SPX past 5 day's performance vs biohealth sector ETFs IBB, XBI, XLV. Source: TradingView.
As we can see above, the stock market suffered slightly last week, albeit the biotech sector held a slight advantage over the S&P as a whole. Biotech, Pharma and Healthcare stocks have been struggling to break out in recent weeks and typically, encouraging starts to the day's trading have turned into pullbacks by the time the market closes. Still, there are hopeful signs ahead, mitigated slightly by the upcoming election.
Arguments over health care policy, reimbursement, drug development costs and drug prices are likely to rage, and this will create uncertainty, particularly amongst big Pharma and health insurance stocks in my view. This may well create buying opportunities, hence I will be scrutinising these prices closely, since I hold several across the Haggerston BioHealth portfolios (available exclusively to Haggerston BioHealth subscribers).
As ever, where the smaller biotech's are concerned, it is essential to gain as much insight and understanding of price catalysts as possible. Always investigate management team, institutional ownership, pipeline, funding situation and drug efficacy before making any bets on an emerging biotech name.
Regarding Haggerston BioHealth's lead portfolio of 40 stocks, I made 5 sales last week which I discuss below. Having now added to my cash position, I am ready to make 1 or 2 investments during the course of this week and I will be keeping subscribers informed via deep dive reporting, the portfolio, and via automated alerts which I am working on.
In the rest of today's weekly review I will evaluate performance of both Haggerston BioHealth funds, HB Live and HB Pure Biotech, look at last week's top gainers and fallers across the biohealth universe, and highlight 5 top rated investment opportunities - this week, my 5 top picks are mostly dividend paying, profitable companies trading close to their 52-week high, so next week I will try to tweak the algorithm to uncover some more risk-on, early stage trades.
I do rate some of last week's fallers as interesting come-back opportunities however, if you are looking for an immediate risk-on counterpoint to the dividend paying blue chip approach and cannot wait until next week!
HB Portfolio Live Performance
(HB Live portfolio performance as at COB 2020.09.11 available exclusively to Haggerston BioHealth subscribers.)
I have now made 46 buys and 10 sells (including this week's 5 sales) relating to the HB Live Portfolio since I added the first 4 stocks on May 1st 2020. After adjusting the portfolio document to introduce more automation I calculate the fund's performance since inception as +5%.
Overall the HB Live portfolio is outperforming its benchmark ETFs iShares Trust Nasdaq Biotechnology ETF (IBB), -4.7%, SPDR S&P Biotech ETF (XBI), +0.3%, and the Healthcare Select Sector SPDR Fund (XLV), now +2.5%.
The biotech sector advanced against the S&P 500 last week, but SPX's performance - +9.3% since 1st May - is still significantly ahead - reflecting a difficult period for biotech. The recovery of the XLV, which is more health care focused, against the biotech ETFs also indicates a trend towards less technology focused and speculative investments, which is hardly surprising given the current climate.
(HB Live portfolio KPIs as at COB 2020.09.11. Available exclusively to Haggerston Biohealth subscribers.)
Last week's top performing HB Live portfolio holdings included Novocure (NVCR) +11%, and up 42% since I added the stock, which is why I elected to sell some of my holding, discussed below. Alpha Pro Tech (APT), the PPE equipment and mask supplier, was also up +11%.
APT's price has suffered as the market has dumped stocks with strong pandemic exposure in recent weeks, but as I argued in a recent note, there is more than just hype to APT's investment case, thanks to a bumper $47m order of its face masks which ought to lead to strong earnings in the latter half of this year and going into 2021, whilst stockpiling may sustain a higher share price long term. APT remains a hold for me, although I may look for an exit strategy if the price rises above $20 and I can realise a small gain.
Iveric Bio picked up by 11% during last week, to trade at $4.94 - its first major move since I recommended the stock at a price of $4.4. Iveric's trials of potential breakthrough Geographic Atrophy ("GA") - an advanced form of age-related macular degeneration ("AMD") - drug Zimura are ongoing and the investment case remains compelling given there are no approved treatments for GA currently on the market, and few in development.
Unfortunately there were losses last week also for Venus Concept (VERO) - the hair restoration and aesthetic beauty treatment specialist that was operating at just 60% capacity as late as June owing to the pandemic fell by 21% to $2.1.
