Biotech Stocks Rally to New Highs After 4% Correction
Buyers Are Bottom Feeding Energy Stocks
NASDAQ at 4765
Just as the market appeared to be headed to another test of October lows, challenged by news on slowing global growth and a collapsing energy sector, FED Chair Janet Yellen calmed the markets saying it would be “patient” on raising interest rates. This triggered an amazing 4.5% upside move in just two days showing how sentiment drives markets. Although perceived macro risks have not changed since Monday, any concern about sharp increases in interest rates has been put aside for now. Energy stocks also rallied since Monday with the XLE up 8.8% over five days.
Here is a brief summary of market data, after a huge week, from the life science sector now that we are back to new highs.
- Nasdaq is up 14% YTD, the healthcare sector XLV is up 27% YTD.
- All major biotech ETFs are back to new highs (FBT, XBI, IBB). Our favorite the FBT is up 52% YTD.
- Rayno Biopharmaceutical Sector Picks: Large Caps up 39%, Mid-Caps up 33%, recent Small Cap Spec picks up 12% over 3 months. One of our mid-cap picks Cubist Pharmaceuticals (CBST) is being sold to Merck (MRK) for $102/sh. CBST is up 43% YTD and 421% over five years.
- Institutions are the major driver behind the bull, with deep pockets, seemingly able to move stocks at will.
- Expect volatility in the sector especially in January.
A biotech IPO today, Juno Therapeutics focused in immunotherapy for cancer (CAR-T for chimeric antigen receptor T-cells), is up 45% from offering price of $24 with 11 M shares being sold. The market cap is approaching $3B with 5 products in the pipeline. The Company is based in Seattle and was founded by a group of scientists at Fred Hutchinson Cancer Research Center in Seattle and Memorial Sloan Kettering Cancer Center in New York with over $330M in funding from ARCH Venture Partners, Venrock and Jeff Bezos, CEO of Amazon. We covered the hot T-cell therapy area with an article from the 2014 BIO Investor Forum where four companies presented their potential products and technologies. We will provide an update of these four companies-BLUE, GBIM. KITE , ZIOP– in comparison to JUNO. All of the stocks have soared, in a way “feeding off” each other. For example, Kite Pharma (KITE) has 5 products in clinical development and is up 111% over 3 months perhaps anticipating the JUNO hot IPO.
Here is a good summary of the IPO in the Saturday December 20, NYT.
Our investment strategy has not changed through year-end.
- Hold core positions in Rayno Large cap picks or FBT.
- Caution on new positions except for trades.
- Keep 10% in cash.
The 2015 J.P.Morgan Conference beginning January 12 will offer an excellent perspective on Life Science investing with presentations by many companies and potential new themes to emerge. However we are in year five of a secular bull market in healthcare and biotech stocks so it may be difficult to maintain these huge returns of 280% over five years with only one correction. Q1 in 2014 saw a huge “bio-bubble” in February followed by a 9% correction in March/April but we are still up ~50% YTD assuming you are in leading ETFs.