The market had its best week since February thanks to very solid earnings from the likes of tech titans Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOG). Amazon (NASDAQ: AMZN) saw its stock rocket after the online retailer actually posted a profit during the quarter. Color me skeptical but I just can’t get excited about the stock given it trades at more than 300 times this year’s projected profits.
Unfortunately, biotech did not participate in market’s rally as the main biotech indices were flat or slightly down this week. The carnage in the pharma part of the market was something to see this week. The fallout from the collapse of the stock of drug giant Valeant Pharmaceuticals (NASDAQ: VRX) took out about every company that sells any kind of pills through Thursday, just to have that sub-sector stage a massive rally on Friday.
One only need to look at our holding of Horizon Pharma (NASDAQ: HZNP) this week. The equity was crushed in the first four days of trading before rallying over 30% on Friday alone. The stock has had as much volatility in one week than what usually takes place over six months. I actually view this action as a positive as it feels like the action you see during a capitulation phase. This to me means we are at or close to a bottom in the biotech/pharma sectors after both have entered official bear market territory recently.
Portfolio Update:
Several of our holdings took temporary hits due to the fallout from Valeant’s plunge this week, but I view this change in sentiment as very temporary as these companies have not come under the same scrutiny by authorities. They also have not used the debt markets to more the quintuple its market capitalization over the past few years through serial acquisitions.
More importantly, Gilead Sciences (NASDAQ: GILD) had a nice week as troubles at a competitor in hepatitis C space boded well for its continued dominance in this very lucrative franchise. If the same problems crop up in the new offerings coming from Merck (NYSE: MRK) in the first quarter of 2016; it could be off to the races for this extremely cheap long-term growth play.
Both Gilead and fellow core position Amgen (NASDAQ: AMGN) reported quarterly results early this week. I expect both companies to beat the consensus. Good earnings combined with the ebbing of tax loss selling as many funds’ fiscal years end in October; could ignite a much better environment for capital appreciation through year end in the beaten down biotech and pharma sectors.
Biotech Gems Stock Highlight Of The Week:
Our spotlight company this week is Mylan (NYSE: MYL) which has lost more than 40% of its value in the sector’s bear market. The company’s largest seller is the Epi Pen (~13% of overall sales) which is about to face competition and it is about to launch a competing version of Teva Pharmaceutical’s (NYSE:TEVA) blockbuster Copaxone. Both of these events will help push the costs of these drugs down, not up. The stock continues to fall nonetheless.
Mylan hardly is a firm that is likely to bear any fallout from the sudden and what should be fleeting focus on drug prices by politicians, the media and their ilk. The drug maker is growing earnings 10% to 15% annually and sells for under ten times this year’s profits. I am slowly adding to my core position in this long-term holding.