Biotech Bull Market Enters The "Bubblet" Phase in Early 2014
Buyers Anticipating J.P. Morgan Conference: the iShares Nasdaq Biotechnology ETF (IBB) is up 2.4% YTD
Last week we started a series of articles that will follow key technical and fundamental trends in the biotechnology bull market. Trend # 1 was performance of funds and ETFs and the "FAB Five" large caps:
All the above stocks are on our focus list except CELG.
Our Key Trend #2 is performance of "Emerging Growth Stocks" in cancer therapy. These mid-cap stocks have been market leaders and are widely owned by institutional investors. They were up big in 2013 anticipating product approvals, sales growth or even a buyout. Our benchmark valuation is Onyx Pharmaceuticals which was acquired by Amgen for ~$10B. Onyx revenues were forecasted in the $900M range for 2014 so the Company was valued at about 10X sales. As valuations of biopharmaceutical stocks approach the $10B range an acquisition becomes less likely because few large cap pharmas or biotechs can afford it. Even a $5B market cap requires a blockbuster product and meteoric sales growth. So our key assumption for Trend#2 is that mid-cap biopharmaceutical stocks in the $5-10B range are benchmarks for overall bull market momentum and ultimately pipeline value.
Here are metrics, stock performance and pipeline overview for some "Emerging Growth Stocks" that have strong momentum.
|Company||Ticker||Price||Mark.||2013/'14 est||P/S||SE||Cancer Disease Focus||Ph.2,3||Market|
|Biomarin||BMRN||69.5||9.6||0.55 0.669||14.2||1,000||rare genetic disease cancers||2,1||4 products(enzymes)|
|Epizyme||EPZM||36||1||0.06 0.06||17||~100||oncogenes, NHL sarcomas||1,0||HMT inhibitor|
|Incyte||INCY||55||8.4||0.35 0.50||16.8||29||myelofibrosis,pancreatic,solid tumors||11, 1||ruxolitinab (JAK)|
|Medivation||MDVN||68.6||6.9||0.25 0.425||11.8||73.6||prostate,breast||4, 1||enzalutamide (TNBC)|
|Puma Bio||PBYI||110||2.95||n/a n/a||n/a||128||breast, NSCLC||3,1||neratinib (TKI) HER2|
|Pharmacyc||PCYC||128||7.7||0.20 0.33||23.3||262||blood cancers||6, 0,||ibrutinib (BTK)|
|SeattleGen||SGEN||41||4.9||0.26 0.29||16.4||226||ADCs for lymphom,solid tumors||5, 4||brentuxamab (ADCS)|
|Onyx||ONXX||125||9.14||0.634 0.876||8.7||n/a||liver, kidney, colorectal||0, 9||now Amgen|
|Clovis||CLVS||58.7||1.8||n/a n/a||n/a||133||ovarian/ breast cancers, NSCLC,DX||2||EGFR, PARP|
|Company||Ticker||Price||Mark.||52 Week||% Up 1 yr.|
We caution anyone trying to fathom valuations of emerging biopharmaceutical stocks. As can be seen with Epizyme, Puma and other "mid-caps", price to sales may not be a good metric in a momentum market . Many high fliers are off their Q4 highs proving that it can be difficult to predict FDA approval and revenues for a Phase 2 drug with 4 years to go .The sector is still strong in early January with ETFs and the Fidelity Select Biotechnology Fund (FBIOX) hitting new highs, anticipating news and analysis from the J.P. Morgan Healthcare Conference on January 14. All of our portfolio picks are strong holds and we have added new stocks in the last 30 days.
Additional disclosure: I am long FBIOX, Fidelity SelectBiotechnology Fund and trading short positions as a hedge.