Biotech Blahs: Unable To Hold Gains After ASCO Run-Up

Jun. 17, 2016 3:12 PM ETABBV, BMY
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

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 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 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.

Biotech Blahs Bring Stocks Down to Support Level

As of midday trading today (1PM EDT) biotech stocks are trading down near the May lows erasing gains from the ASCO run-up. The IBB at $258 is unable to break through to recent highs hit in April and early June creating a double top. The XBI has shown a similar technical pattern but with higher highs hit in early June near the end of ASCO and trading near the May 12 support level. We favor XBI (now at $53.85) for trading as the moves are more volatile on a week to week basis. Since the bubble burst in mid-July followed by the January downdraft biotech stocks have struggle to make gains from February lows. Technicals rule for now.

Nonetheless there is plenty of interest in the sector with tons of cash waiting in the wings to move individual stocks. This market favors traders and we saw that during the anticipation of clinical data from ASCO.

Pricing concerns remain an overhang in the market. Politicians have been focused on the issue of high drug costs since September 2015 . Investors expect growth from the large cap biopharma leaders and without new blockbuster drugs and top line revenue growth generalist investors may stay away.

The biotech sector is still in a bear market interrupted by strong countertrend rallies. Here are some underlying trends driving the sector:

  • M&A should pick up by year-end as larger biopharmas seek new product growth.
  • NASDAQ and the QQQ needs to be strong for the IBB to rally.
  • Macro issues such as Brexit, the FED and tepid global growth discourage generalist investors.
  • Large cap leaders need to show top line growth or minimally start looking like value stocks with dividends.
  • If the healthcare sector (XLV) outperforms biotech should do better.

We will review the biopharmaceutical sector at the end of the month to compare actively managed funds vs ETFS. Our last review showed that ETFs beat the funds and this is still the case YTD but the FBIOX performance is starting to improve over the past 3 months and beats the IBB by 3%. So can active management make a comeback?

If you are not a trader then an investment strategy can be to hold long-term core positions in large cap biopharma stocks that pay dividends. Our core portfolio includes stocks like: Abbvie (ABBV), Bristol- Myers Squibb (BMY) and Roche Holdings (OTCQX:RHHBY).

Update after today's "triple witching" close.

Disclosure: long ABBV, BLUE, BMY, FBIOX, RHHBY. Short XBI as a hedge.

Disclosure: I am/we are long ABBV, BLUE, BMY, GILD.

Additional disclosure: Long term hold on FBIOX, short term short on XBI

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.