Weekly Update October 5th, 2015
Stocks started the fourth quarter much like the third quarter, with high levels of volatility. The biotech sector was a major part of the whipsaw action. However, the biotech indices got a very nice bounce on Friday which hopefully marks a bottom after two months of declines; or, at least we are getting close to it. I believe this could the case for myriad reasons.
- Quarter end “window dressing” came to a close on Wednesday which should lessen selling pressure by managers trying to unload beaten down holdings to not have to put them on their quarter end statements to shareholders.
- Usually, corrections in the biotech sector are quick and deep. The last big pullback in the sector that commenced in early March of 2014 lasted 6-8 weeks. We are right in that timeframe now since biotech really initiated its current bout of volatility in late July/early August.
- I see signs of bargain hunting especially in those large-cap growth names that populate our “core” positions within the portfolio. The panic had gotten to extremes. My favorite analyst call of the week was from Morgan Stanley who downgraded Gilead Sciences (GILD) on Friday to “Hold”. Then the analyst put a $127.00 a share price target on GILD, about 35% above the price of the stock at the time of the call. If 35% upside constitutes a Hold, I will take that all day long.
- We had a poor Jobs Report and the Atlanta Fed downgrading its view of 3rd quarter GDP growth. Ironically, this also helps the sentiment on our large cap growth names as they should be able to continue to churn out both earnings and revenue growth even in a challenging global environment.
- The rhetoric around drug price “gouging” ebbed towards the end of the week. Hopefully, this election driven topic will die a quiet death.
Portfolio Update:
A couple of the stocks in our small cap “speculative” part of our portfolio received positive news this week. Synergy Pharmaceuticals (NASDAQ: SGYP) got upgraded at the small analyst firm of Rodman & Renshaw this week with a whopping $20.00 a share price target placed on the stock. Last week Canaccord Genuity reiterated its Buy rating and $19.00 a share price target on Synergy Pharmaceuticals last week.
XOMA Ltd. (NASDAQ: XOMA) finally gave its bedraggled shareholders some good news after big losses from its Phase III trial “EYEGUARD – B” for its main drug candidate in late July. The company signed an exclusive licensing deal with Swiss giant Novartis (NYSE: NVS).
Under terms of the deal, XOMA will receive an upfront payment of $37 million. The company could also garner up to $480 million in various milestones and mid-single-digit to low double-digit royalties on net sales. Novartis also agreed to extend the maturity date of the XOMA’s about $13.5 million in outstanding debt it holds to September 20, 2020. XOMA did have to agree to lower royalties from any products that come out of this licensing arrangement. Given the nature of the bounty it received in return, it was a very small price to pay for the deal.
Stating the obvious, this could be a game changer for this company which now has a market capitalization of just $125 million. The company has several “shots on goal” and this influx of funding should fully fund its development through at least early 2017. This is definitely a positive for the company and I look forward to additional positive catalysts in the near future.