Market Rallies on FED comments but Biotechs are Left Behind
Fed Expected to Raise Rates as Labor Market Tightens
The Fed stands pat on rates but is on track to raise rates later this year, possibly at the September meeting, as jobs are on track but inflation is still not above 2%. The market began rally at 2P EDT after the Fed noted an improving economy. This was confirmed with a Rise of 2.3% in the Q2 GDP while the first quarter GDP was revised upward to 0.6%.
As of 8:40 am EDT the 10 year bond rate is 2.28%. S&P futures are slightly down 0.29%.
Biotech Stocks Down on Profit Taking
Biotech stocks were lagging and could not follow up on a two-day rally. Most mid and small caps were down. Major ETFs were down with the more speculative XBI down over 2% to the $252 level a 5.5% fall over five days. Contributing to the sell-off today was Medivation (MDVN) Down 8.39% after JMP Securities and others cut estimates during July due to lower expected sales of Xtandi. The market cap is still $8.22B with a P/S of 10.93. The stock hit a high of $140 in late March and a low today of $88 before settling in at $95.74.
Look across your screen and you will see many other “immuno-oncology” losers such as: ARIA down 5.34%, CLLS down 3%, DRNA down 5%, KPTI down 6.37%, NLNK down 3.5% and PBYI down 3.8%.
One of our top large cap picks Gilead Sciences (GILD) delivered again beating estimates on sales and earnings with EPS at $3.15 vs average of $2.71, driven by sales of Hep-C drugs of $4.9B. Actual revenues were $8.24B from $6.54B with $7.6B expected. Revenue outlook for 2015 was raised from $29B to $30B. Gilead stock soared to $118 level before a gradual sell-off to $116 still up for the day. GILD still has a forward PE of only 10.1, a PEG of 0.62 and a P/S of 6 but despite the apparent value it may be over-owned as the stock could not hold the highs of the day. Expectations are very high on the earnings front.
On the other hand speculative biotechs without revenues nor Phase 2 data are the momentum favorites because valuations are without financial metrics. Case in point is the IPO du jour is NantKwest (NK) an immunotherapy Company which popped 39% to $35. See the NK S-1 with Celgene (CELG) as a partner and Patrick Soon-Shiong as Founder and CEO. NantKwest has a proprietary NK (natural killer) cell line for an NK Treatment Pipeline in cancer, infectious disease and inflammatory disorders.
