Large-Cap Biopharmaceuticals Are Core Holdings After Sell-Off: AbbVie, Amgen, Gilead

by: Rod Raynovich


Bull market in biotech is intact with more clarity.

Momentum stocks should be avoided - appetite for speculation is diminished.

Biotech stocks are still holding near February lows - large-cap review and picks.

Biopharmaceutical Stocks Are Down 15% From February Highs (IBB $239.5)

The abrupt sell-off in the sector may be the result of:

  • Excessive speculation, 54 Biotech IPOs.
  • Geopolitical concerns like China economy and Ukraine.
  • Pricing and reimbursement issues with high priced drugs.
  • Profit taking after huge moves YTD and in 2013.
  • Re-balancing of stock portfolios toward economic recovery.

The trigger for the sell-off was undoubtedly the Waxman news regarding Gilead (NASDAQ:GILD) HCV drug pricing, but that has opened up a broader analysis of the sector. Since life science focused hedge funds are dominant in these stocks, the sell-off was across the board on high volume. Expect a choppy market this week.

Look To Large Caps For Core Positions

The biotech frenzy of MoMo speculative investing is over for now, so take time to invest longer term with quality growth companies. Stock picking rather than the sector play will be important. If the sector can hold at February lows, even treading water, negative sentiment may wane. We are still up 5-10% YTD depending on the index or ETF so even with another 7% sell-off, the 2014 bull is intact. Remember investors are up at least 60% from 2013 gains and more than 70%+ over one year depending on which Rayno Life Science stocks you are holding. Raise cash for future trades.

Over the next week we will review all five Key Trends of our life science models to see what has changed since the big move up in January.

First let's look at Large Cap Biopharma which has been hit hard from the news on U.S. lawmakers led by Henry A. Waxman scrutinizing biological drug pricing with Gilead HCV drug Sovaldi as an example.

Here is a large cap analysis done on February 11 with price updates as of today. Most of the stock prices are lower now off 2014 highs. Five are on our focus list: Alexion (NASDAQ:ALXN), Amgen (NASDAQ:AMGN), Biogen (NASDAQ:BIIB), Gilead, Regeneron (NASDAQ:REGN). All are core positions in the FBIOX Fidelity Select Biotech Fund.

Widely Held Large Cap Biopharma Stocks

Company Ticker Price Market 2014 Rev P/S F P/E PEG B/Sh Stock 1 yr. 52 wk 3/25 P
Cap est $B est %YTD %Up High
AbbVie ABBV 49.5 78.6 19 4.14 13.73 1.42 2.22 -6 36.7 54.8 51.75
Bristol Myers BMY 52 82.9 15.75 5.26 29.8 2.42 8.95 -2.1 40.7 56.8 51
Alexion ALXN 170 33.4 2 16.5 33 4.73 12.13 28 81.6 185 153
Amgen AMGN 120 90.8 19.6 4.6 14.6 2.52 29.3 5.45 38.6 124.5 120.65
Biogen Idec BIIB 318 75.1 8.55 8.78 22.9 2.23 36.5 13.7 93.4 321.2 312
Celgene CELG 157 64.5 7.6 8.5 16.3 1.92 14.3 -7.3 56.4 174.7 144.75
Gilead GILD 81 124.2 16 7.75 14.5 1.27 7.1 7.8 98 84.4 73
Regeneron REGN 304 29.9 2.6 11.5 57.1 1.37 17.2 10.4 83.3 319.8 309

Despite the severe sell-off, these stocks are long-term winners that remain core holdings in funds and ETFs. They also can be more easily tracked by financial metrics and product pipelines unlike smaller caps and IPOs. AbbVie and Bristol Myers are large cap drug companies that have morphed into biotech companies. They also pay a dividend as does Amgen. If you are not holding any of these stocks, you should look at FBIOX, a fund with active management that is still up 10% YTD. If you want to add specific large cap biotech stocks to your portfolio, then look at Gilead down 3% YTD, for growth and AbbVie down 2% YTD, or Amgen up 5.7% YTD for value. Alexion has had huge moves and we recommended profit taking recently. BIIB and GILD have broken down from their technical upward channel with the recent correction.

Chart forGilead Sciences Inc.

We will review other 2014 Key Trends in another post over the next week. Here is a quick summary:

  1. Large Cap Biopharmaceuticals: Bull market intact. Correction mode. Watch technicals.
  2. Emerging Growth Stocks - Immuno/Oncology. Volatile, so avoid for now. Our focus stocks are Pharmacyclics (NASDAQ:PCYC) and Seattle Genetics (NASDAQ:SGEN). Valuations need to be compared to Onyx which was acquired for $10B.
  3. ETFs and Funds. February lows are holding. Avoid more speculative XBI. With XLV watch the double top pattern and weakness in healthcare sector overall compared to plays on an improving economy such as financials and industrials.
  4. Speculative small and mid-caps. Speculation has been rampant. Many of these stocks are down more than 50%. New longs we added recently are Achillion (ACHN $3.61) and Ariad (ARIA $7.67) .
  5. Diagnostics and Tools. See other postings and YTD review. Bull intact but an 18% sell-off in Illumina (ILMN $146), our top pick, was a candidate for profit taking.

Disclosure: I am long ACHN, ARIA, GILD, ABBV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. I am long FBIOX Fidelity Biotech Fund and short selective biotech stocks on a daily basis for hedging only.