Update-1 5/29.. ..A mini rally off the lows is developing as XBI crawls above $80. NICE gains from previous posts and trades: COGT, EYPT, MRUS, REGN, RYTN,TXG. Will add small positions from SMID LIST if Momentum continues.
Can Biotech Stocks Regain Momentum?
- Biotech has reached a nadir in political support and government resources have been drastically cut at FDA, CDC and NIH.
- Many SMID biotech stocks are trading near 52 week lows but there are many innovative companies. Follow ASCO results with precision oncology.
- Review top biotech funds: FSMEX, PHRSX and now VAN ECK Pharmaceuticals (PHP) a new buy.
It’s a bear market for biotech stocks so the only way things can improve is if the players sense that the MOMENTUM is turning. That’s the way it works because earnings and analytics cant help much with many small and mid caps.So we need to have sentiment turn up. Precision medicine is a new theme..
I am feeling more bullish about biotech trades after last week’s action despite the dreadful backdrop of massive cuts in life science basic research at NIH and University funding. One positive aspect of this negative scenario is that many of the SMID caps in biotech have good pipelines and ample cash for now. So if we can get some momentum going during the next two weeks from ASCO we can get up 10-15% on the XBI now at about $79. This would assume that NASDAQ stocks hold up and no more MACRO flak from the Administration and that Interest rate always a risk for biotech companies so it assumes a FED cut ahead by end of Q3. But there is a lot of speculative money available once a rally gets going. However the 30 year treasury bond yield climbing above 5% can provide competition to equities. Of course a string of M&A and major licensing deals will be needed to ignite the momentum. Maybe I’m emboldened by some good trades last week with the acquisition of Vigil Neuroscience (VIGL) by Sanofi and positive news from Merus (MRUS) on a Phase 2 study for head and neck cancer. The Merus product candidates are full length multispecific antibodies with proprietary conjugates. My large cap biopharma positions have stabilized as well from the onslaught of pricing and tariff threats to upend the pharmaceutical industry markets. So another assumption is that my ballast of large cap positions with dividends will hold at near current levels: ABBV, GILD, LLY, NVS, PFE and VRTX. Most have low forward PEs, Price/sales and pay 3%+ dividends.
What’s different this time is the extremely negative political backdrop and concerns about high drug prices.
As we have been doing for the past year we will focus on new SMID biotech trades as well of news from our small cap holdings that are encouraging: ADPT, CRMD, GH and VCYT, despite the volatility. We will need some help from small cap markets like the IWM, IJR and XBI which correlate with momentum and SMID biotechs. One cluster of companies that looks more interesting is diagnostics with unique biomarkers. W have triaded all three stocks and currently hold Adaptive Biotechnologies (ADPT) with a unique immune medicine platform providing MRDs; Guardant Health (GH) precision oncology providing “liquid biopsy” genetic tests and Natera (NTRA) a diagnostic services Company providing high value genetic tests for oncology.
Here is where we are now for biotech about 10% off recent one year highs and teetering at 5 year lows,indeed a bear market but a good entry point for new trades.
- XLV healthcare at $130 down 5.2% YTD and down 10% YTD one year, among the worst performers after energy and materials.
- IBB midcap focused ETF at $121 down 8.29% YTD, down 10.6% YTD.
- XBI small cap focused ETF down 12.24% YTD, down 11.5%YTD.
- ARKG speculative biotech ETF based on innovation at $20.9, ,down 11.77%YTD, down 18/47% one year.
- We added PHP at $86.30 to add exposure to biopharma.
Here are some long SMID biotech ideas for the next 2 weeks based on INNOVATION:
TEMPUS AI $62 Markt cap $10.83B
Another healthcare technology company in the rapidly evolving field of precision medicine utilizing molecular biomarkers and next-generation sequencing. TEMPUS AI,Inc. The Company already has a Price/Sales ratio in the teens and is quite volatile now at $62 with a range of $32 to $80 just in 2025! But iI have found it to be a good trade with enormous future market potential. Because of their Artificial Intelligence platform linking analytical results of the patient to a vast repository of data for personalized medicine so that the AI model is accretive to more targeted therapy. The Company also has concluded strategic partnerships with diagnostic and pharmaceutical companies for R&D.
MERUS NV $55 Market cap $3.82B Market cap $3.82B.
We introduced you to Merus last week as the stock popped over 30% from publication of their Phase 2 data for head and neck cancer.tlizing multispecific antibodies.