Three Straight Weeks of Gains for Biotech
Biotech posted its third straight week of gains even through the market fell back on Friday thanks to an underwhelming monthly jobs report. We continue to see gains in the Biotech Gems portfolio and the small cap selections as a whole continue to outperform our large cap positions. This is usually how it works in any kind of rally, especially one being led in a large part by a measurable uptick in M&A activity; several small and mid-cap concerns in the sector have been gobbled up with substantial premiums over the last few weeks. This a trend I believe will continue.
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 18.07% since we launched the Biotech Gems service at the start of May of 2015.
Our large cap core positions are now down 1.99% on average while our small cap portion of our portfolio is now down 18.86% on average, both not including dividends. Using the minimum 50% allocation recommended to our core positions gives us a blended loss of 10.43%, 847 basis points above our benchmark. The most conservative allocation of 75% dedicated to the large cap core positions results in a loss of 6.21%, 1,186 basis points above the benchmark.
Portfolio News:
Relypsa (NASDAQ: RLYP) continues to move up as the stock gains momentum since its potential primary competitor in the hyperkalemia market “ZS-9” received a complete response letter from the FDA late in May. Several analyst firms reiterated their Buy ratings on the firm this week. Wedbush was the most optimistic of these with a $51 a share price target. I expect the stock will continue to be volatile as buyout rumors ebb and flow in the coming weeks and months.
Aratana Therapeutics (NASDAQ: PETX) continues to acquit itself well and is up more than 30% since being added to the portfolio a month ago. Credit Suisse reiterated its Buy rating and $11 a share price target on the emerging veterinary medicine play this week. Also posting nice gains on the week in our small cap portfolio were Inovio Pharmaceuticals (NYSE: INO), Tracon Pharmaceuticals (NASDAQ:TCON) and Lexicon Pharmaceuticals (NASDAQ: LXRX).
Synergy Pharmaceuticals (NASDAQ: SGYP) has a phase III trial readout for its lead product candidate plecanatide that is due out before the end of the month. I expect the results to be positive and this near-term catalyst is one reason the stock has gained some 20% over the last month. On the large cap side, AbbVie (NYSE:ABBV) continues to be a standout and its recent purchase of privately held Stemcentrix will continue to lessen its dependence on its blockbuster drug Humira as Rova-T has billion-dollar potential. Their other drug Imbruvica also shows stellar growth. The stock is still a solid value at under 14 times this year’s earnings with a 3.6% dividend yield.
Hopefully, the recent momentum we have seen in biotech will carry over as we start to head into the summer season.