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Are We Approaching A Key Inflection Point In The Biotech Sector?


The biotech sector has come under intense selling pressure once again.

Using the iShares Nasdaq Biotechnology ETF as a proxy for the industry, the Mylan scandal has reversed the gains since late July.

The article below will discuss some of the key trends affecting the industry.

The biotech index continues to dazzle while frustrating the majority at the same time. The frenetic pace of trading makes the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) an excellent vehicle for momentum trading. The index offers broad exposure to the heavyweights of the biotech field along with immediate liquidity, a perfect combination for directional bets. The article below will discuss my outlook for the IBB in light of the recent politically fueled sell-off.

Political Atmosphere

I have included a weekly chart of the IBB above to more accurately illustrate the plight of the index over the past few years. The first cracks began in September of last year via a political tweet from Hillary Clinton, which many pointed as a signal to aggressively sell-off the index. The index managed to close some of the gap, yet once the calendar flipped to 2016, a decided risk-off stance has been adopted by the market which crushed the shares of the IBB.

The political tweets have struck again, this time, Clinton took on Mylan Inc. (NASDAQ:MYL) for the egregious pricing of the Epipen (epinephrine auto-injector system). Shares of MYL predictably plunged, dragging the IBB down in its wake, as MYL is one of the top ten holdings of the index. Inexplicably, MYL's main line of business resides in the manufacturing of products that have lost patent exclusivity. It would seem odd for the inclusion of MYL in a biotech index; in my view, MYL would be better served in an ETF that held more traditional pharma names.

Biogen leads the way

The IBB rally gained traction once Biogen (NASDAQ:BIIB) stunned the community during its most recent earnings report. George Scangos, the embattled CEO, detailed his plan to resign signaling a change in focus for this beleaguered biotech star. In my view, Scangos lost credibility last year with his overhyped quest for a viable cure for Alzheimer's. The euphoria led to the formation of a bubble in the shares of BIIB which quickly popped once it reported earnings last summer. The shares once trading hands well above $400 per share, crashed below $300 and have stayed there for an extended period. To add further misery to the BIIB longs, Opicinumab failed to dazzle during the SYNERGY trial which led to another leg down in the shares of BIIB. The results were announced in early...