Generally, I think Cramer has good instincts and makes some very good calls. And I completely agree with him that with the red-hot biotech sector, many smaller biotechs have gotten ahead of themselves - mainly the ones with no approved drug (with the exception of PCYC, with a drug that is a game changer once approved). But for him to make a blanket statement that companies under $10 billion are too pricey, he succeeded in an instant to significantly dent his credibility in the biotech sector. First, NPSP is not a wanna-be biotech. They have an approved drug with a market of 3500-5000 patients in the US and another worldwide of about 6000. At 10,000 patients @$300,000 you have a $3 billion revenue stream. Knock that in half. Make it $1.5 billion. And then Natpara, once approved, will be at least another $1.5 billion (the CEO has said several times that the market for Natpara is bigger than Gattex). So let's do a traditional 3X peak sales discounted 40% and you get 9 bill X .6 = 5.4 billion fair market valuation. That's a fair market value of $53 TODAY. AEGR's fair value is somewhere between $93 and $110, and they also have an approved drug. Celldex is riding high on some very promising drugs. The larger picture is this: the boiotech sector is red-hot because there's a paradigm shift going on in medicine that has accelerated in the past 2-3 years. That is, the technology of drug development has evolved to the point where drugs are now far more precise in their mechanisms of action, from Sangamo's DNA-binding proteins that act as genetic on-off switches to Newlink's genetically modified cancer cells to train the immune system to attack tumor cells. And with that precision comes game-changing drugs.
I believe that this decade is the decade of biotech. We are in the golden age. Keep in mind, the idea that antibodies could fight disease was discovered in 1975, nearly 40 years ago. Monoclonal antibodies were perfected at Genentech in 1990, with Herceptin, 23 yrs ago..cont
I generally agree with faosto's comments. It's sloppy and lazy analysis to tell people to sell all small biotechs. They are the most dynamic growth industry around. At the same time, a lot have been playing them because they are generally immune to the vicissitudes of the overall economy, and some of the early stage companies have probably gotten ahead of themselves. An implosion such as ARRY or ARIA can traumatize a lot of retail investors. (Yes, I had positions in both of those. But I consider the occasional flop the price of playing the biotechs.) I don't see anything in the recent price action to make me question my fairly modest investment in NPSP. I am less enthusiastic about the prospects of SGMO than faosto and only hold a token position for that reason. Shakeouts like this are often a good test of how much real support a stock has vs pure momentum players who buy things just because they seem to be going up. Those, for example, who sold PCYC on the basis that GILD's success in CLL drug trial, obviously didn't really understand the potential of ibrutinib. Frankly, I think Cramer is anticipating a sector rotation into cyclical and industrial stocks here. He also seems to be suggesting a shift into energy stocks, which I am dubious about. Even if he's right, it's no reason to abandon fledgling biotechs en masse.
A shift into energy stocks?? If you look at the charts ala HAL, EOG, APC, PDCE, GPOR, WFT, and many others I would say that shift has been going on for some time as they are all at or near YTD highs. You won't get the same bang for your buck as you have had in biotech, but energy looks great here.
Relax faosto...NPSP will go down for a while, possibly to $27 and change again. That's ok. It's just a buying opportunity before resuming the climb. I have my own opinion on why he made the call that he did, but i'll keep those secrets to myself. I think the stock market is a game played by the big boys. Personally I believe too many of them were caught short and this is a gift from cramer to them before earnings when it will resume the climb in earnest.
Hold on for the ride and be patient.
FYI, I sold 2 days ago before the $2.39 gain yesterday, but it looks like it was a good sell anyway.
I'll be in huge at lower stock prices. I'm going to double down when the opportunity arrives.
Sage counsel, a cool head, and a keen eye for the possible. $ 25-$27 range, my staged buy target. Until then I'll play options for upside, w/o the pain of sharp drops.
Good commentary, you have layed out the longer term buy case for NPSP and the successful companies in the sector. The next week or so is more of a question. Cramer is an overhang with the 14% retail in NPSP. Right or wrong, he did mention NPSP, several times in last nights commentary, as a 50% position sell. The large secondary is also pressuring shares. Is the buyer one large institution with a long term view, or several buyers adding 12% to the " tradeable float "?. Are the big trading institutional's locking in profits by selling off their NPSP holdings? My take- let the market settle down a bit, then buy. A falling knife cuts deeper if it falls further.
Lost me at "Cramer has good instincts and makes some very good calls". I guess if you make hundreds of calls a day, some of them must be right. I've never watched him, but some of his printed analysis appears random.
...so we now have a host of new potential blockbuster drugs that are light years ahead of where scientists were 20-40 years ago, with proteins, small molecules, genetic signaling, chaperone drugs, and so much more. We are literally watching science come of age in slowing, or stopping disease. Sangamo may have found a functional cure for HIV. Pharmacyclics has a drug that has three FDA breakthrough designations (a level of review for drugs created by the FDA to recognize the game-changing qualities of many new drugs) that can effective cure 50-70% of all blood cancers.
So, is there a biotech bubble? Somewhat, but the market is recognizing the paradigm shift, and we are at the early stages of it. And the beauty of it is that the vast majority of game-changing drugs come from biotechs UNDER 10 billion market cap. The very ones that Cramer just said to sell. We have more to go.