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Rod Raynovich, Raygent (41 clicks)
Research analyst, ETF investing, portfolio strategy, long/short equity
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Vertex (VRTX), a laggard in the frothy biotech universe, rose an astonishing 58% on positive Phase 2 clinical news from its cystic fibrosis drug VX-661. The study showed statistically significant improvement in lung function among adults who have two copies (homozygous) of the most common mutation in a gene called CFTR. Vertex, up only 10% through April 1, was not in the spotlight among biotech movers, but since April 1 has soared from $55.5 to $84. Vertex was one of the original biotech leaders since the 80s, has a $18B market cap with revenues of $1.16B forecasted in 2013. Vertex has been a major player in the development of small molecule drugs to treat HCV and cystic fibrosis. Forecasts for the cystic fibrosis drug are in the $5B range and analysts have already jumped on the bandwagon proclaiming this mid-cap is ready to move into the majors as it now has a market valuation comparable to Regeneron (REGN) which has forecasted revenues of $1.9B.

As of midday trading Friday the IBB was up 3.6% and the portfolio held 3.8% of VRTX shares. The XBI held 2.6% of VRTX and was also up about 3.5%.

Rayno Portfolio-Biotechnology Stocks Soar Over 20% YTD

Many Large and Small Cap Stocks Are Up Much More:

  • Astex (ASTX) up 112%
  • Albany Molecular (AMRI) up 73%
  • Seattle Genetics (SGEN) up 51%
  • Gilead Sciences (GILD) up 38.5%
  • Biogen-Idec (BIIB) up 35.7%
  • Pharmacyclics (PCYC) up 29%
  • Alkermes (ALKS) up 27%
  • Amgen (AMGN) up 25%

With these kind of returns even in the largest cap $47B + companies like Amgen, Gilead and Biogen, the run is even more impressive. On Monday of this week we flashed the caution flag because of the huge returns and the market jitters caused by the gold crash. This proved to be right because the NASDAQ continued weak with three down days of >1% this week. The IBB is still up over 20% this YTD compared to the heavy tech laden QQQ which is up only 3% but lately they are trading in tandem. As tech stocks announce perceived earnings shortfalls the sentiment could carry over to frothy biotechs. We are also concerned about seasonality which can be weak in early spring, technicals which have broken down in some momentum stocks and excessive pumping by financial media on the marvels of biotech stocks which was not apparent in 2012.

We have not made any changes in our portfolio except as noted below, for example the two paired trades long and short, with the shorts covered and the longs held. The biobull or "bubblet" is still intact but now must be tempered by any overall market weakness. Speculation remains robust. We regret not adding Vertex and it could be that the market will seek out mid-caps that are "hidden gems" (like Alkermes ALKS) not yet being pumped by the hedge funds and analysts. And sure enough as we take a quick look at the 35 mid and small cap biotechs on our screen today, it is mainly green so they are taking their lead from Vertex.

Rayno Biopharmaceutical Portfolio as of 4/18/13

2013 PriceOriginalPPrice%RetPricePrice% RetPrice
Summary Jy'10Recomm Dec'102010Apr'11Dec'12YTDApril 19
2013
AchillionACHNnew3/4/138.6 -137.46
AlexionALXN50.452/2/093580.6130100.895.4-1.892(spl)
AlkermesALKSnew3/22/1323 18.52729.2
Albany MolAMRI 2/10/114.68added4.325.3739.15
AstexASTX 12/27/111.63 2.71126.17
AmgenAMGN51.72/2/095554.905487.425107.46
BiogenBIIB49.422/2/0948.567.13773.2514935.7198.66
CephalonCEPH55.952/2/0976.561.7-1976.9280.1830acquired
CubistCBST20.72/2/0921.521.4-328.3542.4845.42
ExelixisEXELtrade9/2/103.38.2114811.124.583.74.74
First TrustFBT30.44/15/1037.539.1341.3461753.88
GileadGILD34.92/2/095136.2-2942.8172.738.550.86(spl)
iShares ETFIBB76.62/2/0970.593.432101.1137.820164.95
SPDR BioXBI 86.3815101.22
MicrometMITI6.282/2/0948.121035.4610.91272acquired
ImmunoGenIMGN 12/22/1112.4 12.511.714.25
OptimerOPTRtrade2/18/1111.8added13.89.26414.86
PharmacyclPCYC 6/8/1238.2 582974.77
RegeneronREGN21.62/2/0917.532.88245.4317321206.66
SeattleGen.SGEN11.852/2/099.5155715.7223.35135.08
ViroPharmaVPHM10.882/2/091217.34420.0522.99.925.02
Paired
Trades
PharmacyclPCYClong6/8/1238.2 605188.78
MedivationMDVNshort6/8/1286.8 closed50747.85(split)
net58
AlkermesALKSlong3/22/1323 18.52729.2
InfinityINFIshort3/22/1348.7 closed351839
net45
Source: Biotech Stocks Get A Turbo Boost From Vertex