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A Migrating Biotech Bear

A Migrating Biotech Bear

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  • Biotech sector achieves the dubious distinction of being amongst the first to slip over the Bear market threshold.
  • Nonetheless, this should be a transitory bear market for biotechs, as the pullback is driven more by systemic issues rather than sector issues.
  • Policy initiatives introduced in October have not diminished the fundamental attractiveness of the sector.
  • The end of the election cycle, seasonally strong final months, a potential tariff breakthrough, and potential M&A can assist in biotech consolidation and recovery.
  • Remain cautious on the Correction, but do not dismiss Biotechs for there are many promising opportunities pushing the frontiers of science.

Biotech Pulse

Biotechnology is in a Bear Market.

At least the midcap and smallcap segment of it.

The S&P Biotechnology Select Index (XBI), which is weighted towards the midcap and smallcap companies, has dropped 24% from its high recorded on August 30 to its lowest point past Monday. The Nasdaq Biotechnology Index (IBB), with a greater weight towards larger cap biotech companies, dropped 18% after marking a high on October 1. For context, the broader market, represented by the Nasdaq Composite, dropped 15%.

Biotech stocks are inherently volatile and become more so in a risk-off environment like the one experienced during October. The steeper biotech decline compared to the broader market reflects the higher-beta nature of the sector. The pronounced downside volatility in an adverse market environment is the harsh reality of biotech investing. It can be highly stressful for investors and underscores the importance of managing the biotech portfolio exposure in order to maintain a suitable balance between capital preservation and capital appreciation, reflecting the investor's risk profile.

A Transitory Biotech Bear

GraycellAdvisors.com ~ Bull and Bear at the Frankfurt Stock Exchange

A decline of over 20% in the S&P Biotechnology Index, if it remains persistent, begins to toll the bell for a biotech bear market. However, it would be helpful to understand the nature of the biotech pullback to determine its severity.

A correction induced by the fear of higher rates will naturally affect the speculative segment of the market much harder - biotechs and small caps being quite representative. Sharply rising rates lower the valuations for biotechs and small caps much faster, as the discount rate for future cash flows jumps higher. Higher the discount rate, lower will be the present valuation.

What is important to note is that the stock market is encountering a broader systemic pullback and not one that is unique to biotechs. In such a case, once the market is ready to rebound, biotechs should recover faster as the pendulum can often swing back harder for stocks that have fallen the most, provided the fundamental reasoning remains unchanged.

PrudentBiotech.com ~ CAR-T cells targeting cancer cells

But the biotech bear is not here to stay.

For a biotech bear to persist, the broader stock market needs to slip into a bear market territory as well, and conditions are not suggestive of a broad-based economic decline necessary to trigger a bear market.

There is enough momentum in the biotech business to withstand the present correction. Most biotechs are well-funded, through the public and private markets, as new innovations and dynamic approaches have found a receptive financing environment.

Biotech Fundamentals Unchanged After Policy News

In October there have been two major initiatives affecting health care in general and biotechs and pharmaceuticals (biopharma) in particular.

First, was an initiative on greater price transparency as a follow-up to the list of initiatives, called the American Patients First, with the objective of reining in costs. Earlier in the month, the Health and Human Services ((HHS)) Secretary Alex Azar, outlined a proposal requiring drugmakers to disclose the list prices of the medicines being advertised on television. The objective is that potential patients should be informed about the costs as well at the time of advertising. However, the industry vehemently opposes the proposal on the grounds that patients never pay list prices and may forego appropriate treatment based on incorrect information. At the earliest, the rule can go into effect after a 60-day public comment period. In reality, it will be many months and possibly could be years for this proposal to even become a policy as the battle between HHS and the industry lobby continues. Even if this policy was to be implemented, it will not be a meaningful setback to pharma sales, and furthermore, it does not have a clear enforcement component yet other than public shaming by the HHS department.

PrudentBiotech.com ~ President Trump and HHS Secretary Alex Azar

President Trump and Alex Azar at the Department of Health and Human Services last week ~ Source: AP

Second policy initiative, introduced last Thursday by the Trump administration, is to lower Medicare drug costs by indexing them to a certain proportion of the prices paid for the same drugs in a group of advanced countries. The drug proposal, if it materializes, could take effect at the earliest as a demonstration project in 2020. In a way, the proposal found a clever workaround to direct negotiations between the government and the drug makers, which the Republicans dislike on the concern it may restrict drug access, by using indirect negotiations through indexing with countries where governments, like in France and Germany, directly negotiate with the drug manufacturers. However, the price regulation proposal was largely considered as midterm election-related rhetoric and has not yet found much traction with both parties and, of course, the industry. It is not an imminent risk for biopharma valuations, but part of the constant theme of long-term pressure on drug prices.

