Our Small Cap Holdings Continue to Shine
Overall, it was a very solid week for the Biotech Gems portfolio led throughout by some strong performances from members of our small cap holdings. The main biotech index and our benchmark, the IBB, once again failed to break through the important 300 level, but the biotech sector is up more than 20% in the third quarter. I think we can safely say the long bear market in this area of the market that started mid-way through the third quarter of last year and lasted into the second quarter of this one is officially over.
It is quite possible the main biotech indices meander until we get clarity around the upcoming election. However, if M&A activity continues to perk up in the small and mid-cap parts of the sector, I feel confident we have additional upside from here through the end of 2016.
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 13.30% since we launched the Biotech Gems service at the start of May of 2015.
Our large cap core positions are down 1.49% on average while our small cap portion of our portfolio has shown marked improvement and is now down 3.95% on average, both not including dividends. Using the minimum 50% allocation recommended to our core positions gives us a blended loss of 2.72%, 1,058 basis points above our benchmark. The most conservative allocation of 75% dedicated to the large cap core positions results in a loss of 2.11%, 1,119 basis points above the benchmark.
Portfolio News:
Ardelyx (NASDAQ: ARDX) continues to have some of the strongest momentum within our portfolio and added to its recent gains throughout the week. The stock is now up some 50% over the past three months as investors anticipate positive results from several milestones in the first half of 2017. Merrimack Pharmaceuticals (NASDAQ: MACK) also had one of its strongest performances last week in quite some time.
TG Therapeutics (NASDAQ: TGTX) has had nice run recently as FBR Capital and Roth Capital have reiterated Buy ratings on the shares recently. Egalet (NASDAQ: EGLT) has acquitted itself well since becoming the latest addition to the Biotech Gems portfolio and ran up 10% this week as investors start to anticipate approval of ARYMO ER at its PDUFA date with the FDA on October 14th. Given the Ad Comm panel recommended approval in Early August, it is hard to see how this pain management compound does not get the green light.
If you have not yet read the September issue where I go over the investment case for this promising stock that’s attempting to prevent opioid abuse in painkillers, please click the link below. The PDUFA date is coming up in 18 days so there is not much time left before their important announcement that could drive the share price much higher.
Click here to see the latest addition to our portfolio, Egalet.
Among our large cap holdings, Mylan (NYSE: MYL) seems to finally be through with its congressional grilling. The large generic drug maker also saw four analyst firms reissued Buy ratings with price targets in the mid to high $50s this week. Gilead Sciences (NASDAQ: GILD) also has been stronger of late as speculation has picked up it is finally going to make a decent sized acquisition which should help sentiment on the stock as it diversifies away from its core HCV and HIV franchises.
If you have purchased shares of our latest recommendation EGLT, shoot me an email and let me know what price you bought it at and don’t be shy to ask me any questions. If you’re wondering about a specific stock in the portfolio or how to get started investing in the sector in general, I’m here to help. My email is [email protected].