The company reported $15.7m of near term cash as at Q220 versus debt obligations of $73.3m, which is a concern since as I discussed in a recent note Venus's debt is structured very unattractively. I remain confident the company can post stronger earnings quarters in Q3 and Q420, however, as other companies in a similar space - chiropractor franchise Joint Corp (JYNT) and outpatient care provider US Physical Therapy (USPH) have posted strong gains as their services have come back on line. Venus's share price tends to seesaw and this is another stock I may look to sell if I can make a small profit as the debt burden is a little too risky for my liking - unless the sales recovery is very compelling.
Molina Healthcare (MOH) fell by 8% last week and is down 8.4% since I recommended it. Health insurers could come under pressure in the run up to the US election as their share prices are particularly sensitive to political pressures, and insurers will come under fire for the role they play in setting drug prices via their Pharmacy Benefit Manager operations, and, particularly from the Democrat side, as the Medicare For All agenda is pushed. A Democrat win could punish the sector, although Biden favours a more centrist approach than Sanders, for example.
In general, health insurers' stock tends to bounce back quickly from adverse market conditions, hence I am keeping a close eye of the prices of e.g. Humana (HUM), Anthem (ANTM) and Molina as I am expecting strong third quarter results based on a pick up in individual plan memberships owing to wide-scale redundancies, and will tempted to increase my holdings if share price losses become pronounced, as I believe they may do temporaryily.
Portfolio Buys and Sells
(HB Live portfolio buys and sells week 19. available exclusively to Haggerston BioHealth subscribers.)
Last week I elected to make 4 sales within the HB Live portfolio.
On Friday I reduced my holding in 3 stocks: Novocure (NVCR), Joint Corp (JYNT) and TG Therapeutics (TGTX). I decided to take some profits from 3 holdings that have performed exceptionally well since purchase, gaining by 42%, 36% and 29% respectively, to trade at $89.2, $24.91, and $17.6 at time of writing.
I did not want to dispose of my holding entirely since the investment cases for all 3 remain compelling, as discussed in the table above.
Novocure (my note here) will shortly initiate trials in combination with Merck's mega-blockbuster cancer drug Keytruda in non-small-cell lung cancer ("NSCLC") a highly prevalent form of cancer that represents around 10% of all diagnoses. The company's Tumor Treating Fields technology is compelling, its revenues are growing, and there are several long-term catalysts in place based on data from phase 3 trials in brain, pancreatic and ovarian cancer, as well as NSCLC.
There is some risk that trials may not return the hoped-for strong data, and the company's shares are now somewhat expensive (based on my FVP calculation of ~$60), hence I opted to sell $5,000 of my holding to lock in a 42% price gain.
Joint Corp's (JYNT) out-performance has surprised me. Since I recommended the stock in July the share price has risen from $13.9 to $17.56. Joint (my note here) is an attractive franchise model providing walk in chiropractic services, that appears to be making a fast recovery from the wide-scale closures of its clinics during the pandemic. I set a fair value price for the stock of $20.5, but its fast growth, plus volatile market conditions persuaded me to sell $5,000 worth of shares and lock in profits from a 27% overall price gain since purchase.
TG Therapeutics (TGTX) was my third partial sell. The company has exciting catalysts coming to the boil, most notably the potential approval of Umbrasilib for Marginal Zone Lymphoma (NDA has been submitted) and late stage trial data for Ublituximab / Ibrutinib, plus the potential of the 2 drugs combined ("U2") to treat Chronic Lymphocytic Leukemia ("CLL") - a combo that may win approval before the end of 2020, and ublituximab as a treatment for multiple sclerosis.
I remain bullish on TG Therapeutics' chances of growing its share price and have set a price target of $80, but at the same time, as the company enters a new phase of potentially marketing and selling approved drugs, it may encounter some difficulties in the short-to-medium term.
TG's President and CEO, Michael Weiss is the force behind numerous smaller biotech's developing cancer drugs, via his company Fortress Biotech and its many partners, including Mustang Bio (MBIO), a pick I made for the HB Pure biotech portfolio, and Checkpoint Therapeutics (OTC:CKPT) - up 54.% in the past 3 months. Weiss and his companies have made exceptional progress but the commercialisation game will be new to them, and they will be pitched into competition with more influential and better-resourced rivals.
