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Biotech Investors Keep On Believing

25 March 2015 in Trading Ideas

While the broader market has mostly been a series of zigs-and-zags this year, the runup in biotech stocks has continued unabated.

The Biotech Breakthroughs motif has already put up a 15% gain in 2015. In that same time, the S&P 500 has increased 2.7%.

Over the past 12 months, the motif has risen 43.3%; the S&P 500 is up 15.6%.

At this point, some investors have voiced caution, wondering aloud how easy it can be going forward for traders to still find value in the long-rising sector.1 However, Les Funtleyder, a healthcare portfolio manager for E Squared Asset Management, told CNBC that “good drugs and good results will ultimately drive value” in biotech stocks.

And many of the sector’s top players appear to keep delivering on those themes. Just last week, shares of Biogen-Idec (a 16.8% weighting in the Biotech Breakthroughs motif) jumped 10% after news that the company’s Alzheimer’s drug exceeded expectations in an early test.

Even after that surge, some analysts still see more upside. Yaron Werber, an analyst at Citi Investment Research, told CNBC that the data shows that the drug is key to Biogen’s long-term prospects, since it won’t likely even reach the market for years.

The thirst for biotech stocks — as well as the eagerness to take on risk — can also be seen in the demand for some of the sector’s smaller players. At the investing blog 24/7 Wall St., Jon C. Ogg screened for the top biotech stock performances so far this year (with a $50 million minimum market cap), and was able to highlight five that had surged by an average of 200%.2

CorMedix, with a market cap of just under $200 million, has jumped more than 300% already this year, largely on the strength of a series of strategic updates that included hiring investment bank Evercore as a financial adviser.

That’s the very definition of bullishness.

However, while many small biotech stocks have put up eye-popping gains, larger stocks also have devotees. Earlier this month, a report by Cowen highlighted several of the bigger biotech stocks that portfolio managers continue to love.3

Besides Biogen Idec, the list also included Celgene and Regeneron Pharmaceuticals, which combine for a 15.9% weighting in the Biotech Breakthroughs motif.

Some analysts see Celgene growing its earnings 20% or more this year and in 2016. Celgene recently provided strong guidance surrounding its Otezla launch and encouraging feedback from doctors on the potential of new triplet regimens in myeloma, according to Cowen. Many on Wall Street see the company working to diversify away from the flagship product through the emerging inflammation and immunology franchise, as well as a rich pipeline of alliances, the report noted.

Regeneron, meanwhile, continues to exploit an “extraordinary” pipeline, Cowen reported. Analysts are very positive on the company’s prospects for solid Eylea growth, and others cite Alirocumab, which is another new cholesterol drug with big expected upside. The company and partner Sanofi recently received encouraging news when the FDA granted priority review to its biologics license application for its PCSK9 antibody, Praluent. The companies are looking to get the candidate approved for the treatment of patients suffering from hypercholesterolemia.

While some may be questioning how long a good thing like this rally can last, others see continuing support for both large and small players, and are hoping biotech’s runup still has legs.

1“Biotech value getting tough to find: expert,” cnbc.com, March 20, 2015, http://www.cnbc.com/id/102523345, (accessed March 23, 2015).

2Jon C. Ogg, “The Top 5 Biotech Stocks of 2015 – Average Gains So Far Over 200%,” 24/7 Wall St, March 23, 2015, http://247wallst.com/healthcare-business/2015/03/23/the-top-5-biotech-stocks-of-2015-average-gains-so-far-over-200/.

3Lee Jackson, “The 5 Most Loved Stocks of Biotech Managers,” 24/7 Wall St, March 4, 2015, http://247wallst.com/healthcare-business/2015/03/04/the-5-most-loved-biotech-stocks-of-portfolio-managers/, (accessed March 23, 2015).

  1. 26 Jun at 2:05 am

    I κind of understand, but still don’t