What to Expect in December
“Nothing says holidays, like a cheese log.” – Ellen DeGeneres
I hope the entire Biotech Gems community had an enjoyable weekend filled with food, friends, and family. It is hard to believe that 2016 is almost to December already. It has been an eventful year to say the least.
The biotech sector was almost exactly flat on the week as the markets continue to consolidate the significant post-election rally. Considering major high profile blow ups this week thanks to trial setbacks at Eli Lilly (NYSE: LLY) and Juno Therapeutics (NASDAQ: JUNO) and a lack of M&A activity, I do not consider this a bad result.
We have two potential mid-cap acquisitions in the pipeline this week. Valeant Pharmaceuticals (NYSE: VRX) is on the verge of selling its gastrointestinal business to Japanese based drug giant Takeda. This would be good for our holding of Progenics Pharmaceuticals (NASDAQ: PGNX) which has run up some 70% in the month of November. There are also rumors that Johnson & Johnson (NYSE: JNJ) is on the verge of buying Europe’s biggest biotech Actelion in an approximate $20 billion transaction. A pick-up of purchase activity would be positive for further gains in the sector and something we are watching closely. Eli Lilly will probably be a more aggressive possible acquirer now that it appears its efforts in Alzheimers have come to naught.
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 17.29% since we launched the Biotech Gems service at the start of May of 2015.
Our large cap core positions are down 6.63% on average while our small cap portion of our portfolio is now down 4.62% on average, both not including dividends. Using the minimum 50% allocation recommended to our core positions gives us a blended loss of 5.62%, 1,167 basis points above our benchmark. The most conservative allocation of 75% dedicated to the large cap core positions results in a loss of 6.13%, 1,116 basis points above the benchmark.
Portfolio News:
We did not see a whole lot of movement within the portfolio in the holiday shortened trading week. As noted in the opening, Progenics is on a monster run so far in November. If Valeant does sell its gastrointestinal business to Takeda, I would not be surprised if we get some “buy the rumor, sell the news” action in the stock of Progenics. However, this transaction would be good for Progenics’ compound relistor and its longer-term future.
Tracon Pharmaceuticals (NASDAQ: TCON) gave back last week’s gains as it announced a secondary offering. Not much else to note this week. However, I would expect some of the 2016 laggards in our portfolio like Gilead Sciences (NASDAQ: GILD) and TG Therapeutics (NASDAQ: TGTX) to do better as tax loss selling abates soon which is called the “January Effect”.
Given the new and unexpected political realignment and how the biotech and pharma sectors have significantly underperformed the overall market since the summer of 2015, I would not be surprised to see somewhat of a “Santa Claus” rally this year in these sectors. I think we can all agree, that would be a good way to close out 2016.