Biotech Continues to Outperform the Overall Market
Biotech had somewhat of a roller-coaster week. The sector surged some six percent on Wednesday even as the Allergan (NYSE: AGN) and Pfizer (NYSE: PFE) mega-merger was officially derailed. Part of that rally felt like short covering as the sector drifted down a bit for the second half of the week. However, biotech continued to outperform the overall market.
This seems to be a new and welcomed trend in the second quarter so far. Our small caps are slowly coming back and our large cap holdings have clawed their way back to breakeven. I look forward to continuing to put behind us the deepest and longest bear market for biotech since the financial crisis.
Performance Update:
Our benchmark the iShares Nasdaq Biotechnology ETF (NASDAQ: IBB), the largest ETF focused on the biotech sector with almost $9 billion in assets, is now down 19.36% since we launched the Biotech Gems service at the start of May of 2015.
Our large cap core positions are now down just .63% on average while our small cap sports a loss of 24.39% on average, both not including dividends. Using the minimum 50% allocation recommended to our core positions gives us a blended loss of 12.51%, 685 basis points above our benchmark. The most conservative allocation of 75% dedicated to the large cap core positions results in a loss of 6.57%, 1,279 basis points above the benchmark.
Portfolio News:
Relypsa (NASDAQ: RLYP) ran up over 50% as Reuters and other sources stated the company is exploring a potential sale. Let me state that this is one of the key reasons Relypsa was added to the portfolio and I think it is highly likely the company does eventually get acquired. That being said, in all likelihood, this will continue to be a volatile stock over the next several weeks as the shares ebb and flow on the latest rumor and analyst commentary.
These discussions will take place with at least a couple of larger companies and may not result in acquisition immediately. Some might be waiting for the outcome on the FDA decision on rival hyperkalemia drug ZS-9 in May to purchase. I would not get caught up in the day-to-day gyrations on the shares at the moment.
Celgene (NASDAQ: CELG) acquitted itself quite nicely since being added as a “core” position within the portfolio at the end of March. The shares are up six percent since their inclusion. A five-star ranked analyst at Jefferies reiterated his Buy rating and $146.00 a share price target on Celgene even though he expects the first quarter to be in line with expectations. He further notes sales of its blockbuster blood cancer drug Revlimid tend to be seasonally slow in the first quarter.
Not much in the way of notable movement across the rest of the portfolio. Xencor (NASDAQ: XNCR) continues to be a strong performer in the month of April even with little in way of noteworthy news, a testament to sentiment improving on the small cap part of the sector in recent weeks.