Fund managers who have succeeded in the volatile world of biotech stocks are hunting for bargains in the aftermath of a three-month selloff that took the group down 27 percent until it started to recover at the end of September. But in a group where profitable companies underperform losers and one bad drug trial can cause a single stock to permanently crater, sorting the winners from the losers is key.
So far in 2015, the Nasdaq Biotechnology Index is up 7.3 percent, but that includes Exelixis, up 320 percent on positive clinical data for a cancer drug, and Celladon Corp down 94 percent on a failing heart treatment trial. The T Rowe Price Health Sciences fund invested some of its cash stockpile in the third quarter, when biotechs were selling off sharply. It bought 4.54 million shares of Baxalta Inc, which treats acute conditions including hemophilia, and 4.3 million shares of cancer treatment developer Exelis, almost doubling its existing holding.
T. Rowe Price analyst Ziad Bakri said he aims for a thorough understanding of a drug developer's target disease, the number of afflicted patients, the duration of treatment, the competition and the likely price acceptable to insurers. John Schroer of the AllianzGI Health Sciences fund, up 11 percent this year, is positive now on small firm Clovis Oncology and big names like Abbvie Inc. Schroer polls physicians to gauge acceptance of pipeline drugs and will not buy anything that does not have at least preliminary clinical results. Careful stock picking has served these funds well, though. Over the last year, the average mutual fund in this group has edged out index-following exchange traded funds, with an 11.5 percent return for the mutual funds and a 10.4 percent return for the ETFs.
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