Monday's trading session will kick off with heavy anticipation on earnings, as the season kicks into full gear this week. With investor euphoria high entering 2014, it's time to see if earnings numbers can match the record stock market run of late last year. If not, a broad pullback could be in order.
The big banks will steal much of the earnings thunder all week long, with reports due first from JPMorgan Chase (NYSE:PM) and Wells Fargo (NYSE:WFC) on Tuesday, while Morgan Stanley (NYSE:MS) is slated to close the show by issuing its report on Friday. In between we've got Bank of America (NYSE:BAC) on Wednesday, with Citigroup (NYSE:C), Capital One Financial Corp (NYSE:COP) and Goldman Sachs (NYSE:GS) scheduled for Thursday reports.
Consensus expectations are that the banks will continue to build on the trend of positive growth seen during the previous quarters, which should be enough to satisfy investors and reinforce some of the enthusiasm from last quarter, but any surprises to the downside could spook investors already becoming a little jittery after warnings on the retail front.
The Fed has already stated its intention of easing the long-standing stimulus measures through the course of this year and this could be a key week in determining just how quickly we will be weaned off the stimulus nipple, as earnings can provide us an indication of the true strength of the economy.
Another discussion point for the week will be last Friday's jobs numbers, which came in well below expectations. Funny enough, the miss in jobs numbers turned out as good news for Washington, as the politicians can now boast about a lower unemployment rate number. That's right, the job market was weak enough that many job-seekers gave up and quit looking for work, which pulled them from being counted in the unemployment number, which dropped since there were fewer people looking for work. Only in Washington does that nonsense make sense.
The surprisingly low jobs report wasn't enough to influence the markets on Friday, but coupled with any other news this week that would indicate the economy isn't as recovered as we though could change that. Fed Chair Bernanke is slated to speak on Thursday and investors will be keen on hearing what he has to say about the state of the economy and the quickness with which stimulus will go away.
A major focus this week will be the JPMorgan Healthcare conference, which takes place in San Francisco starting Monday. The sector started to run last week based on high investor anticipation of upcoming presentation, and it should be expected that these price spikes will continue as the week progresses. Keep an eye out for them and remember to at least sell a bit into the more speculative of those runs, which are often based on hype than substance. There will be time to get back into the stories you like once the wave subsides and attention moves elsewhere in the market when the week is over.
Given the market focus on the JPM conference, we'll stick to healthcare for this write-up. Here's a few healthcare stocks and stories to keep an eye on Monday, and for the remainder of the week ...
Intercept's Seismic Move Higher And What Comes Next
First up is a late addition to this week's JPMorgan conference, Intercept Pharmaceuticals (NASDAQ:ICPT). Intercept's shares spiked to over four hundred dollars on Friday after closing this past Wednesday at just over seventy two. The rapid spike occurred after positive data from a mid-stage trial for its liver-disease drug was announced. Intercept was not originally slated to present at JPM14, but joined the ranks of presenters after a last-minute cancellation by Amarin Corporation (NASDAQ:AMRN). Amarin is sitting on the other end of the spectrum these days, having seen its share price slide to two from over ten bucks just over a year ago to two. Amarin pulled out in order to focus on communications with the FDA in regards to reinstate the SPA for Vascepa in the "Anchor" indication. We'll keep an eye on the Amarin story and measure its potential as a rebound play for 2014 later on, but investors are more focused right now on ICPT, wondering if there is more run left in the tank.
Before discussing the key items regarding Intercept, it should be made clear early on that it's a pretty good idea to take some profits off the table any time you get a run of over five hundred percent in the biotech / healthcare sector in a matter of just a couple of days. It doesn't matter how bright the future may look or how enthusiastic the financial media and bloggers make the story sound, you've got to realize some profits, even if some shares are left on the table to stick around and see if the run continues. It's hugely common in this sector for the shorts to roll in at the high after price runs such as this one - especially since this is still a mid-stage drug candidate - and any investor sitting on gains like this deserves to crack open the Grey Goose and book that European vacation; or pay some bills, whatever satisfies the fancy. It's not a time to become overconfident, a topic we discussed last week.
Congrats to those who were around for this choo-choo ride north, let's take a look at what could come next.
