Biotech stocks had an amazing first half of 2015, then a volatile downward trend the second half of the year. Remember that the biotech sector experienced its fifth year in a bull market, but appeared to be slowing down with the rest of the market in January 2016. Here are some key facts to consider for the coming year as to how to play the biotech sector.
Biotech Bulls and Bears
First, check some of the headlines from the financial press throughout last year to see who was on the money and who was way off, at least for short-term trading.
- January 6, 2015 – TheStreet.com: Why Are You Shorting Innovative Biotech Stocks? (Correct)
- January 8, 2015 – The Financialist: Biotech Isn’t Out of Juice Yet (Correct)
- March 26, 2015 – Marketwatch: There May Be More Pain Ahead for Biotech Stocks (Incorrect)
- June 5, 2015 – Money Morning: Why Organovo Stock Is a Top Biotech Stock Buy in 2015 (Incorrect)
Biotechs did outperform the overall market in 2015, so those who rode the wave had many opportunities for profits. The top three performers of the year were Eagle Pharmaceuticals (NASDAQ: EGRX), Exelixis (NASDAQ: EXEL) and Prothena (NASDAQ: PRTA), each more than doubling in value.
Conversely, you would have been very disappointed if you bought Organovo (NYSE: ONVO) June 5 and didn’t get out within a week, since the stock took a nosedive soon afterward and went on to fall in half by the end of the year. Enter 2016, in which the overall market has gotten off to a shaky start. The Wall Street Journal ran a story on January 8 acknowledging biotech was down but that it was “too early to say it’s out.”
The article mentioned that the Nasdaq Biotechnology Index was down ten percent for the year and down almost 25 percent from the industry indicator’s record high the previous July. The writer noted that global financial stress made biotech a high-risk sector.
Annual Health Care Conference
Normally, the sector has had a strong performance in January the past four years, with an average increase of 7 percent, fueled by the annual J.P. Morgan Healthcare Conference. The reaction to this year’s conference should be an indicator as to how the sector will perform since it features future plans outlined by several large and small biotech companies. They use the conference to update investors on research, deals and earnings forecasts.
Biotechs Making a Buzz in 2016
Since TheStreet.com was on the money last year, it may be helpful to look at its forecast this year. On January 8, the online market publication mentioned three biotech stocks priced under $10 that were positioned for big breakouts. Those stocks are NovaBay Pharmaceutical (NYSE: NBY), Ritter Pharmaceuticals (NASDAQ: RTTR) and Catalyst Biosciences (NASDAQ: CBIO). NBY made over a 7% move on big volume the previous day to $2.45. RTTR was identified as rising higher than its 52-week low of $1.31, yet still indicating a discount to its short-term resistance level of $1.75. CBIO was up 10% on January 8 to $3.15, countering overall market weakness.
Long term biotech stocks favored by J.P. Morgan analysts on November 21, 2015 were the following with December 2016 price targets and closing prices on January 8, 2016:
- Neurocrine Biosciences Inc. (NASDAQ: NBIX) with a price target of $70 ($46.41)
- Dynavax Technologies Corp. (NASDAQ: DVAX) with a price target of $35 ($26.75)
- Merrimack Pharmaceuticals (NASDAQ: MACK) with a price target of $14 ($6.58)
- Amacus Therapeutics Inc. (NASDAQ: FOLD) with a price target of $18 ($7.85)
- Idera Pharmaceuticals Inc. (NASDAQ: IDRA) with a price target of $6 ($2.52)