Both the above initiatives do not undermine the biotech valuations anymore now, then the situation prior to October. The biotech sector is not facing a fundamental issue in this correction, but a systemic issue buffetting the broader market.

The Federal Reserve Will Have The Final Say

The stock market is being affected primarily by monetary policy concerns. Such concerns have been further compounded by the typical uncertainty associated with elections. To that extent, if the Federal Reserve does something to calm the market, the risk will diminish. Whether it does it is a different question. On the election front there is more hope, as once they conclude on November 6, the risk-off sentiment associated with that uncertainty should diminish and be helpful to the stock market. This should likely happen whatever the outcome with the control of Congress. In fact, a status quo can be considered positive since the market is expecting some change of control.

PrudentBiotech.com ~ Federal Reserve Seal

The Federal Reserve has been fairly clear on the continuation of its policy of gradual interest rate increases. The hectoring by President Trump on the imprudence of further rate increases may be limiting the Fed's ability to offer any soothing commentary to the markets, and in fact, could be nudging the bank governors to be more vocal about the rationale and merits of the present policy. The stock market is looking for some kind of an olive branch from the Federal Reserve, but most likely that won't be forthcoming anytime soon, as discussed in the article This Stock Reset Requires Patience. The monetary policy risk will improve with time as the market realizes that the Federal Reserve is highly data dependent. Perhaps at the next FOMC meeting, there can be assuaging comments added in the statement, recognizing the strength of the economy along with the risks as well of lower drifting long-term yields and a deceleration in housing.

Conclusion

Biotech stocks have witnessed a high level of volatility reflecting the weaker market conditions. Although the sharp rise in interest rates caught the market by surprise, the earnings and election-related uncertainties were already clouding the market.

Where do we go now?

Biotech valuations presently are fairly well-hinged to the outlook on the broader market. The Federal Reserve related uncertainty will not dissipate immediately. If it does, the market can have a very sharp rise. Eventually, for the stock market to overcome the sharp correction and move beyond, it is the Federal Reserve that will have to provide the final words. Till such time, volatility is here to stay and rebounds will remain restrained and tentative.

But all is not bad at this point.

PrudentBiotech.com ~ DNA

As mentioned above, the market should benefit from the end of the election cycle, which should allow it to set anchor, consolidate, and build-up strength. Furthermore, there could be some measure of relief in the form of a tariff settlement with China during the G-20 meeting of the two Presidents in late November in Argentina.

In addition, Biotech M&A activity can receive a boost, as was reasoned at length in an earlier article, Stocks Can Now Drive M&A, as the target companies have faced steeper declines than the potential acquirers like Merck (MRK), Pfizer (PFE), Eli Lilly (LLY), Gilead (GILD), Johnson & Johnson (JNJ), and Novartis (NVS), which recently acquired Endocyte (ECYT).

Furthermore, the smallcap stocks, which led the broader market higher over Summer and then lower in October, are beginning to perform positively, suggesting that the bottoming-out process may have begun.

Nonetheless, the market situation remains tricky overall and quite sensitive to monetary policy speculation and actions. Consequently, there appears to be no rush to reinvest the entire cash portion of the portfolio. A more calibrated approach would be to incrementally raise the biotech portfolio exposure over time as the market consolidation presents the appropriate opportunities. This is what is being done in the Prudent Biotech model portfolio, which as of November 1 is up +55% compared to the S&P Biotechnology Index decline of -7%. The portfolio is now 50% invested, up from being 40% invested in October, and further adjustments will be made as market conditions warrant.

There are many promising biotech and pharma companies that should perform well over time, as the market stabilizes. A few such companies, which may be now or in the past part of our model portfolios, include Merck (MRK), Pfizer (PFE), Eli Lilly (LLY), Amgen (AMGN), Sarepta Therapeutics (SRPT), Regenxbio (RGNX), Acadia Pharmaceuticals (ACAD), Caredx (CDNA), Array Biopharma (ARRY), Neurocrine Biosciences (NBIX), Endo International (ENDP), Acceleron Pharma (XLRN), Arrowhead Pharmaceuticals (ARWR), Amarin (AMRN), Viking Therapeutics (VKTX), Proqr Therapeutics (PRQR), Immunomedics (IMMU), Intercept Pharmaceuticals (ICPT), Ra Pharmaceuticals (RARX), Pacira Pharmaceuticals (PCRX), Glaukos (GKOS), Vanda Pharmaceuticals (VNDA), Fate Therapeutics (FATE), Exact Sciences (EXAS), and Emergent Biosolutions (EBS).

As always, kindly do your own due diligence.

The article was first published on Seeking Alpha.

The post A Migrating Biotech Bear appeared first on Prudent Biotech.

