By J. Duarte MD

The biotech sector has been a mixed affair of late, similar to the rest of the market.   The Biotech Index (BTK) continues to have a generally upward trend but is still well off its March highs.  It is still doing well for the year, having gained 19% as of the close of trading on April 16.  And given the potential for new drug approvals and surprise results of clinical trials from companies in the sector, it could still be a good year.   As we get into the medical conference season, we could start seeing some fairly good fireworks in the sector, so this is a good time to start paying attention.



Still, many of the companies with products and earnings are at high valuation  levels, which makes them vulnerable to bad news or external events.  Biotech is also very interest rate dependent since many of the companies in the sector, especially those in the research stage or in the early phases of products making it to the market, depend on borrowed capital in order to fund research. That means that any talk of the Federal Reserve raising interest rates sooner rather than later could make the sector’s volatility increase.

Repligen (Nasdaq: RGEN)

We wanted to raise a little consciousness on Repligen, a maker of reagents, chromatography products and proteins used by other biotech companies for research.  Repligen is a small company with 136 employees and a market cap of about $1 billion. It has been moving quietly higher while other stocks in the sector mark time or slip lower.

What’s interesting about Repligen is that it could be a bellwether for the rest of the sector. Since it makes consumable products that other companies use in their research and production, activity in Repligen is a sign of demand from other biotech companies.  Repligen’s product sales have been expanding and it has been making strategic acquisitions in order to expand its offerings and increase sales.  It has had a smooth and well received CEO transition as well in the last few months.

We are adding it to our watch list and for those who are adventurous in this market; it may not hurt to own a few shares on a trading basis.  A move on big volume above 35 could take the stock higher in the short to intermediate term.  As usual, especially with biotech stocks, the overall market’s action can have a significant bearing on price action, so some caution is always warranted.  Yet, this could be a fairly good way to take some risk at the moment.

More on Medivation

Medivation (Nasdaq: MVSN) and its partner Astellas Pharma. Inc. (Nasdaq: ALPMY) continued to hold onto their consolidation patterns along with much of the stock market on 4/16/15.  Yet, there have been some news that could move the stocks higher in the intermediate term.  Medivation’s Xtandi (enzalutamide) is a drug that blocks testosterone and is beneficial for prostate cancer patients whose disease has metastasized or moved beyond the prostate to other parts of the body.  Recent clinical trials revealed men treated with Xtandi in early stages of the cancer’s spread achieve a 35 months increase in survival without having to use chemotherapy.  A March 2015 trial report also showed that men treated with Xtandi were less likely to receive chemotherapy than those taking placebo by a 52% to 81% ratio respectively.   For investors this means that over time more patients will likely be treated with Xtandi and that the current growth phase in the company’s earnings still has some time to go.

So, it was interesting to see that when Active Biotech (Nasdaq stockholm:ACTI) and Ipsen (IPN)(adr:IPSEY) reported that their immunologic treatment drug Tasquinimod did not extend survival in the same population that Xtandi has seen success with, neither Medivation or Astellas moved significantly higher.   The thinly traded IPSEY moved higher on the news, as did the shares of Medivation, although maybe not as high as one might have expected on the news.  Astellas lost ground on the day.

Most interesting was the reported sale of 3000 shares of Medivation, worth $396,600 by company CFO Rick Byerly on 4/16/15.  Mr. Byerly reportedly still owns over 20,000 shares of the company’s stock.  Insider selling is always of concern, especially when it comes on a day when there is favorable news for the company.

Medivation seems to have some buyers at the $130 area, but perhaps it should have gotten a bit more of a pop from the news of a potential competitor treatment being abandoned.  

More Peculiar News

Rick Byerly is not alone in selling shares of a biotech company.  The CEO of PCT Therapeutics (Nasdaq: PCTC), Stu Peltz, sold all of his shares in his company after shares appreciated on rumors of a possible sale.  The company commented that Mr. Peltz still has a sizable investment in the company via his stock options.  Still, a CEO who sells all of his shares in a company he is still running is peculiar and worth keeping an eye on.  

Watchlist Prospects

Over the next few weeks, we’ll be putting together a portfolio of smaller cap, or at least smaller name biotech stocks in this space.  Here are the current candidates and recommendations: 

Repligen (Nasdaq: RGEN) Trading Buy near the 32-34 area. A move above 35 could signal faster price appreciation in the short to intermediate term.

Medivation (Nasdaq: MVSN) – We’d like to see some momentum here with a move above 135 before taking a chance. 

Astellas Pharma. Inc. (Nasdaq: ALPMY)- At this point, MVSN may be a better way to play Xtandi.

Ipsen (Nasdaq: IPSEY)- The stock went up on 4/16 despite bad news.  It’s not in a great place but it’s worth keeping an eye on for now.

For now, we are intrigued but not convinced by the stories, not necessarily the action in Medivation, Astellas, and Ipsey. Insider selling is always of some concern, even in biotech where stock sales and stock options are usually the best paydays for executives and employees in the early stages of company development.

Dr. Joe Duarte has been a professional investor and independent analyst since 1990.  He has appeared on CNBC, has published articles on Marketwatch.com and has been widely quoted in the major media including The Wall Street Journal.  He is author of “Trading Options for Dummies,” 2^nd Edition and “Trading Futures for Dummies.”  His second book was “Successful Biotech Investing.”  Dr. Duarte does not own shares of Medivation , Astellas, Repligen or Ipsen as of 4/16/15.