Biotech's making a comeback and it is very much stock-specific and not sector-specific, meaning it isn't about how biotech fits in the macro, it is about how so much good news is coming to the group.
We know that biotech stocks thrive when the economy is slowing and interest rates are low, because these are the classic long-dated assets, with earnings far in the future, which can be discounted correctly as long as inflation remains low.
But we have mixed views on the economy itself -- is it really slowing? Interest rates seem to be going higher, not lower. Which is why I am making the point that earnings and product announcements are driving the group.
The real turn came last week, when people realized that Gilead (GILD) was just making so much money that you couldn't ignore it or dispute it. The money's there, and the price-to-earnings ratio, roughly 10x earnings, can't be justified even with Hep C competition from several other companies. Gilead can buy any company it wishes with rates this low and a cash position this big, so it can reinvent on a dime.
Today we got good news from Regeneron (REGN), mostly a reaffirmation of the Sanofi (SNY) partnership, which has led to a huge amount of open-market buying by the European giant. I know that there are many people waiting for this company's chief eye drug to be challenged by others. I continue to think of Regeneron as a multi-product story, with the excitement being what it can do with hard-to-reduce bad cholesterol.
It was no secret that people were let down with both Biogen (BIIB)and Celgene's (CELG) quarters, the other two of the Four Horsemen of the Big Pharma Apocalypse that I singled out in "Get Rich Carefully." Is Biogen's MS franchise really under attack? I think anything that big will always be under attack. I like the long-range prospects, say, of the Receptos (RCPT) drug. But Biogen is about Alzheimer's, and if you are selling on the quarter I think you just don't get it.
Celgene is incredibly controversial, because it failed to blow out numbers away from its key Revlimid franchise, and that stock is under attack by a short-seller who is questioning its patents on that big-money drug. I have always believed that those patents are unassailable, but it now falls to the bottom of the list of my favorites among the four.
Take a look this morning at Isis Pharma's (ISIS) landmark big-money deal with Bayer (BAYRY) for its thrombosis drug if you want to see how individual drug announcements can still drive stocks. I said I wanted profits taken in the mid $70s on this stock, which I will tell you was directly related to a top call I made about biotech in general because it got too overheated.
I think the announcement is a big one, because the drug has qualities that allow blood to thin but the patient not bleed out -- there's nothing on the market right now that truly hits the mark in this billion dollar need. Plus the short-sellers are relentless here, at 13% of the float, as some smart investors just don't believe in the pipeline or the prospects here.
I have Dr. Stanley Crooke on Mad Money tonight to discuss the prospects. It is very important to recognize that once an announcement is made, a lot of the steam comes out of a stock. Once again, I am totally gun-shy to say "buy ISIS," simply because it is a spec and you must make up your own mind about it.
Am I punting? I do enough ball-carrying that I don't need the aggravation. I have liked it, but I don't want to push it, because it has become a very emotional stock and that doesn't lend itself to good investing.
The enthusiasm seems to be all over the place today. I spoke to BioMarin's (BMRN) CEO, JJ Bienaime last week, and his company's got a chock-full pipeline about which he talked on air. Today it seems to resonate. GW Pharma (GWPH), which you may not consider a biotech, given that it is a cannabinoid play -- something that will be used for pain universally someday -- just moved above the $112 level where it priced a secondary, which is an excellent sign.
This pattern of taking up stock-specific biotechs is a godsend, because it shows that doing homework rather than just putting your finger in the macro winds is working. Thank heavens; homework rules!