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Biotech Investors Flee In Droves As Market Correction Rocks The Group

February 10, 2018 | By | Reply More

Biotech investors collectively pulled $ 1.2 billion out of the sector this week — but analysts said Friday that’s the byproduct of a broader market correction, not malaise in health care-tied stocks.

X For the week ended Feb. 7, health care and biotech funds saw $ 1.21 billion in net outflows, representing a 1.95% decrease in assets, Piper Jaffray analyst Christopher Raymond wrote in a note to clients. At the same time, all equities posted a 0.33% dip in assets.

The reason: Biotech stocks tend to experience the worst of a market correction, said Brad Loncar, a portfolio manager who runs a cancer immunotherapy-based fund. Biotech stocks hit a multiyear high in late January but have since lost nearly 13%.

“I believe this is totally normal and I think that biotech is just doing so terrible this week because it’s a volatile sector and when the entire stock market has a bad week like this, biotechs are likely to do a little bit worse,” he told Investor’s Business Daily.

Most pundits say the market correction is overdue. In general, the market experienced a very mild 2017 with gradual rising and few interruptions. Now, it’s heading into a “risk-off” scenario as investors seek lower-risk positions, Evercore analyst Umer Raffat told IBD in an email.

By the close on the stock market today, the biotech group eked out a small gain, paring earlier losses when it fell as much as 4.6%. For the week, the group was down nearly 5.5%.

Among those hardest hit this week was Corcept Therapeutics (CORT), which lopped off 38% on a coming rivalry from Teva Pharmaceutical (TEVA) for a treatment for Cushing’s syndrome, which affects the pituitary gland. Prothena (PRTA) dove 28% after its chief medical officer announced her departure.

Amgen (AMGN), Celgene (CELG) and Biogen (BIIB) all lost north of 8%. Regeneron Pharmaceuticals (REGN) topped fourth-quarter views, but plunged nearly 5%. Gilead Sciences (GILD) toppled more than 4% as guidance missed.

But among large-caps, fourth-quarter metrics and 2018 guidance was largely in line with expectations, Credit Suisse analyst Alethia Young told IBD. She described the fourth quarter as a “decent showing” with “no fires,” unlike the strained third quarter.

IBD’S TAKE: The Dow Jones industrial average toppled 4.1% lower on Thursday while the Nasdaq composite and S&P 500 tumbled 3.9% and 3.8%, respectively. Are bears taking a bite out of the bull market? Head to The Big Picture for more.

“Hopefully that trend continues,” she said. “But this is biotech, it’s a risky space and things happen.”

Young and Loncar agree that the market correction isn’t indicative of the outlook for the biotech group. Both say the fundamentals look strong and the group is poised for buying spree, which began late last year with Gilead’s acquisition of Kite Pharma.

In January, Celgene said it would buy Juno Therapeutics (JUNO) and Sanofi (SNY) announced acquisitions of Biogen spinoff Bioverativ (BIVV) and Belgium’s Ablynx (ABLX). Sanofi beat out Novo Nordisk (NVO) for Ablynx.

Smart companies will go after assets when valuations go down, Loncar said. Many of the bigger players are facing payer scrutiny in saturated areas like rheumatology and diabetes. For Gilead, declining hepatitis C drug sales led to its Kite purchase. Celgene is facing competition in inflammation drugs.

“No. 1, the larger companies have slowing growth so they need to buy growth and they need to buy innovation,” he said. “And No. 2, this tax reform deal that just passed kind of adds fuel to the fire and makes it much more easy for them to do these deals.”


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