Analyst: First Quarter Market Meltdown Just "Clockwork," As Biogen, Celgene Reign

Published: Mar 27, 2015

Analyst: First Quarter Market Meltdown Just
March 26, 2015
By Riley McDermid, Breaking News Sr. Editor

Recent turbulence in the market and concern surrounding the biotech sector is both predictable and happening right on schedule, a Wall Street analyst said Thursday, as the broader capital markets start to digest the first quarter of 2015.

Joshua E. Schimmer, a senior biotech research analyst at Piper Jaffray, said in a note to investors that historically, this period of the year sees market corrections and as such, it’s nothing to be too alarmed about. “Almost like clockwork, the biotech tape began a meltdown yesterday, a little over one year since we went through this last time,” wrote Schimmer in a note to investors. “Once again, we see misguided concerns regarding the biotech valuations, which unfortunately represent a blend of the true earnings growth companies as well as those which are just ramping into earnings growth and thus have disproportionately high but not representative price-to-earnings multiples.”

The same thing happened last year, but the sector went on to rally.

“Obviously 2014 turned out to be a stellar year for biotech, and we believe industry fundamentals remain strong,” wrote Schimmer. “2015 should still be a good year for the industry, once we pass through this latest round of selling.”

To illustrate his point, Schimmer included in his note links to several reports from the spring of 2014, “as a reminder of the similarities to this year.”

In his March 27, 2014 report, Schimmer discussed how the year had been “off to such a strong start but saw aggressive selling over a short period of time” precipitated by concerns around valuation. In an April 22, 2014 report, his note analyzed the drop after the NASDAQ Biotech Index was down nearly 17 percent, giving up many of the gains that started the year.

“The sector obviously recovered and had another banner 2014,” said Schimmer.

Finally, he looked at a report from earlier this month, when on March 13 Schimmer spent time highlighting the relative valuations of biotech companies compared to other growth sectors. In that note, he stressed “growth” biotech names, such as Celgene , Biogen Idec, Inc. and Alexion Pharmaceuticals Inc. , which “are attractively valued relative to peers.” He also stayed bullish on Amgen .

“Admittedly there are a group of larger-cap stocks with longer-term growth potential which are either not profitable or are early in their ramps to profitability which are harder to value because they don't have the same forward P/E multiple profile,” said Schimmer, “but these names still have strong pipelines, potential to be M&A targets, and longer-term solid earnings potential. That said, once again it seems like these group of mid-cap names may be dragging the sector down, temporarily.”

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