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The Coming Of The Police State In America

The Coming Of The Police State In America

Authored by Jeffrey Tucker via The Epoch Times,

The National Guard and the State Police are now…

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The Coming Of The Police State In America

Authored by Jeffrey Tucker via The Epoch Times,

The National Guard and the State Police are now patrolling the New York City subway system in an attempt to do something about the explosion of crime. As part of this, there are bag checks and new surveillance of all passengers. No legislation, no debate, just an edict from the mayor.

Many citizens who rely on this system for transportation might welcome this. It’s a city of strict gun control, and no one knows for sure if they have the right to defend themselves. Merchants have been harassed and even arrested for trying to stop looting and pillaging in their own shops.

The message has been sent: Only the police can do this job. Whether they do it or not is another matter.

Things on the subway system have gotten crazy. If you know it well, you can manage to travel safely, but visitors to the city who take the wrong train at the wrong time are taking grave risks.

In actual fact, it’s guaranteed that this will only end in confiscating knives and other things that people carry in order to protect themselves while leaving the actual criminals even more free to prey on citizens.

The law-abiding will suffer and the criminals will grow more numerous. It will not end well.

When you step back from the details, what we have is the dawning of a genuine police state in the United States. It only starts in New York City. Where is the Guard going to be deployed next? Anywhere is possible.

If the crime is bad enough, citizens will welcome it. It must have been this way in most times and places that when the police state arrives, the people cheer.

We will all have our own stories of how this came to be. Some might begin with the passage of the Patriot Act and the establishment of the Department of Homeland Security in 2001. Some will focus on gun control and the taking away of citizens’ rights to defend themselves.

My own version of events is closer in time. It began four years ago this month with lockdowns. That’s what shattered the capacity of civil society to function in the United States. Everything that has happened since follows like one domino tumbling after another.

It goes like this:

1) lockdown,

2) loss of moral compass and spreading of loneliness and nihilism,

3) rioting resulting from citizen frustration, 4) police absent because of ideological hectoring,

5) a rise in uncontrolled immigration/refugees,

6) an epidemic of ill health from substance abuse and otherwise,

7) businesses flee the city

8) cities fall into decay, and that results in

9) more surveillance and police state.

The 10th stage is the sacking of liberty and civilization itself.

It doesn’t fall out this way at every point in history, but this seems like a solid outline of what happened in this case. Four years is a very short period of time to see all of this unfold. But it is a fact that New York City was more-or-less civilized only four years ago. No one could have predicted that it would come to this so quickly.

But once the lockdowns happened, all bets were off. Here we had a policy that most directly trampled on all freedoms that we had taken for granted. Schools, businesses, and churches were slammed shut, with various levels of enforcement. The entire workforce was divided between essential and nonessential, and there was widespread confusion about who precisely was in charge of designating and enforcing this.

It felt like martial law at the time, as if all normal civilian law had been displaced by something else. That something had to do with public health, but there was clearly more going on, because suddenly our social media posts were censored and we were being asked to do things that made no sense, such as mask up for a virus that evaded mask protection and walk in only one direction in grocery aisles.

Vast amounts of the white-collar workforce stayed home—and their kids, too—until it became too much to bear. The city became a ghost town. Most U.S. cities were the same.

As the months of disaster rolled on, the captives were let out of their houses for the summer in order to protest racism but no other reason. As a way of excusing this, the same public health authorities said that racism was a virus as bad as COVID-19, so therefore it was permitted.

The protests had turned to riots in many cities, and the police were being defunded and discouraged to do anything about the problem. Citizens watched in horror as downtowns burned and drug-crazed freaks took over whole sections of cities. It was like every standard of decency had been zapped out of an entire swath of the population.

Meanwhile, large checks were arriving in people’s bank accounts, defying every normal economic expectation. How could people not be working and get their bank accounts more flush with cash than ever? There was a new law that didn’t even require that people pay rent. How weird was that? Even student loans didn’t need to be paid.

By the fall, recess from lockdown was over and everyone was told to go home again. But this time they had a job to do: They were supposed to vote. Not at the polling places, because going there would only spread germs, or so the media said. When the voting results finally came in, it was the absentee ballots that swung the election in favor of the opposition party that actually wanted more lockdowns and eventually pushed vaccine mandates on the whole population.

The new party in control took note of the large population movements out of cities and states that they controlled. This would have a large effect on voting patterns in the future. But they had a plan. They would open the borders to millions of people in the guise of caring for refugees. These new warm bodies would become voters in time and certainly count on the census when it came time to reapportion political power.

Meanwhile, the native population had begun to swim in ill health from substance abuse, widespread depression, and demoralization, plus vaccine injury. This increased dependency on the very institutions that had caused the problem in the first place: the medical/scientific establishment.

The rise of crime drove the small businesses out of the city. They had barely survived the lockdowns, but they certainly could not survive the crime epidemic. This undermined the tax base of the city and allowed the criminals to take further control.

