Biotech stocks got hammered this week, leading many analysts to defend the stocks. Not Bernstein’s Geoffrey Porges and team. They’re worried about the downside risks, beginning with what they call ABCGRA.
That would be Amgen (AMGN), which fell 1.4% today, Biogen Idec (BIIB), which dropped 5.1%, Celgene (CELG), which declined 2.1%, Gilead Sciences (GILD), which dropped 4%, Regeneron Pharmaceuticals (REGN), which fell 3.8%, and Alexion Pharmaceuticals (ALXN), which finished off 1.1%.
Porges explains why the six largest biotechs have him worried:
To the recent sector peak, the ABCGRA’s had increased by 177%, compared to 165% for the total sector. We believe that the explosive growth of the ABCGRA’s has been driven by the commercial success of more de-risked, derivative pipeline products (e.g. Tecfidera, Revlimid, Eylea), and that investors are extrapolating these successes to products currently in development. However, our analysis of ABCGRA current pipelines suggests that the degree of difficulty of products currently in development is generally higher now compared with 2010…
We see potential downside risk due to rising longer-term interest rates and rising stock volatility as measured by beta. These factors may lead to negative corrections in valuation of as much as 40%. In this context we see prefer the large cap stocks in our coverage that offer strong cash flow and earnings support, and limited potential for multiple compression regardless of changes in investor sentiment. Our top recommendations
remain Celgene and Gilead…
Amgen dropped 1.9% to $120.55 this week, while Biogen Idec fell 7.7% to $294.12, Celgene declined 3.5% to $139.29, Gilead Sciences dropped 4.9% to $68.55, Regeneron Pharmaceuticals fell 3.4% to $400.09 and Alexion Pharmaceuticals finished the week down 6.5% at $149.42.
No comments:
Post a Comment