I have faith in TG's management team's ability to deliver but there may be significant volatility in the share price if the company struggles to hit sales targets set by analysts. Hence, a good time to make a $5,000 sale of stock, realising a 36% gain, whilst retaining a holding worth $8.6k.
Finally, I decided to liquidate my entire holding in Jazz Pharmaceuticals (JAZZ). Since I recommended / purchased the stock for HB Live the stock price has risen from $109.6, to $138.6, which is ahead of the price target I set of $128.
Jazz's Q2 results out-performed on EPS and revenues, and the company looks to be in a good place - as per my recent note. However, there are many moving parts to consider with this business and some notable risks - such as the imminent patent expiry of best-selling narcolepsy treatment Xyrem, and whether its late-stage candidates cab secure approval and deliver strong sales.
I made the case that the market had priced too much risk into Jazz shares, and now that this is no longer the case, I decided to liquidate my holding in order to free up funds to make alternative purchases. I will continue to monitor Jazz closely, however, as I believe, with so many intriguing approved and late stage drug candidates in the sleep space, one or two may go on to achieve blockbuster (>$1bn) sales.
HB Pure Biotech Performance
(HB Pure Biotech portfolio performance as at COB 2020.09.11 available exclusively to Haggerston BioHealth subscribers.)
HB Pure Biotech continues to provide me with a daily reminder that I should have waited longer before testing my thesis that the falling prices of smaller biotechs developing SARS-Cov 2 vaccines to prevent COVID-19 represented a buying opportunity.
My thesis is that it is too early to predict who will win the COVID-19 vaccine race, and that the likes of Novavax (NVAX), Inovio (INO) and Vaxart (NASDAQ:VXRT), whose share prices had sky-rocketed as they produced some of the strongest performing candidates in terms of efficacy and safety (based on immunogenicity, presence of antibodies, T and B-cell stimulation), were being unreasonably punished as the US government's Operation Warp Speed program elected to favour the solutions of major Pharma such as AstraZeneca (AZ), Pfizer (NYSE:PFE) and GlaxoSmithKline (GSK).
The challenger stocks I backed have fallen further out of favour, however, and the portfolio is down as a result. However there are signs that share prices are recovering. AstraZeneca's late stage trial suspension owing to a safety issue gave the first hint that the path to approval is not as straightforward as the market may have believed, and ultimately, it is the data that counts, not the speed to market.
Vaxart's oral solution is unique and compelling, Novavax CEO Stanley Erck sounded a positive note when interviewed last week by The Economic Club of Washington, whilst Inovio stock (+4.5%) began to recover momentum last week, and the company's lengthy experience developing vaccines may count for much more than the market currently believes, in my view.
Hence, I am sticking to my thesis. Novavax has nearly $2bn of government funding and has pledged 100m doses of its vaccine to the US, and 76m doses to Canada. Once vaccines are approved, doctors and physicians will have the choice over which to use, which may see any one of these smaller biotech gain access to long-term revenue streams as annual vaccination against COVID is introduced, and the hysteria over being first to market with a solution subsides.
(HB Live portfolio KPIs as at COB 2020.09.04 available exclusively to Haggerston BioHealth subscribers.)
Encouragingly, Mustang Bio (MBIO), the specialist CAR-T treatment developer gained 10% on Friday to move to +1%, whilst Relay Therapeutics and Quanterix offer short term promise. I hope the losses in this portfolio have now stabilised and that the remaining picks begin to grow as price catalysts are triggered over time.
BioHealth Sector Performance: Top Weekly Gainers
(biotech, pharma, healthcare best performing stocks - past week interactive KPIs available exclusively to Haggerston BioHealth subscribers)
Last week, Nano-X Imaging Ltd (NNOX) stock continued its spectacular growth spurt since its August IPO raised $190m at a price of $20, gaining 76% to rise to a price of $66.7. The Jerusalem-based company is a medical screening as a service ("MSAAS") provider and raised $137m from international investors prior to joining the Nasdaq.
