December 18th Biotech Update

Another slow news day or at least slow trading day. I think the market continues to drift and perhaps we get a large small volume move but markets near yearly highs tend to make marginal new highs. Of course, the marginal new highs are occasionally followed by large moves lower. As such, it might make sense to hedge a little given that the VIX is relatively cheap but at this point the assumption is a marginal grind higher (until we get those large red days and then we can see where that sets up the market and sector).
1. The sector itself is weaker than the broader market but only by a little. I think we need to appreciate this as the administration announced a drug importation plan. If this plan came out 4-6 month ago the sector would likely have been down double digits. This demonstrates more than anything else the sentiment shift in the sector. It really is odd to see such a change. To be fair the drug importation is more headline grabbing than something that could shift the drug payment landscape.

2. Why would I not worry about this even if it were in place? Think about the other countries. If Canada suddenly saw a bunch of its drugs moving south to the US it would place price pressures on Canadian drug prices as well as supply issues. So the Canadian response would be the limit exports. So the point being that if it really starting working to impact the drug ecosystem it would be harming the exporting states and they would certainly respond to limit exports thereby limiting the effect. So it sounds good in theory but I do not really see it having an effect outside of the margins.

3. The only really stock specific news was GBT doing a deal with SYRS for an early (seems pre-clinical) sickle cell disease gene therapy. It is a relatively small deal and makes sense to see GBT expand their pipeline. GBT is trading down on the news and I see this less as the cash that the deal takes away from GBT but more from some take-out premium being removed from GBT. GBT is probably a trending stock for those trying to capture M&A and this deal might indicate M&A is less likely. I do not quite buy that but I suspect that is the reason for the weakness.
Not much else going on and I will end it here. I will be leaving town for the Holidays so this will be the last update for awhile. As always you can email me if you have questions but otherwise I will be gone until after the new years. So happy holidays and have a great season.

Disclosure: Long GBT

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