Global markets are melting down…
Oil fell to its lowest level in more than 12 years.
China’s Shanghai Composite plummeted 12%.
Waves of selling knocked the Dow down more than 900 points, or more than 5% just days into the New Year. It’s the worst four-day percentage loss to start a year on record… with data going back as far of 1897.
The average stock is considered to be well into bear market territory, down 4% so far in 2016… as investors have clearly started the year off in panic mode…
While it may get worse before it improves, there are still bright spots.
Airlines for example are flourishing from lower oil prices. Gold may rally.
But it’s biotech stocks that may present the most exciting of opportunities.
2016 will be a great year for biotechs… again
Analysts continue to buy into the notion that the five-year party in biotechs will come to a swift end... Others are still calling for a bubble after years of bad calls.
But we have to consider several key elements that’ll fuel the biotech boom, one of which are the 80 million baby boomers retiring over the next 20 years. We must also remember that 2015 was a record year for biotech mergers and acquisitions.
And that’s not likely to end any time soon.
Big pharmaceutical companies will continue to snap up smaller biotech companies in an effort to keep innovation alive, and strengthen older pipelines.
In fact, Merck (MR) just bet $575 million on Quartet Medicine’s pain and inflammation treatments targeted BH4 – a chemical produced by the body after injury. It’s been found that roughly 2% of patients with low BH4 production tend to have fewer problems with chronic pain.
Quartet has since developed candidates to block that chemical and relieve pain and inflammation for the other 98% of the population. Should all go according to plan, it could to an eventual buyout.
Rare disease drug maker Shire Pharmaceuticals (SHP.L) will reportedly announce a $32.5 billion acquisition of Baxalta International (BXLT)… and would already mark the biggest deal of 2016.
As we’re already aware, Johnson & Johnson (JNJ) announced it’s open to a deal of any scale. Amgen (AMGN) is hunting for a $20 billion acquisition…
More than half of Amgen’s sales come from drugs that reportedly debuted in the 1990s. Another one of its drugs was approved in 1989 and provides 9% of sales. A potential merger could only serve to strengthen its pipeline.
Even Gilead (GILD) is open to a $10 billion acquisition as it sits on $25 billion in cash with hepatitis drug sales easing from the peak. The biotech sector isn’t slowing… at least, from what I’m seeing.
The drug sector has had an amazing year with $605 billion worth of M&A deals. While some don’t believe 2016 will be as robust, there are no signs of M&A deceleration.
Other drug companies are seeking blockbuster drug releases.
Later this month for example, the FDA will rule on Merck’s “doublet” pill of elbasvir and grazoprevir for hepatitis C. Unlike AbbVie’s Viekira Pak, patients would only have to take one pill for treatment. Some analysts believe it could have $1 billion sales potential.
Amgen (AMGN) may have a blockbuster on its hands after the FDA approved its PCSK9 antibody, Repatha. The bad-cholesterol reducing drug is also showing signs of potentially reducing risks of heart attacks and strokes. Peak sales of the drug could top out between $4 and $5 billion. Others believe it could be twice that amount.
Other drug companies will begin to change the way we look at medicine.
Look at immuno-therapy for example.
As I’ve noted, it could account for up to $35 billion in sales, help treat 60% of cancers over the next decade, and change the way we address cancer treatments. In fact, over the last year, the FDA granted accelerated approval to palbociclib to treat advanced breast cancer. That’s exciting.
Over the New Year, investors will continue to fear a biotech bubble that doesn’t exist.
Even after years of witnessing explosive returns in the market, they still question its sustainability. As always, I strongly believe biotechs offer the greatest chance for returns, despite the nasty volatility we’ve experienced this year.
The bottom line is market volatility will continue into 2016. The NASDAQ Biotech Index (IBB) has fallen with the markets from 344 on December 29 to its current 307. We don’t mind this at all, as we believe some very good small biotech stocks will fall with the market and wind up being big winners for us in 2016. Stay tuned….