I plan to study the company in more detail, but Nano's 2nd straight week of making the top 5 gainers list (out of a universe of >1,200 stocks) shows that it is not always too late to back a stock that has made a strong upside move. A pullback is expected when trading opens today, hence this is a stock to watch closely and I hope to provide more information soon.
Co-Diagnostics Inc (CODX) stock gained 66% last week to reach $13.7, but at the beginning of August the stock traded at $31. The manufacturer of diagnostics technology appears to be another volatile COVID-19 play whose share price burst into life when the pandemic began in February this year, rising from $2.5, hitting $31 in August and then retreating to $8 before last week's move.
Since I am weighted towards volatile COVID-influenced stocks I don't consider Co-Diagnostics a strong buy opportunity, especially when the company competes in a crowded field against the likes of e.e. Abbott Laboratories and Thermo Fisher. I would advise investigating the company to check if there is anything unique about its testing that gives it a specific competitive advantage, and whether that advantage can be maintained long-term, which would make it a potential M&A target, but if not, last week's share price gains could quickly dissipate.
Intra-Cellular Therapies Inc (NASDAQ:ITCI) gained 53% last week as its adjunctive bi-polar treatment lumateperone returned positive data from a phase 3 trial. The gains would have been >80%, but the company quickly moved to raise $350m of equity, which always leaves a sour taste in the mouth of investors, but it is usually a wise move by management as they seek to capitalise on the price catalyst and raise a war chest for upcoming approval and commercialisation funding.
Central Nervous System disorders are notoriously tricky to develop treatments for, hence I would be a little wary of Intracellular's prospects for further gains, as late stage trial failures can be unexpected, and decimate a company's share price. Having said that, its stock traded at $39 at the end of 2019, after schizophrenia treatment Caplyta was approved.
Checkpoint Therapeutics Inc (OTC:CKPT) - another company that falls under the auspices of Michael Weiss and Fortress Bio (along with Mustang Bio, and TG Therapeutics, discussed above), gained 53%, apparently on news of data updates to be provided at this week’s European Society for Medical Oncology (ESMO) Virtual Congress, related to immunotherapy product candidate cosibelimab and its pivotal trial in metastatic CSCC.
And finally, Hancock Jaffe Laboratories Inc (HJLI) gained 47% last week. This volatile stock only just survived being delisted from the Nasdaq in August owing to its <$1 trading price. The medical device provider of heart valves and other bioprosthetics looks to be troubled financially, but could merit a closer look - a financial rescue package could catapult the stock price upwards.
BioHealth Sector Performance: Biggest Weekly Fallers
(biotech, pharma, healthcare worst performing stocks - past week interactive KPIs available exclusively to Haggerston BioHealth subscribers)
Corbus Pharmaceuticals Holdings Inc (CRBP) was the BioHealth sector's biggest faller last week. The company's lead drug Lenabasum, an oral synthetic endocannabinoid-mimetic that preferentially binds to the cannabinoid receptor type 2 (CB2) failed to sufficiently separate from placebo when evaluated for treatment of diffuse cutaneous systemic sclerosis. This looks to be a devastating failure for the company, but it's always worth remembering that the market's reaction to a trial failure is usually overblown. Corbus management will meet with the FDA to discuss results, and are likely to try again for approval once the issues have been identified, provided they are not too severe.
Satsuma Pharmaceuticals Inc (STSA) stock collapsed from $24, to $4.83 last week after its migraine candidate failed a phase 3 trial. It may not be the end of the road for the drug, however, as STS101 - a drug-device combination of dry-powder formulation of DHE which can be self-administered with a pre-filled, single-use, nasal delivery device - did outperform placebo, and may not require a statistically significant efficacy trial in order to win approval, according to one analyst.
Evofem Biosciences Inc (OTCQB:EVFM), a company that develops therapeutic solutions to meet sexual and reproductive health needs of women, saw its stock drop by 40%, as the CEO sold shares, but there may be reasons to believe the sell-off was premature - the company had a vaginal gel contraceptive approved in May and the share price briefly traded at $6, before a share offering diluted shareholders.
