Update-2 10:45a 4/17…XBI down 3.37% to FEB support at $86.  Healthcare issues are spilling over to biotech.Red screen day and all biotechs hit very hard.Drug pricing models are under scrutiny.

Update-1…NASDAQ ekes out small gains but large cap biotechs take another hit with IBB down 1% to $109.39. All large caps in the red: REGN down 2.08%, AMGN down 1.65%, BIIB down 1.57%, VRTX down 1.51%. Mid-caps mixed but to the red side. Gene therapy stocks have many winners: CRSP up 5.2%, EDIT up 2.56%, NTLA up 3.14%, MGTX up 2.43%, VYGR up 2.15%.

The XLV was down another 2% on heavy selling.

The IBB has a choppy chart and sitting just below its 50 SMA.

Yesterday saw a mid-sized gene therapy deal with Catalent buying Paragon Bioservices for $1.2B bolstering their manufacturing capabilities.

JNJ offered some relief to the healthcare on positive earnings with stock up 1.1% on low volume.Sales growth was 0.1% and adjusted EPS .Operational sals guidance was upped for the year.Pharmaceutical sales exceeded expectations .


Drug Pricing Redux-But Will Congress Finally Act?

Pivotal Week Ahead of Earnings.

Technicals: Nice Recovery from 12/19 lows but Healthcare is Underperforming.

The 2019 bull run in biopharma hit a wall last Thursday as it appears that congress really wants to attack soaring drug prices. Another blow was continued threats from Trump to eliminate the ACA resulting in fewer patients. And all the talk from Democratic hopefuls on “Medicare for All” could mean more disruption and  lower prices. The sell-off in healthcare equities was broad based dragging down not only biopharma but providers (IHF), insurers and especially PBMs . The damage was evident  early on in Thursday’s trading with the broad based Healthcare Select SPDR XLV falling from $91.93 ending at $89.82 at the close on Friday. Healthcare is one of the worst performing S&P Sectors YTD with the XLV up only 7.6% YTD. The XBI is still up 26.25% YTD but 5% off its 4/5/19 highs. The IBB trails other life science sectors upon 13.73% YTD and is still  at 2/22/19 levels.

Despite a choppy week the QQQ NASDAQ-100 technology focused stocks remained in an upward trend up 24% at $185.83 and now just at its 52 week high and a triple top. If the QQQ remains strong that would be bullish overall.

So it may take an earnings round over the next three weeks to sort out healthcare stocks and coming up this week are: 4/16-JNJ, UNH; 4/17-ABT; 4/18-DHR, ISRG. Here are some assumptions to consider as we trade through this rocky period in healthcare equities :

  • Small and mid caps may be volatile but should outperform because of growth and M&A.
  • Small caps overall should  do well. e.g. IWM. Large caps underperform. e.g.IBB.
  • Breakthrough technology companies such as gene therapy and immune-oncology stocks are favored for trading with clinical and deal news.
  • Life science tools and diagnostic companies that are innovators in fields like molecular diagnostics and sequencing should not be immediately hit by healthcare disruption.

More updates after the close today.

Disclosure Long: ABBV, CRSP, MGTX, RHHBY.

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