“Brexit” Fears Control the Market
Biotech continued to sell off last week due to the overall market trend. Fears of a “Brexit” caused most high beta sectors to post significant declines over the past five trading sessions. As one would expect, most of the damage happened in the more volatile small cap part of the sector while the large cap “core” positions held up much better. More than half the damage during the week to the major biotech indices was done on Friday as few wanted to be long risk heading into the weekend. Small caps were particularly anemic at the end of the week.
Hopefully, cooler heads will prevail in the U.K. on Thursday as a “stay” vote could trigger a significant relief rally in global markets. One or two acquisitions in the biotech sector would also buoy sentiment as M&A has gone dormant in June after a nice increase in May.
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 25.47% since we launched the Biotech Gems service at the start of May of 2015.
Our large cap core positions are now down 6.49% on average while our small cap portion of our portfolio is now down 24.55% on average, both not including dividends. Using the minimum 50% allocation recommended to our core positions gives us a blended loss of 15.52%, 895 basis points above our benchmark. The most conservative allocation of 75% dedicated to the large cap core positions results in a loss of 11.01%, 1,446 basis points above the benchmark.
Portfolio News:
Most of our small cap positions sold off last week. Relypsa (NASDAQ:RLYP) provided good script numbers for May for Veltassa, and three analyst firms also reiterated their Buy ratings with price targets of $24, $35 and $41 respectfully. Among our large caps, Mylan (NASDAQ:MYL) continues to show strength even in a down market.
Celgene (NASDAQ:CELG) was highlighted in an article in this week’s Barron’s that postulated that earnings should double by 2020 and that currently the shares were at least 30% undervalued. Celgene sells for the overall market multiple even though it has slightly better consensus growth projections over the next few years than Bristol Myers Squibb (NYSE: BMY) which goes for 28 times forward earnings. Hopefully that provides a “Barron’s Bounce” to the shares on Monday.
Despite a recent key patent ruling for BENDEKA distribution partner Teva Pharmaceuticals (NASDAQ: TEVA), the stock of Eagle Pharmaceuticals (NASDAQ: EGRX) fell last week.