support from the big guns of specialized life science funds. The current uptrend tracks biotech bear market lows hit in Q4 (November 3) of 2016.
  • Technicals look good but the IBB is at the top end of the upward channel. Need a catalyst like a deal, clinical data or earnings.
  • Material stocks involved in copper and steel were leaders and the XLB is up 12.27% despite the lack of a government stimulus or tax reform plan.Energy and Financial stocks also caught bids. Caterpillar Inc.(CAT) was a catalyst up 5.88% to $114.54 and a new high on strong Q2 earnings. Full year EPS guidance was raised from $3.75 to $5.00.

There was weakness today across the sector so maybe it is better to wait through the earnings cycle to assess market trends. Most large cap biopharmas were in the red and some mid-caps took 3%+ hits.  ALNY,INCY and VRTX were big losers.

Amgen (AMGN) is down about 2.65% after hours despite a “beat” on Q2 financial results but revenue guidance ($22.5-23B) was cautious.Revenues increased 2% to $5.8B and GAAP EPS  increased 18%  to $2.91 driven by higher operating margins. Repatha sales were $83M.The Company generated $2.1B of fresh cash flow in Q2; the dividend was $1.15 per share.

Biogen, Inc. (BIIB) shares popped early to $290 on yesterday’s earnings but closed down to $282.96. Q2 Revenue of $3.08B topped forecasts.BIIB stock is a laggard YTD.

The Senate narrowly voted on party lines including a tie breaker by VP Mike Pence to open debate on a healthcare bill to end Obamacare. A dramatic return by Senator John McCain received a standing ovation for a “come together” speech saying changes will be needed before he would vote for it.

Disclosure: long ABBV, BMY, FBIOX, GILD, RDUS misc small caps.

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