In focus at the JPM conference will likely be plans for the next step in this drug's development. New trials will be initiated, undoubtedly, and investors will be looking for timelines. Maybe more important, however, will be how the company responds to some issues of safety concerns that arose during the trial. Although the drug demonstrated efficacy - enough to cause the trial to come to a halt - the Wall Street Journal discussed "lipid effects" in patients that may become a safety concern, to go along with an increase of "bad" cholesterol. These patients will continue to be monitored for additional data and these items will certainly be watched during future trials.
Aside from the mere fact that most biotech / healthcare runs are followed by periods of pullbacks and consolidation, these safety items are enough to give investors pause and bring levity into a situation that can become controlled by the sheer emotion of the price run. Regardless of how positive the articles are and how pretty the picture of the ICPT chart is with that arrow pointing straight up, each investor should take into account all the facts before deciding whether to chase into the run or sell a few shares in order to bank profits.
Intercept is the latest example of the explosive growth that can be seen in the biotech / small pharma / healthcare sector and provides a nice reason of why the more speculative investors love to dabble here. While the day, momentum and swing traders may jump in on the ICPT wagon as it's moving, most investors of the sector love to go and find the next big story before it happens. We often discuss these stories here, as do many other authors and owners of personal websites. Since charts and technical analysis generally go out the window when we're dealing with companies that are event-based, hype-based and emotion-based, the best gauge of where a stock could go is based on the market potential of the drugs or products in the pipeline. Other factors come into play, too, such as management's propensity to secure dilutive financing and how well the company manages its cash, but a drug with billion-dollar potential could negate all that on a positive trial.
In the case of Intercept, it could be said that the company is now trading towards its potential. With no drug currently out there to treat the fatty-liver indications treated by Intercept's product, we could have a multi-billion dollar blockbuster on our hands, hence the meteoric rise in share price last week. Taking into context the global market potential of such a product, should it garner approval, there may still be some market cap upside to be had later on down the road, but for the reasons outlined above, it's smart to entertain the eventuality that we'll see a pullback - and sooner, rather than later. There will be a lot of investors with newfound paper riches who will be looking to turn them into actual riches and the shorts are likely to jump on board when the selling starts.
For a prime example of this scenario, take Dendreon Corp (NASDAQ:DNDN). DNDN traded for under four dollars years ago before positive trial results launched the stock higher by about five hundred percent, too. After a period of pullback and shady trading action, shares flew higher yet after the FDA approved what was to be the first of the next generation of cancer treatment, Provenge. Investors had high hopes, as did many analysts and the future looked brighter than ever. After Provenge failed to catch on as planned, though, and the shorts arrived to take advantage, DNDN is back trading at three bucks. The direct comparisons between Dendreon and Intercept may not necessarily be there, it's the price action and patterns of stocks in the sector we're looking at, so it's definitely a comparison worth noting.
On the other hand, Pharmacyclics (NASDAQ:PCYC) traded for just over a dollar about five years ago - and that one just keeps going higher and higher, so there is justification for never completely selling out. That said, there were plenty of spikes and pullbacks during PCYC's rise, too.
I'm not a fan of chasing price runs, if you miss a boat, stick to your plans and strategy and go looking for the next one. Even with emotions running high and fast, entertain levity and definitely entertain all the factors that could come into play that could bring rain to the parade. Intercept's potential is very high, but the drug is still mid-stage and remember that the shorts love to arrive at the high of the party and bring the rain. It may be wise to tread cautiously if you're going to chase this run.
BioDelivery Sciences Spikes On Clinical Update
Shares of BioDelivery Sciences (NASDAQ:BDSI) jumped to over six bucks on Friday - setting a new 52-week high in the process - and will be heavily eyeballed on Monday morning as the healthcare sector as a whole takes center stage. BioDelivery has built a pipeline of products based on its BEMA drug delivery technology, a patch that releases drugs in a controlled manner through the inner lining of the cheek. Onsolis became BDSI's first FDA approval a few years back, but REMS issues thwarted a quick move into market, but those issues have since been rectified while a partner came on board to help push the pipeline forward. Friday's price spike materialized after the company issued a pipeline and milestone update and list of expectations for 2014, and that's what investors will be concentrated on this week.
