The main biotech indices and ETFs fell this week, declining largely in line with the overall market (which is the best you can usually hope for from this high-beta sector). But there are still some positive signs -- and names -- in this sector.
It's true that investors tend to go into "risk-off" mode with biotechs any time broad-market sentiment sinks, as it did Thursday when the Dow industrials shed 724 points after President Trump unveiled trade tariffs against China. A spike in volatility also tends to put a lid on new M&A activity, which is another negative for biotechs.
But it's important to remember that the drug and biotech industries should be relatively unscathed if Trump's new tariffs result in a trade war with China. And despite Thursday and Friday's broad selloff, a few small biotech names held up well or even had solid advances.
Here are two that I like:
This name rose 35% on Thursday even though it's been the target of a couple of vicious short attacks (and I believe errant) in recent quarters.
The stock rallied as investors realized that the more-than-2,200-page spending bill that just passed Congress contained a small provision that allows Omidria, the company's only product, to continue to enjoy "passthrough" status for the next two years. That, in turn, should ensure that Omidria remains a solid revenue source for Omeros for the next two years.
This should alleviate any short-term funding concerns and allow the company to continue development of its prime asset, an experimental drug called "OMS721." This potential blockbuster pharmaceutical aims to treat five rare conditions and has already enjoyed solid trial results for three of them.
Honestly, it was nice to see the shorts scrambling to cover themselves in this stock during Thursday's big sell-off.
This biotech also bucked the market's downward tilt Thursday, rising 5%.
Achaogen has been rallying since the company announced on Tuesday that the U.S. Food and Drug Administration has set a May 2 date for an advisory panel to discuss plazomicin, AKAO's antibiotic candidate for complicated urinary tract infections.
The drug's target action date under the Prescription Drug User Fee Act (PDUFA) is June 25, and I expect the FDA to approve plazomicin at that time. Evidently, so does investor Robert Duggan, who continues to gobble up shares through frequent purchases and is quickly coming close to owning 15% of the company.
The Bottom Line
I think Achaogen and Omeros are both solid names to add to on any additional market dips.
And for those comfortable with simple options strategies, adding exposure through a buy/write order seems like a prudent strategy in this volatile market.
This commentary was originally published on Real Money Pro, our sister site for Wall Street professionals. Click here to check out more great columns from Bret Jensen, Doug Kass and other Real Money Pro writers.