An overview (gloomy, but with a bunch of recommendations):
Bio-I Score Down on Poor Aftermarket Performance:
The BIO-I Score declined to -4 from -2. Demand declined dramatically for biotech
stocks as measured by aftermarket performance of recently priced IPOs and
follow-on offerings as well as from negative fund flows. While there could be a
bounce in the biotech group after becoming oversold, we believe the sector –
large and mid/small cap – may be in for a rough patch. We recommend being
selective on stocks and timing.
Aftermarket Performance of IPOs & Follow-Ons Weaken:
The aftermarket performance of IPOs and follow-on offerings has steadily
weakened during April. The last three IPOs, which were priced below filing range,
have fallen below deal price while the other three IPOs done in 2006 are still
above issue price. Worse though, 12 of the last 13 follow-on offerings have
broken deal price and 13 of 16 deals priced this year are underwater.
Fund Flows Turned Negative in April:
After turning positive in March, fund flows into biotech/healthcare funds turned
negative in April. Typically, negative fund flows are correlated with returns but are
a lagging indicator, thus we would expect fund flows to further weaken during
April given poor performance of the overall biotech sector.
Selective Buying For the Long-Term is Key:
Given our weakening outlook for the biotech sector, we recommend that investors
become increasingly selective by using weakness as a long-term opportunity to
purchase selective biotech stocks. We recommend stocks with good growth
prospects, key near-term catalysts and fair valuations. We would use weakness
to build long-term positions of Amgen, Genzyme, Celgene, OSI Pharma, Cubist,
Theravance, MGI Pharma, New River, PDL Biopharma, Altus Keryx and Alexion.
Industry Overview |
