Specialists and strong fundamentals must carry the sector in 3Q19

With generalists out and little exciting news, specialists still in the game are betting on strong fundamentals

Heading into the third quarter, specialist biotech investors are in the driver’s seat, and their stances on whether to trim or spend in the down market are split.

After recovering at the start of the year from the correction territory of 4Q18, the biotech sector took a nose dive in 2Q.

Buysiders who spoke to BioCentury said the sector is lacking the standout programs that can draw in generalists, as in the early days of immuno-oncology. They also cited ho-hum clinical data, large caps failing to refill their pipelines, a slate of macro worries, and the fizzling out of the M&A spree that kicked off the year.

Nevertheless, they noted, fundamentals remain strong across the sector.

“It does feel like sentiment is worse than fundamentals,” said AXA Framlington’s Linden Thomson.

The upshot is that while some of the specialists are trimming positions and waiting out the downturn, others see an opportunity to take advantage of the fears of their peers and add to names they already like at reasonable prices.

The latter camp has been able to put in enough money to keep IPOs and follow-ons going at a steady clip.

“It is these sorts of times you should invest in the sector, when it is out of favor,” International Biotechnology Trust’s Ailsa Craig told BioCentury.

“It does feel like sentiment is worse than fundamentals.”

Linden Thomson, AXA Framlington

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