Last Week’s Historic Rally and Biotech’s Brightening Future
Last week will be one remembered by biotech investors for a very long time. The unexpected election results that swept in a Republican “wave” triggered the largest one week rally in this high beta and oversold sector of the market since the year 2000.
The overhang of future drug price fixing legislation that certainly would have been attempted if Bernie Sanders and Elizabeth Warren were in a majority Senate was removed in a heartbeat. In its place came hopes of a much more benign political environment for biotech than has existed in the run up to the election. Populist tweets from politicians that have sent the entire industry down when posted will not be missed.
The rally in biotech was broad, but most particularly felt in the small cap portion of the sector. Large caps gave in to some profit taking on Friday while small caps continued to move forward and were up substantially on the week, outperforming their larger brethren by a solid margin.
I would not be surprised if we see some consolidation this week as investors digest huge gains. Going forward through yearend, I believe biotech will trade towards the higher end of the trading range that we have seen for most of 2016. Since earnings season is over, a pickup in M&A activity is probably necessary to break through upward resistance levels approximately five percent above current trading levels.
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 16.26% since we launched the Biotech Gems service at the start of May of 2015.
Our large cap core positions are down 5.17% on average while our small cap portion of our portfolio is now down 6.63% on average, both not including dividends. Using the minimum 50% allocation recommended to our core positions gives us a blended loss of 5.90%, 1,036 basis points above our benchmark. The most conservative allocation of 75% dedicated to the large cap core positions results in a loss of 5.54%, 1,306 basis points above the benchmark.
Portfolio News:
We had gains throughout the portfolio as one would expect given the huge rally in biotech this week. Among the large cap “core” positions, Celgene (NASDAQ: CELG) led the way followed by Amgen (NASDAQ: AMGN) and AbbVie (NYSE: ABBV).
We also had some notable gains within our small cap holdings within the huge wave up last week. Amicus Therapeutics (NASDAQ: FOLD) moved up almost 50% on the week. The shares were reiterated as a Buy at both Cowen & Co. and Leerink Swann during the week with price targets of $15 and $17, respectfully. Egalet (NASDAQ: EGLT) which has been beaten down recently as it still awaits FDA approval of ARYMO ER, also gained 50% on the week. We also saw better than 20% gains in Ardelyx (NASDAQ: ARDX), Progenics Pharmaceuticals (NASDAQ: PGNX and Synthetic Biologics (NYSE: SYN) in what was a more than a memorable week.