Biotech Sector Showing Signs of Strength
Biotech ended the week up slightly in line with the overall performance of the S&P 500 thanks to a huge over four percent rally in the main indices on Thursday. What was encouraging about that rise is it happened even as Valeant Pharmaceuticals (NYSE:VRX) was being hit with two federal subpoenas for data around drug price “gouging” which has been in the news a lot recently thanks primarily to the upcoming election. The stock of Valeant was also able to stay flat throughout the week. This tells me that all the pressure from current political posturing is fully priced into the biotech sector. If we are not at the bottom, it sure feels we are getting close to capitulation.
Portfolio Update:
There was not much movement in the Biotech Gems portfolio this week, outside of Pernix (see below) which saw a big rise. All of our core positions rose this week led by Gilead Sciences (NASDAQ: GILD). This is another sign the bottom is near. It was these large cap growth positions that started to lead after the last bear market that hit the biotech sector in early March of 2014, and lasted approximately two months concluded. History may not repeat, but it most certainly rhymes as Mark Twain once famously quipped.
Biotech Gems Stock Highlight Of The
Week:
Last week we highlighted our existing position in Pernix Therapeutics (NASDAQ:PTX) as looking particularly unfairly beaten up in the recent weakness in the biotech and biopharma sectors. The shares promptly and on cue rose more than 25% on the week. hanneling my inner “Amazing Karnak” once again this week, we spotlight our current position in Horizon Pharma (NASDAQ: HZNP) as particularly undervalued.
The company will submit a proposal to its shareholders on November 13th to approve the issuance of more than 80 million shares to be used for its proposed takeover of Depomed (NASDAQ: DEPO) should it go through. This purchase is one of the catalysts we highlighted when we first purchased the shares. Depomed’s record date to determine which shareholders may request a special meeting
to vote on three Horizon proposals that will remove obstacles to its takeover offer is October 29th.
Even without the merger, the shares are extremely cheap given the company’s growth prospects. The stock has been hit thanks to the escalation of political posturing around “gouging” in the drug market. After posting earnings of less than $1.00 a share in FY2014, earnings are tracking to rise more than 40% this year to $1.40 a share. Next year the consensus has the company earning $1.90 a share on an approximate 25% increase in sales. After being cut in half in the recent bear market in this sector, the stock is too
cheap given those growth prospects at just 10 times next year’s projected earnings.
That is the week in Biotech Land.