Innate Pharma SA (IPHA) lost 35% on weak 1H20 results, but could be due a $50m milestone payment in the second half of the year for tumor treatment monalizumab - revenue was just €36.7m in the first half of 2020. And finally, Biocept Inc (BIOC), an oncology laboratory service company, stock lost 32%, and has fallen from a price of $11.5 to $3.61, apparently on news of a 10-1 stock split, in an effort to maintain compliance with the Nasdaq minimum bid price listing.
BioHealth stocks - HB Live top-rated stocks
(biotech, pharma, healthcare HB picks of the week - past week interactive KPIs available exclusively to Haggerston BioHealth subscribers)
To finish this week's round-up, as usual we will look at some of the top rated stocks in the BioHealth universe based on my algorithmic scoring system which uses 25 contrasting data points to identify top performing investment opportunities. All the detail can be found in the HB Live analytics document. This is currently a read only doc but I am working on a way to provide a more dynamic version to subscribers, possibly in the form of a portfolio building tool that will help you to evaluate your own investments and construct and monitor portfolios.
First of all, Jounce Therapeutics (JNCE) has been making strong gains since hitting a low of just $2.8 after the mid-march market selloff, and currently trades at $8.3 pre-market. The company was seeded by Third Rock Ventures with $47m of funding, and uses a translational science platform to identify immunotherapy drug candidates.
Although its pipeline is relatively early stage, with CD4 T cell focused Vopratelimab the only candidate to have advanced into phase 2 trials, the company has signed development deals with Gilead (NASDAQ:GILD) to advance another candidate in a deal that could be worth up to $658m. Vopratelimab is being evaluated for NSCLC - a huge potential market, and results from its EMERGE trial are expected in early 2021.
With a solid funding position (according to this recent corporate presentation), Jounce is one of a new breed of companies using technologically advanced techniques to identify promising new drug compounds, at a time when most of the "low hanging fruit" has already been picked. As such, at its current price (discounted to 2018 highs of >$30), Jounce is an intriguing opportunity that merits a closer look.
Danaher Corporation (DHR) presents a solid set of fundamentals as we can see in the table above. This biotech behemoth operates 3 segments: Life Sciences, Diagnostics, and Environmental & Applied Solutions, and earned revenues of $17.9bn in FY19. Its EBITDA multiple is a reasonable 15x, net profit margins are >14%, but the PE of 50x is quite high, which indicates the company could be performing better. Danaher also pays a dividend which yields 0.37%.
Currently trading at $205, a small discount to its 52 week high, Danaher shares are expensive, but the overall package for investors is compelling. This may be a stock that won't experience a pullback for some time hence investors may want to open a position sooner rather than later - I intend to follow up with a deep dive analysis this week.
Steris PLC (STE) is a provider of infection prevention and other procedural products and services, with a market cap of $13bn, trading at a PE of 34x. The company has grown revenues from $1.2bn to >$3.0bn over the past decade, and pays a handsome dividend yielding 1%. At current price, the shares are close to their peak, but the strong overall growth of the company, high net profit margins and 11x Ebitda multiple gives me a good feeling about this unglamorous but essential service provider.
Agilent Technologies Inc (A) stock has been steadily gaining over a 5-year period to reach $98.6 at the time of writing. Another life sciences play offering a strong value proposition, and a net profit margin >20%, I would not to overweight my biohealth portfolio with Life Sciences, but Agilent is another dividend payer whose 44x PE ratio suggests there may be further share price upside. The company's revenues fell from nearly $7bn in 2012, to $4bn in FY15, and were $5.1bn in FY19. Buying at a peak price may be unavoidable but the long-term share price trajectory appears to be upward and a price of <$100 looks attractive.
And finally, Zoetis Inc, (ZTS) is the fifth highest scoring in my universe for this week. The company provides animal health medicines and vaccines - an interesting diversion to traditional biotech, and is steadily growing revenues (from $4.9bn in 206, to $6.3bn in FY19).
The company raised its FY20 forecasts for FY20 to between $6.3bn - $6.475bn, from the negative growth the company had predicted earlier in the year, and although priced at $158 currently, just off its 52 week high of $166, this is yet another dividend paying, high net margin business that looks attractive either as a long-term opportunity, or a defensive counterpoint to a more risk-on portfolio.