After five straight weeks of gains, the S&P 500 was slightly down for the week just completed. After establishing its highs for 2016 early in the week, oil pulled back some to end the week under $40 a barrel again. Hawkish comments from the St. Louis Fed president around the timing of possible interest rate hikes were a negative for the market and a good excuse for some profit taking after more than a month of solid gains.
Biotech actually slightly outperformed the overall market this week and was largely flat. Valeant Pharmaceuticals (NYSE: VRX) ousted its CEO and its stock was up for the week despite significant losses Thursday. The soap opera the company has become is casting a pall on the entire pharma and biotech sectors of the market in recent months. Any stabilization in this one-time market darling would be a positive for biotech and pharma overall.
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 25.73% since we launched the Biotech Gems service at the start of May of 2015.
Our large cap core positions are now down 7.48% on average while our small cap portion of our portfolio is now down 32.39% on average, both not including dividends. Using the minimum 50% allocation recommended to our core positions gives us a blended loss of 19.94%, 579 basis points above our benchmark. The most conservative allocation of 75% dedicated to the large cap core positions results in a loss of 13.71%, 1202 basis points above the benchmark.
Portfolio News:
The big topic of conversation in the sector this week involves the verdict Merck (NYSE: MRK) won against Gilead Sciences (NASDAQ: GILD) during the week around a couple of patents involving Gilead’s blockbuster hepatitis C drugs Sovaldi and Harvoni. This knocked the stock down hard when the news was released mid-week. However, damages were then decided subsequently of only $200 million not the $2 billion that Merck had sought. Royalties still are to be decided. Regardless, Gilead will appeal and this appears to be a very minor issue that will not change the investment outlook for this core position. The stock actually ended up for the week overall. Amgen (NASDAQ: AMGN) also put in a solid performance this week, rising some three percent this week.
Eagle Pharmaceuticals (NASDAQ: EGRX) continued its recent slide on an overreaction to the FDA rejection, at least for the moment, of its reformulated drug KANGIO. As stated in last week’s update, I think this is a good buying opportunity and I added a few more shares late this week to my original holdings.
Synthetic Biologics (NYSE: SYN) continued its recent rally and added some 10% in this holiday-shortened trading week. Inovio Pharmaceuticals (NYSE: INO) also added roughly 10% over the four trading sessions since our last weekly update. After trading closed for the week, Merrimack Pharmaceuticals (NASDAQ: MACK) announced that its first commercialized drug “Onivyde” has been included in the 2016 Clinical Practice Guidelines in Oncology for the treatment of pancreatic adenocarcinoma. This should be supportive of continuing to expand sales of Onivyde during its first full year on the market. The stock has gained more than 30% over the last month, and this news could get the shares off to a nice trading start in the upcoming week.