As
@rhino78 alluded to in a recent post.
All eyes are on the 10-year US Gov't Bonds to see where Biotechs are heading next!
Ten-year US Govt Bonds
52 Week High 6/10/23 - 4.887% Currently 4.558 (Are they topping out?)
InverselyXBI S&P Biotech ETF
52 Week Low 4/10/23 - 69.09
Atai
52 Week Low 1.14 - 4/10/23 1.22
Compass
52 Week Low 6.07 Currently 6.07
- Biotech stocks faced challenges in the first half of the year, with the Nasdaq Biotechnology Index losing 3%, compared to strong advances in the broader market.
- The direction of the 10-year bond yield has become a key predictor of biotech industry performance.
- Sustaining high yields without triggering an economic slowdown will be a challenge.
- Strong M&A activity for biotechs has been a bright spot and should further strengthen into the end of the year.
- Biotechs to perform better later in the year as the yield uncertainty diminishes and prospects for a rate cut next year improve.
The inverse relationship between bond yields and biotech performance is evident in the above chart.
The Federal Reserve's rate hike campaign led to an early decline in biotech stocks, and over the past year, biotech indexes have consolidated within a certain range.
As the Fed prepares to conclude its rate hike campaign, the 10-year yield is expected to stabilize or even decrease, albeit not necessarily rapidly.
As the expectation has now set in that inflation can be curbed without sending the economy into a recession, the longer-term yields are inching higher on bets of a stronger economy.
Recent months have seen the 10-year yield inch higher, from 3.3% in early April to around 4.1%, nearing its highest level since 2008.
Given this strong correlation, predicting biotech performance now relies on anticipating the direction of the 10-year yield.
However, due to the diverse range of variables, making this yield call is far from straightforward.
Robust M&A Activity
Biotech deals continue to outpace last year's numbers, reflecting nearly $90 billion in transactions so far this year. Key acquisitions include Merck's (MRK) purchase of Prometheus Biosciences for ~$11 billion, Biogen's (BIIB) acquisition of Reata Pharmaceuticals (RETA) for over $7 billion, Astellas Pharma's (OTCPK:ALPMF) acquisition of Iveric Bio for ~$6 billion, and Eli Lilly's purchase of Dice Therapeutics for about $2.5 billion. Iveric Bio was part of the Prudent Biotech model portfolio and Dice Therapeutics was part of the Prudent Small Cap model portfolio.
The rise in biotech deal-making stems from several factors, including the need for large pharmaceutical companies to expand their drug pipelines and the diminishing returns on in-house pharma R&D. The attractive prospect of M&A is accentuated by lower biotech valuations, well-funded pharmaceutical companies and their rising valuations, and promising biotech results. As the Fed's rate hike cycle nears its end, reduced interest rate uncertainty will further encourage M&A interest. After a period of lengthy consolidation, biotech valuations will likely pick up momentum later in the second half and not remain depressed, a point that large pharma would be keenly aware of. The second half can likely witness a further ramp-up in transaction activity.
Click to view the Article
Big Picture People!
Hot Copper Commentary is not going to turn this around haha!
Navel gazing is a waste of time IMO
GLAH 
