No, the Biotech Boom Isn’t Over

By Ben Levisohn

RBC’s Michael Yee and team aren’t too worried about biotech stocks like Gilead Sciences (GILD), Celgene (CELG), and Biogen Idec (BIIB) despite the biotech sector’s big drop last week:

Biotech felt another volatile pullback (similar to March) in the last week of April, pulling back 9% in a week. Investors had their helmets on as we went right through the 50-dma but bounced back +2.5% on first day of May. We are in a key zone right around the 50dma and bears are quick to point out we didn’t break new highs from March and instead broke lower than March and through the 50dma – with the next level at 100dma 10% farther down…On a positive note, in discussions w/ investors this week we can say this: 1) the Nasdaq Biotech Index is “still” +13% YTD and well ahead of the S&P 500 at only +2%…., 2) we sense far less concern than in prior corrections probably because we’re used to seeing these “corrections” more often, so people feel more able to buy these pullbacks since we’ve seen the bounces before 3) some think it is healthy given these are accompanied by significant “run-ups” and perhaps over-zealous buying so it’s understandable to have pullbacks, 4) broader market didn’t help – Nasdaq -3.5% in that period too so biotech as higher beta is likely to see more, and 5) nothing structural happened other than a “risk-off” week so we continue to march on fundamentals. Key in our view is that Q1 EPS was seasonally weak as we forecasted and investors knew this – we now get past that and see lots of interesting buying opportunities with the pullback…

Yee sees reasons start buying Biogen Idec, Vertex Pharmaceuticals (VRTX), BioMarin Pharmaceutical (BMRN), Esperion Therapeutics (ESPR), Gilead Sciences and Celgene:

1) Biogen Idec : we’re fairly confident Alz drug is “active” and “working” so with 1350 pts x 2 studies x 18 mos duration in P3…it’s well-powered for success, 6mg data should look OK and long-term upside is significant, 2) less binary would be Vertex Pharmaceuticals as this seems to want to go higher on long-term thesis of $10 EPS power plus more potential upside on heteros, no great bear thesis right now… 3) buy BioMarin Pharmaceutical for DMD approval this year, we like this pullback. 4) Buy Esperion Therapeutics for Q2 new data, FDA green-light by Aug…5) we think Gilead Sciences should march to $110+ and Celgene should reverse back up after 5/7 passes.

Shares of Gilead Sciences have gained 1.9% to $107, while   Celgene has risen 1% to $111.69, BioMarin Pharmaceutical has advanced 2% to $118.26, Vertex Pharmaceuticals has gained 1.9% to $128.04, Esperion Therapeutics has jumped 3.3% to $103.70, and Biogen Idec is up 1.4% at $391.63.

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No, the Biotech Boom Isn’t Over

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