Update-1 3:45P 9/1 FDA issues warning on JAK Inhibitor drug class. ABBV down 7%., PFE and LLY drugs also affected.
- Small cap rally intact: CRSP,CYRX, VCYT. Quidel (QDEL) up 5.45% on need for more COVID tests.
- ARKG and XBI up about 1.5%.
- Mid-caps all green. IBB up 0.96%.
- Barron’s bullish on Regeneron (REGN) our top holding.
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What’s Next for Biotech Stocks?
- Time to add innovative small cap life science stocks to portfolios.
- Market leadership re-rotating to cyclicals
- Earnings growth is supporting higher valuations.
If you have been reading our coverage of healthcare and biotech stocks over the past year you have made good gains for trading and investing. We gave you a model portfolio as a guide or by just by buying holding two ETFs the IBB and XLV. Large cap biopharma has delivered good performance because of value plus growth supported by dividends. Healthcare continued to be a growth sector led by United Health (UNH) up 19.4% YTD. We also mentioned the need to have medtech in a diversified portfolio with funds like FSMEX or ETFs like the XHE.
As noted in the past week’s post we see a potential pivot to “re-opening” stocks which could cause a shift in the market toward cyclical stocks. This sector rotation has been occurring all year whereas the upward trend in healthcare has been steady. Over the past week the market leaders shifted to energy, small caps, materials and financials. So if you are a portfolio manager or trader you may need to be more diversified and rebalance in the the coming months. But our focus is healthcare and smaller cap biotech has been a laggard. Large cap biopharma and COVID vaccines have been leaders.
So what’s next for biotech stocks for the coming quarter is we see a potential shift to small caps. We saw a five day rally in the XBI to $132 and supported by a similar move in the IWM to $226. Review your biotech portfolio and see if your small cap holdings made 5%+ moves over the past week. All three of our picks from mid-May 2021 off their February highs are doing well despite volatility and have come back this month:
CRISPR Therapeutics (CRSP) up 4.76% over 3 months. A gene editing Company focused on gene-based medicines for a range of diseases. We also own EdItas (EDIT) but not Intellia Therapeutics (NTLA). These gene editing platforms have the potential to transform treatments of hereditary diseases and cancer. $9.4B market cap.
Cryoport, Inc (CYRX) up 10.34% over 3 months.A life sciences Company providing temperature controlled logistics solutions for global biological markets.$2.8B market cap.
Veracyte, Inc. (VCYT) Up 22% over 3 months. A genomics diagnostic Company with a cytopathology platform used to identify patient with thyroid diseases and lung cancer diagnosis and to assist with tumor biopsies.$3.4B market cap.
The volatility of these stocks means more trading risk. Many small cap stocks are overvalued but their revenue growth and market positioning make them a good hold for the longer term . For tracking small cap biotechs and more aggressive positioning look at ARK Genomic Revolution (ARKK) and the SPDR S&P Biotech (XBI) both trading near their YTD 2021 lows. We are also looking at trading opportunities in diagnostics stocks like Quidel (QDEL) that has been hit hard by momentum traders.
What needs to happen for small and mid-cap biotechs to make gains in Q4:
- NASDAQ needs to hold up or move above current levels.
- M&A activity picks up with some large deals concluded.
- No unfavorable macro nor regulatory events like drug pricing regulation.
- Favorable vaccine news on the delta COVID outbreak.