Large Cap Biopharma Stalled With Move To Small Caps And Reflation Trade

Large Cap Biopharma Stalled as Traders Seek Risk Trades

IWM continues gains since early November up 31%.

Defensive large-cap biopharma stocks stalled as traders moved out on the risk curve seeking faster gains. Most large caps peaked around mid-January as the small and mid-cap sector continued to run. Despite attractive valuations and many with 3-4% dividends investors continued to move into small-cap and momentum stocks. It is kind of surprising that there can be so much volatility in large-cap biopharmas. Another February trend is the rotation into the so-called reflation trade of commodity and reflation stocks like the XLE and XLF.

One big exception was Eli Lily and Co. (LLY) up 22.77%. YTD, which is transforming itself to biopharma stocks with breakthrough news on COVID-19 antibody treatments under development. The Company reported strong earnings with Q4 revenue growth of 22%. The stock is up 43.55% over one year. The Company also has good clinical candidates for Alzheimer’s Disease and Diabetes.

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Keep in mind that looming in the background is the threat of legislation on drug pricing.

  • M&A will continue as a driver fairing mid-caps and small caps. as seen by the merger of Alexion with Astra Zeneca.
  • Embedded in the pipelines of Bristol Myers Squibb and Gilead Sciences are big acquisitions that have to yield results in 2021.
  • Biogen investors have high expectations for their AD monoclonal therapy with an FDA go-no-go by June 7, 2021.
  • It remains advantageous to be in ETFs over stock picking (LLY excepted).The large cap weighted IBB was up 12.69% and the equally weight biotech XBI up 16.7%.Large cap losers for the month were MRK and VRTX.
  • The XPH is a good case in point as up 7.5% because it has several well known large caps like BMY, LLY, and JNJ but is more diversified in mid-caps.

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Disclosure: Long ABBV, AZN, BMY, GILD, MRK.

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