One of the sectors that have been hit the hardest during the last three months is the biotech sector and many investors are wondering if it is time to buy. Although recent weakness has made many biotech investments look attractive, we remain on the sidelines with many blue chip investments at current levels.
The recent correction in this sector was long overdue. Despite this recent weakness, the iShares Nasdaq Biotechnology ETF (IBB) is up more than 250% during the last five years. That is an unbelievable rally for an entire industry and its performance crushes the S&P 500’s (SPX) own amazing rally of nearly 70% during that span of time.
Weakness Creates Opportunity
Since trading at record highs on July 18, IBB has fallen approximately 22%. While we do not believe the sell-off is over, investors can find value in companies that are developing breakthrough products and have upcoming catalysts. One of such companies is GW Pharmaceuticals (GWPH).
GWPH is focused on developing cannabinoid-based medicines that treat a variety of illnesses. During the last three months, shares have fallen by more than 27% and GWPH seemed to have found a bottom in the $84-$85 range. We are favorable on GWPH due to the upcoming catalysts, improving Wall Street estimates, and focus on the United States market.
Deep Pipeline of Products
Several data readouts are expected to be released in 2016. In addition to the first Phase 3 trial for Epidiolex in Dravet’s, a second Phase 3 trial in Dravet’s, and two Phase 3 trials in Lennox-Gastaut Syndrome (LGS) will read out in the first quarter of 2016.
GWPH expects to announce data readouts for a number of indications during 2016. These include schizophrenia, glioblastoma and diabetes. While the breadth of GWPH’s pipeline is encouraging, investors remain focused in the near term on Dravet’s and LGS for Epidiolex.