Continued weakness in the healthcare sector this week was marked on Friday by the iShares Biotech Index’s (IBB) break of a key uptrend and support level, suggesting the sector (or the ETF) is headed lower in the near-term. It’s the same level at which the ETF bounced late last month. We’re now looking to the 200-day simple moving average at $217 for support. Additionally, it’s worth keeping an eye on $214, a repeat resistance level and subsequent support for the IBB last year.
We note a similar trend in the SPDR S&P Biotech ETF (XBI), a smaller and less top-heavy (even weighting) ETF.
Amongst this weakness, the S&P 500 and Dow Jones Industrial Average both made new all-time highs this week as the NASDAQ slumped. Are investors, as many have speculated for the last few months, rotating out of high-risk equities like bio and tech? Certainly – the question is whether they’re moving on for good or whether the industry is mature enough to keep the generalist crowd involved this year.
This week we discussed again Acorda Therapeutics (ACOR), a revenue-generating spec pharma/CNS drug developer that has a big second half for a number of reasons – data points and potential product label expansions. (The article is free to read.) It’s a good time to be learning some new, quality stories as the sector shakes out, and getting that shopping list ready for a timely purchase. Although we’re not rushing out to buy amidst the weakness, we find the core business attractive, and a new approach to the treatment of multiple sclerosis being developed at Acorda will attract attention later in the year. The stock has held up well through a tumultuous March but closed the week down 5%.
On Friday, we outlined why Medivation (MDVN) is getting cheaper – and why longterm investors should be eyeing the out-of-favor stock. 2014 revenue guidance from the Xtandi developer came in below analyst expectations, and the stock is 30% off of its recent highs despite what we believe is an intact longterm story. The Street overestimated off-label Xtandi use in the pre-chemotherapy prostate cancer setting, and it seems adoption by urologists will be slower than anticipated. To better understand why this is remains one of our core portfolio ideas, click here.
Emergent Biosolutions (EBS) is down 10% since we wrote about the stock in March. A biodefense developer in partnership with the U.S. government, EBS’ strategic growth plan is proceeding ahead of schedule and should drive momentum into 2015 when focus shifts to a marked and defined catalyst. An investment (not one for the traders), click here to get the full story on what makes EBS interesting next year.
In connection with EBS, ACOR, and MDVN, PropThink has taken a long position.