Most notably, two Phase III trials for BEMA Buprenorphine in the treatment of chronic pain are expected to come to a close over the coming quarters, milestone events that could put the product before the FDA by the end of the year. That would pace an approval decision for the first half of 2015. Should the results come in positive in these ongoing trials, expectations of an eventual approval will be high, given that the FDA has already approved Onsolis for breakthrough pain in cancer patients. Also of note, Biodelivery will also be due a ten million dollar milestone payment from partner Endo (NASDAQ: ENDP) as a result of Phase III trial progress.
Moving on to another pipeline product, the FDA has declared a June 7th PDUFA date for Bunavil, which - if approved for the maintenance treatment of opioid dependence - could then be launched in the third quarter of this year, providing an additional mid-term revenue stream for the company. In the previous write-up regarding Intercept we discussed how investors in this sector gauge the market potential of the products they follow in order to confidently ascertain the potential value of a particular stock. In the case of Bunavil, peak sales are estimated to reach as high as $250 million annually, according to projections contained in the company's own press release. Should approval be granted and sales gain steam fairly quickly once the product is launched, then this product alone leaves room for a share price upside, given that BDSI's market cap as of Friday's close was less than that number.
The BioDelivery pipeline is rapidly maturing. The share price, which once hit the nine dollar mark leading into the Onsolis approval, has also been recovery nicely, if not methodically. With multiple major milestone events in store over the coming months, investors looking to get ahead of these events may start paying increased attention to BDSI. Given Friday's move and a reinvigorated spotlight on the healthcare sector, the BioDelivery story may already be getting out there.
As usual for the sector, even as a stock trends north there will be periods of pullback and consolidation where investors can jump in. Keep an eye out for those opportunities, but I would also expect to see BDSI set new 52-week highs, as it did Friday, leading into this summer's milestones.
Nice one to watch this week, and possibly target for accumulation moving forward.
Also of note ...
Keryx Spikes Ahead Of Presentation
Keryx Biopharmaceuticals (NASDAQ:KERX) was another hot mover on Friday, jumping by ten percent on no news other than investors being reminded by some media outlets that the company would present at the JPM14 conference this week. Keryx, which was written off by many as dead in the water after the high-profile Perifisone failure of early 2012, enjoyed one heck of a rebound year in 2013 as the company's 'Plan B' drug Zerenex looked good in a Phase III trial for end-stage kidney disease. An FDA approval decision is due in June, an event before which some investors would like to get in beforehand.
One item to consider regarding this sector these days, is that the market works in cycles - investors flock to the fad of the day, and right now it's biotech. In the late nineties it was tech. Before the crash of the late 2000s, it was biotech again, and real estate. These cycles are a great thing for investors staying in tune, as the little guy can find it just as easy as hedge fund guy to bank very significant percentage gains. That said, it could also lead to overvaluations of speculative companies and to even more unpredictable trading patterns. For example, those riding high on emotion and overconfidence will start to expect share price spikes after every material event, completely disregarding potential overvaluations while ignoring the potential for 'sell the news' guy to kill a rally while the shorts jump in on top.
Keryx is an example of a great trading and long term patience play, but it's time to entertain the fact that - if approved - analysts will be looking for sales numbers rather quickly. There's been a years-long debate regarding the potential of Zerenex and with the market cap sitting on the north side of a billion dollars, investors may lose patience quickly if the launch starts as slow as Dendreon's with Provenge or Amarin's with Vascepa. Even BioDelivery Sciences, as mentioned above, soared before the Onsolis approval, only to fall backwards for a few years once the launch failed to gain ground thanks to REMS.
Until Zerenex can defy the critics, then the best percentage gains have likely already been had. With as hot as the sector is right now, however, you never know when a speculative run could materialize. It's like that two game NY Mets winning streak that comes out of nowhere sometimes. These trends don't last forever though, so take advantage of the speculative runs, but don't let overconfidence keep you from selling if the run isn't based on substantive evidence.
Roundup: Global stocks opened higher on Monday, but discussions are playing out openly in the media regarding the path that the Fed will take regarding interest rates and stimulus now that Friday's employment numbers (or lack thereof) have been digested. Those headlines caused the dollar to take a hit, not good news for those looking to buy a nice cold Cruzcampo on the Spanish coast, but are largely not expected to affect trading. Earnings will be in full swing this week, and those numbers have more of a potential to influence the markets for the time being.
Again, the focus of the week will be on JPM14 for traders and those long term investors looking for a good highlight story, so stay on top of the wires and Happy Trading!!!