The same cities became sanctuaries for the waves of migrants sacking the country, and partisan mayors actually used tax dollars to house these invaders in high-end hotels in the name of having compassion for the stranger. Citizens were pushed out to make way for rampaging migrant hordes, as incredible as this seems.

But with that, of course, crime rose ever further, inciting citizen anger and providing a pretext to bring in the police state in the form of the National Guard, now tasked with cracking down on crime in the transportation system.

What’s the next step? It’s probably already here: mass surveillance and censorship, plus ever-expanding police power. This will be accompanied by further population movements, as those with the means to do so flee the city and even the country and leave it for everyone else to suffer.

As I tell the story, all of this seems inevitable. It is not. It could have been stopped at any point. A wise and prudent political leadership could have admitted the error from the beginning and called on the country to rediscover freedom, decency, and the difference between right and wrong. But ego and pride stopped that from happening, and we are left with the consequences.

The government grows ever bigger and civil society ever less capable of managing itself in large urban centers. Disaster is unfolding in real time, mitigated only by a rising stock market and a financial system that has yet to fall apart completely.

Are we at the middle stages of total collapse, or at the point where the population and people in leadership positions wise up and decide to put an end to the downward slide? It’s hard to know. But this much we do know: There is a growing pocket of resistance out there that is fed up and refuses to sit by and watch this great country be sacked and taken over by everything it was set up to prevent.

Tyler Durden Sat, 03/09/2024 - 16:20

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Low Iron Levels In Blood Could Trigger Long COVID: Study

Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate…

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Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate iron levels in their blood due to a COVID-19 infection could be at greater risk of long COVID.

(Shutterstock)

A new study indicates that problems with iron levels in the bloodstream likely trigger chronic inflammation and other conditions associated with the post-COVID phenomenon. The findings, published on March 1 in Nature Immunology, could offer new ways to treat or prevent the condition.

Long COVID Patients Have Low Iron Levels

Researchers at the University of Cambridge pinpointed low iron as a potential link to long-COVID symptoms thanks to a study they initiated shortly after the start of the pandemic. They recruited people who tested positive for the virus to provide blood samples for analysis over a year, which allowed the researchers to look for post-infection changes in the blood. The researchers looked at 214 samples and found that 45 percent of patients reported symptoms of long COVID that lasted between three and 10 months.

In analyzing the blood samples, the research team noticed that people experiencing long COVID had low iron levels, contributing to anemia and low red blood cell production, just two weeks after they were diagnosed with COVID-19. This was true for patients regardless of age, sex, or the initial severity of their infection.

According to one of the study co-authors, the removal of iron from the bloodstream is a natural process and defense mechanism of the body.

But it can jeopardize a person’s recovery.

When the body has an infection, it responds by removing iron from the bloodstream. This protects us from potentially lethal bacteria that capture the iron in the bloodstream and grow rapidly. It’s an evolutionary response that redistributes iron in the body, and the blood plasma becomes an iron desert,” University of Oxford professor Hal Drakesmith said in a press release. “However, if this goes on for a long time, there is less iron for red blood cells, so oxygen is transported less efficiently affecting metabolism and energy production, and for white blood cells, which need iron to work properly. The protective mechanism ends up becoming a problem.”

The research team believes that consistently low iron levels could explain why individuals with long COVID continue to experience fatigue and difficulty exercising. As such, the researchers suggested iron supplementation to help regulate and prevent the often debilitating symptoms associated with long COVID.

It isn’t necessarily the case that individuals don’t have enough iron in their body, it’s just that it’s trapped in the wrong place,” Aimee Hanson, a postdoctoral researcher at the University of Cambridge who worked on the study, said in the press release. “What we need is a way to remobilize the iron and pull it back into the bloodstream, where it becomes more useful to the red blood cells.”

The research team pointed out that iron supplementation isn’t always straightforward. Achieving the right level of iron varies from person to person. Too much iron can cause stomach issues, ranging from constipation, nausea, and abdominal pain to gastritis and gastric lesions.

1 in 5 Still Affected by Long COVID

COVID-19 has affected nearly 40 percent of Americans, with one in five of those still suffering from symptoms of long COVID, according to the U.S. Centers for Disease Control and Prevention (CDC). Long COVID is marked by health issues that continue at least four weeks after an individual was initially diagnosed with COVID-19. Symptoms can last for days, weeks, months, or years and may include fatigue, cough or chest pain, headache, brain fog, depression or anxiety, digestive issues, and joint or muscle pain.

Tyler Durden Sat, 03/09/2024 - 12:50

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February Employment Situation

By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…

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By Paul Gomme and Peter Rupert

The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.

Temporary help services employment continues a steep decline after a sharp post-pandemic rise.

Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.

The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.

The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.

Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.

As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.

Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.

The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.

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