Large Cap Biopharma Stalled With Move to Small Caps and Reflation Trade…Update-2 Sell-Off

Update-2 2/17-11a…Biopharma stocks up on a down day: ABBV, AZN, BMY,  MRK, VRTX with IBB off 0.5%.

Update-1 Continued Sell-off in Biopharma and now Coronavirus Stocks

The market was flattish with slight gains for the DOW, Financials were strong with TSY yields at one year high. Energy was strong again with the XLE up 2.5% near the June top of $45.79.

•  IBB  down 2.17 to$167, XBI down 2.53% to $160.
• Coronavirus vaccine plays down: BNTX 2.71%, CVAC 3.39%, MRNA  2.84%, INO 3.09%, NVAX 9.34%,
• Diagnostics stocks hit: GNMK  4.27%, OSUR 3.95%, QDEL 2.67%.
• Large cap stocks weak AMGN GILD, VRTX.

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Large Cap Biopharma Stalled as Traders Seek Risk Trades

• IWM continues gains since early November up 31%.

Defensive large cap biopharma stocks stalled as traders moved out on the risk curve seeking faster gains. Most large caps peaked around mid-January as the small and mid-cap sector continued to run. Despite attractive valuations and many with 3-4% dividends  investors continued to move into small cap and momentum stocks. It is kind of surprising that there can be so much volatility in large cap biopharmas. Another February trend is the rotation into the so-called reflation trade of commodity and reflation stocks like the XLE and XLF.

One big exception was Eli Lily and Co. (LLY) up 22.77%. YTD, which is transforming itself to a biopharma stocks with breakthrough news  on COVID-19 antibody treatments under development . The Company reported strong earnings with a Q4 revenue growth of 22%. The stock is up 43.55% over one year. The Company also has good clinical candidates for Alzheimer’s Disease and Diabetes.

Keep in mind that looming in the background is the threat of legislation on drug pricing.

• M&A will continue as a driver fairing mid-caps and small caps. as seen by the merger of Alexion with Astra Zeneca.
• Embedded in the pipelines of Bristol Myers Squibb and Gilead Sciences are big  acquisitions which have to yield results in 2021.
• Biogen investors have high expectations for their AD monoclonal therapy with an FDA go no-go by June 7 2021.
• It remains advantageous to be in ETFs over stock picking (LLY excepted).The large cap weighted IBB was up 12.69% and the equally weight biotech XBI up 16.7%.Large cap losers for the month were MRK and VRTX.
• The XPH is a good case in point as up 7.5% because it has several well known large caps like BMY LLY, and JNJ but is more diversified in mid-caps.

LONG ABBV, AZN, BMY, GILD, MRK.