Expect Some Sector-Wide Consolidation After Recent Rally
“I was seldom able to see an opportunity until it had ceased to be one.” – Mark Twain
The biotech sector drifted down in listless and low volume trading for the week just ended. The main biotech indices are holding their recent support levels but with second quarter earnings results out of the way and no real M&A activity over the past few weeks, the indices might remain stuck in a relatively narrow trading range.
I think it is quite possible we could spend the next several weeks consolidating the large gains the biotech sector achieved over the last six weeks. Absent a noticeable uptick in M&A deals and other sector-wide catalysts, there is little to move the entire sector; although, individual stocks will continue to ebb and flow with company-specific events.
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 15.61% since we launched the Biotech Gems service at the start of May of 2015.
Our large cap core positions are up 1.36% on average while our small cap portion of our portfolio has shown marked improvement and is now down 6.69% on average, both not including dividends. Using the minimum 50% allocation recommended to our core positions gives us a blended loss of 2.67%, 1,294 basis points above our benchmark. The most conservative allocation of 75% dedicated to the large cap core positions results in a loss of just .65%, 1,496 basis points above the benchmark.
Portfolio News:
Gilead Sciences (NASDAQ:GILD) had a solid week and seems to have washed out the sellers since its disappointing sales results in the last quarter. I still think we need management to make a decent sized acquisition or see the decline in hepatitis C sales ebb to move substantially higher for now, but it does seem the bottom is in at just under $80 a share.
Tracon Pharmaceuticals (NASDAQ:TCON) had a nice pop on Friday as BTIG reiterated their “Buy” rating and $15 price target. BTIG’s analyst noted “Tracon’s lead compound, TRC105 (an anti-endoglin antibody) has generated promising efficacy in a variety of solid tumors, including HCC, RCC and angiosarcoma beyond historical control of anti-VEGF monotherapy. BTIG factors in TRC105 sales in angiosarcoma, choriocarcinoma and clear-cell RCC. With TRC105 potentially entering pivotal Phase III trials in the second half of 2016, we project a market launch in 2019, with peak US sales of over $300 million across indications.”
Other than that, there was little movement across the portfolio as last week sported some of the lowest volatility of the year. For those out in the San Francisco area this week, I hope to catch you at the MoneyShow where I will be delivering a couple of presentations around investing in this lucrative but volatile part of the market.