Roller Coaster Market Creates Biotech Buying Opportunity…Update-1

Update-1 August 19…  Dawg Days of August

Biotech stocks remain weak with momentum plays hit the hardest. The IBB could test the recent bottom of 359 hit on reversal day last Friday and another low on August 7. There is strong support at this level so any multi-day breakdown would  break the upward trend channel. The more volatile speculative XBI has broken the trend line of 240 down to 229, next support at 220.

  • MACRO news is now rattling the markets with China economic weakness and currency moves in forefront. Oil and energy stocks are in a free-fall.
  • Reaction to potential FED moves are getting ridiculous as can be seen with today’s market swing from down over 1% to flat to down 0.8%.
  • Immuno-oncology and CAR-T stocks are in a downtrend of 20%+ off July highs. With most bankers and fund managers on vacation and no major news there are few buyers around. Momentum is gone.
  • Large caps are holding up near July highs: ABBV,GILD, REGN. VRTX was up today and up 5.4% for one month.
  • Smaller caps can be treacherous with several stocks in a downdraft over the past month: BLUE,ESPR,ICPT,ONCE.

Stay cautious with large caps and position the portfolio for a Q4 rally. Watch for sector rotation but for now the XLV healthcare ETF is holding down less than 2% for one month.

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 Technical Bottom is in for the Sector-Buying Opportunity for IBB

Yesterday was one of the craziest trading days of the year triggered by the Chinese Yuan surprise reset. The Dow was down as much as 300 points before finishing flat for the day. Biotech stocks as tracked by the (IBB) ended up 0.81% to 370 after hitting a low of 357 at around 11a EDT. Biotech stocks have been weak even before the yuan currency slide yesterday and were in a in a steady sell-off losing 10% since the July 20 high. The more volatile XBI also recovered today at about the same magical hour of 11a EDT but still down 7.9% over 5 days.

NB: review our posts and updates from earlier this week on ” broken momentum” in biotech.

Many of the stocks we track were too volatile to trade recently but there were huge shorting opportunities near the July tops. But we still believe momentum is broken making it much harder to trade small cap stocks over the short-term. For those underweight healthcare or biotech stocks we would recommend the IBB and XLV for a Q4 rally.

Here is a brief review of Rayno Biopharmaceutical stocks YTD:

Rayno Large Caps: all except Roche (RHBBY) up 3.2% YTD, rallied today to the green; here is performance YTD after considerable damage in August:

Abbvie (ABBV) up 5%

Alexion (ALXN) up 3.2%

Amgen (AMGN) up 7.11%

Biogen (BIIB) is down 6.69%

Gilead (GILD) up 23.3%

Regeneron (REGN) up 41.2%

Rayno Mid Caps recovered today and are doing well YTD:

Albany Molecular (AMRI) up 30.4%

Alkermes (ALKS) up 15.9%

Clovis Oncology (CLVS) up 41%

Seattle Genetics (SGEN) up 39.4%

Vertex (VRTX) up 15.9%

Rayno Small Caps are mixed and volatile with some notable winners today:

Array Biopharma (ARRY) is way off highs but up 26.8% YTD.

Celldex Therapeutics (CLDX) was crushed today and is now down 9% YTD.

Fibrocell Science (FCSC) was up 11% today and is up 172% YTD.

GlycoMimetics  (GLYC) is flattish but holding up 5.5% YTD.

Ignyta (RXDX) is off highs for the year but up 37.9% YTD.

Assumptions for balance of 2015:

  1. Two major 10% corrections have hit the sector in 2015 but the long-term biotech bull market trend is intact.
  2. Large and mid-cap earnings are in with only one negative surprise Biogen, Inc. (BIIB). Future risk would be related to Q3 earnings misses or currency issues.
  3. Small caps have lost momentum so remain cautious with trades.
  4. Volatility with emerging mid-caps has increased with early stage “immuno-oncology”, or platform plays such as CAR-T,  cellular therapy and gene therapy.
  5. Major technical reversal yesterday at monthly bottom creates support and a buying opportunity.

2015 Rayno Biopharmaceutical Portfolio 

Company Ticker Original Start Price $ 5 Yr High RaynoTotal Price 8/12 YTD
% Perform % Perform
Abbvie ABBV 3/25/2014 51.7 70.76 33 68.76 5
Alexion ALXN* 2/2/2009 17.5 203.3 994 191 3.2
Alkermes ALKS 3/22/2013 23 75.17 191 67.88 15.9
Albany Molec AMRI 2/10/2011 4.32 23.95 391 21.23 30.4
Amgen AMGN 2/2/2009 55 173.6 210 170.6 7.11
Array ARRY 5/26/2015 7.7 8.59 -22 6 26.8
Biogen BIIB 2/2/2009 48.5 480.18 552 316.73 -6.7
Celldex CLDX 8/20/2014 15 32.82 10.7 16.61 -9
Clovis Oncology CLVS 1/13/2015 60 102.28 31.3 78.81 41
Fibrocell Sci FCSC 6/11/2014 3.7 6.4 90.2 7.04 172
Gilead Sciences GILD* 2/2/2009 25.5 123.37 356 116.25 23.3
GlycoMimetics GLYC 10/16/2015 6.74 9.68 12.7 7.6 5.5
Ignyta RXDX 4/7/2015 10 19.4 37.2 13.72 37.9
Regeneron REGN 2/2/2009 17.5 544 3308 579 41.2
Roche ADR RHHBY* 1/30/2014 33.5 38.54 9.5 36.68 3.2
Seattle Gene SGEN 2/2/2009 9.5 49.84 471 44.79 39.4
Vertex VRTX 11/15/2013 62.8 137.5 219 137.6 15.9
*split
Acquired Acq Price % Return
Astex ASTX 1.63 8.5 421
Cephalon CEPH 76.5 81.5 6.5
Cubist CBST 21.5 102 374
Optimer OPTR 11.8 10.75 -9
PharmCyclics PCYC 38.2 261 583
ViroPharma VPHM 12 50 316
Perform
ETFs P 8/12 % YTD
FBT 128.42 121 18.8
IBB 385.02 370 22
XBI 261.6 236 26.6

Disclosure: Long ARRY, FBIOX, FCSC, GILD, GLYC, RHBBY, RXDX

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