Can Large Cap Biopharmaceutical Stocks Outperform In 2016?

Jan. 08, 2016 12:38 PM ETIBB, REGN
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ETF investing, Portfolio Strategy, Long/Short Equity

Contributor Since 2007

Rod Raynovich is an entrepreneur and executive with a focus on life science companies and medical technology trends.He has over 35 years executive experience including Abbott and JNJ and has been involved three successful start-ups. Before starting Raygent and other companies he was also a Technology Transfer Officer at UCLA. He has a B.S. from Penn State University and an MBA from Rutgers University. His WEB site at www.raygent.com is currently focused in biopharmaceuticals, genomics and clinical diagnostics . Mr. Raynovich has extensive expertise in marketing and product development and provides business development consulting to early stage companies in biotechnology, diagnostics and imaging. The Rayno Life Science Portfolio was published on www.raygent.com and other trade media. Articles have been published on the following topics: Alzheimer Disease,Biomarkers, Genomics,Molecular Diagnostics, Oncology Drugs, Personalized Medicine, Targeted Therapy, Technology Trends, H1N1 and Government Policy on biotechnology. The Life Science Portfolio is up over 80% over a 24 mo. period as of 5/30/14and among the life science portfolio winners are ABAX, ALXN, AMRI, BIIB, CBST, GPRO, ILMN, QDEL,REGN, SGEN, and VPHM.

Large Cap Biopharmaceutical Stock Valuations After Correction

We previously summarized the Rayno Mid and Small Cap Portfolios for 2015, a good year despite the correction. With this post we summarized selected Sales and Earnings metrics (Source finviz.com) of important large cap biotech stocks for the purpose of analysis after the J.P. Morgan Healthcare Conference and after 2015 financial results. From tracking these metrics and 2016 guidance we hope to better understand biopharmaceutical valuation models, product pipelines and comparative growth potential for these large caps that underperformed in 2015.

Here are some key points to keep in mind for 2016 investing:

  • The best performing stock in the Rayno Large Cap portfolio for 2015 was Regeneron (REGN) up 31% but has sold off 7.5% in 2016. The large cap weighted IBB was up 10.35% in 2015 and is down 9% for the first 4 days of 2016.
  • In general large cap biotech stocks underperformed mid and small cap stocks in 2015. However with the current 2016 correction investors may become less speculative and more conservative seeking stocks with a strong balance sheet and earnings safety.
  • During the peak bull market days of 2015 valuations were less of a concern and sales growth and product pipeline drove stocks. Momentum trading ruled.The bull market ended after the August/September correction and since the end of Q3 we have been in a bear market.

Preliminary metrics on sales and earnings looking for growth vs value:

Company Ticker Price 1/7/16 Market Cap 2015 Rev P/S PEG Q/Q Rev EPS Q/Q Stock Perform  
        $B     Gr% Gr% %12 mos  
                     
Abbvie ABBV 57.21 93.52 21.9 4.27 1.86 18.4 138.7 -13.17  
Alexion ALXN 174.37 39.29 2.5 15.7 7.17 20.1 -192 -6.55  
Amgen AMGN 152.98 115.4 21.46 5.38 1.81 13.8 51.6 -4.32  
Biogen BIIB 284.01 63.31 10.57 5.99 1.28 10.6 14.6 -16.96  
Bristol Myers BMY 65.27 108.92 16.53 6.59 3.22 3.8 -2.3 9.71  
Celgene CELG 111.89 87.91 8.78 10 2.36 17.8 -106.6 -1.44  
Gilead Sci GILD 96.25 138.71 31.45 4.41 0.63 37.3 83.2 1.41  
Regeneron REGN 501.96 52.24 3.81 13.72 4.55 56.7 154.9 22.38  
                     
                     

*BMY and CELG were not in the Rayno Life Science Portfolio in 2015

Technicals are broken on this major biotech ETF:

Disclosure: I am/we are long GILD.

Additional disclosure: long FBIOX

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