M&A to Pull the Sector Forward?
It was the second week in a row of nice upside for the biotech sector. Sanofi’s (NYSE: SNY) bid for Medivation (NASDAQ: MDVN) went hostile this week as the French drug giant works to replace Medivation’s board of directors with one more open to a takeover. I think a “white knight” could be shortly forthcoming given the amount of giants rumored to be kicking the tires on this one. If this happens it should ramp up the “animal spirits” in the sector as speculation perks up around additional possible targets. This could light a fire under this beaten down space especially in the small and mid-cap part of the sector.
Performance Update:
The benchmark iShares Nasdaq Biotechnology (NASDAQ: IBB) ETF, the largest ETF focused on the biotech sector with almost $9 billion in assets; is now down 19.70% since we launched the Biotech Gems service a little over a year ago.
Our large cap core positions are now down 2.93% on average while our small cap portion of our portfolio is now down 20.77% on average, both not including dividends. Using the minimum 50% allocation recommended to our core positions gives us a blended loss of 12.85%, 685 basis points above our
benchmark. The most conservative allocation of 75% dedicated to the large cap core positions results in a loss of 7.39%, 1,231 basis points above the benchmark.
Portfolio News:
Relypsa (NASDAQ: RLYP) had a solid week as filed a sNDA to reduce the label for drug interaction from 6 hours to 3 hours after study results supported that claim. I expect the FDA to
grant that request which will make Veltassa slightly more attractive to prescribing physicians.
The bigger news is AstraZeneca (NYSE: AZN) received a complete response letter (‘CRL’) around ZS-9. This should mean ZS-9 will not be on the market until the first half of 2017. This will
give veltassa more than a year to establish itself in the hyperkalemia market without facing competition. That said, I expect the stock to be volatile in the months as it ebbs and flows around the
latest buyout rumor or monthly script count. My long term thesis still is Relypsa will eventually be bought out at a much higher price.
We had several other solid gainers in the small cap portion of the portfolio this week. Ardelyx (NASDAQ: ARDX) was up 10% this week. No upgrades this week but the company does have a mid-stage
compound aimed at the hyperkalemia market that might have benefited from the CRL on ZS-9. strong>pSivida Corp. (NASDAQ: PSDV) was up almost 25% on Friday on four times its average trading volume. I can find no news behind the move other than some very vague takeover rumors on a message board. We will see this week if there is any follow through but the company is advancing its pipeline solidly.
Below is our full portfolio of recommendations with prices updated at Market close on 05/27/16:
| Company | Ticker | Entry Date |
Entry Price |
Recent | Returns |
|---|---|---|---|---|---|
| Artana | PETX | 05/12/16 | $5.49 | $6.83 | 24.4% |
| Ardelyx Inc. | ARDX | 04/20/16 | $8.05 | $8.85 | 9.9% |
| Celgene | CELG | 03/31/16 | $100.09 | $106.43 | 6.3% |
| Merrimack Pharmaceuticals | MACK | 03/07/16 | $7.49 | $6.31 | -15.8% |
| Eagle Pharmaceuticals | EGRX | 02/16/16 | $56.54 | $46.73 | -17.4% |
| TG Therapeutics | TGTX | 01/13/16 | $8.47 | $7.73 | -8.7% |
| Relypsa | RLYP | 11/13/15 | $18.96 | $18.06 | -4.7% |
| Xencor Inc. | XNCR | 10/07/15 | $12.49 | $13.82 | 10.6% |
| AbbVie | ABBV | 09/28/15 | $52.50 | $62.71 | 19.4% |
| Synthetic Biologics | SYN | 09/10/15 | $2.44 | $2.12 | -13.1% |
| Lexicon Pharmaceuticals | LXRX | 08/24/15 | $11.33 | $13.68 | 20.7% |
| Mylan | MYL | 08/10/15 | $57.52 | $43.06 | -25.1% |
| TRACON Pharmaceuticals | TCON | 08/10/15 | $11.40 | $6.49 | -43.1% |
| Celsion Corporation | CLSN | 07/21/15 | $2.45 | $1.41 | -42.4% |
| Amgen | AMGN | 07/07/15 | $155.39 | $156.74 | 0.9% |
| pSivida Corporation | PSDV | 06/22/15 | $4.03 | $3.85 | -4.5% |
| XOMA Corporation | XOMA | 06/22/15 | $4.28 | $0.70 | -83.6% |
| Synergy Pharmaceuticals | SGYP | 06/05/15 | $4.90 | $3.60 | -26.5% |
| Gilead Sciences | GILD | 05/08/15 | $103.85 | $85.82 | -17.4% |
| Inovio Pharmaceuticals | INO | 05/08/15 | $8.01 | $10.61 | 32.5% |