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Selim Syed on the future of biotech companies amid sector drop - YouTube
Channel: CNBC Television
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one out of every five companies that
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trades in the biotech sector publicly
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is trading for less value
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than simply the value of their cash in
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other words the market is placing
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zero dollars of value on their actual
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business
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what is going on with biotech
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yeah thanks for having me on brian uh so
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look you know biotech obviously had a
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great run up in uh 2020 with kobit right
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so there was a lot of much of a halo
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effect but being put onto the sector was
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viewed as the solution you know to to a
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lot of the problems we were seeing in
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the market at the time right it was seen
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as a solution to the to the pandemic
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right um
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basically what essentially happened is
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companies companies ended up getting
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funded very very easily right so a lot
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of the crossover funds uh that that
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folks talk about in the space putting
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money to work right it was converting
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over to public very very easily and the
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market got really really frothy really
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really quickly right what we're seeing
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right now is essentially a reversal of
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that and part of the reason why we're
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seeing that is you know a lot of these
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companies that you know had been put
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have been made converted to from private
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to public right we haven't seen that
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clinical data pan out yet we haven't
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seen the m a in the space yet right and
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so and so that you know on top of a you
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know a macro a a challenging macro
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environment with right now
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you know it's just been difficult for
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this sector
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well and listen we love etfs and index
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funds they provide you know low cost
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sort of steady eddy investing and we
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know that they can make you a lot of
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money over the long term
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but that said saleem
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when people dump etfs they're going to
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often dump stocks even if it's just sort
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of a synthetic relationship
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that are in the etf and not all biotechs
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are created equal some are going to have
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amazing businesses and and hopefully
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defeat all kinds of nasty diseases
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others will go away
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are we kind of dumping out a lot of
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really good stocks
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just as a
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part of a broader market sell-off
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i think we're i think so i think that
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we're going through that process right
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now trying to figure out you know which
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stocks are our higher quality and
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deserve investor uh capital and which
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stocks deserve to be weeded out in the
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process i mean right now we have about
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you know the beginning of this year
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there were probably about 800 or so
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biotechs publicly traded right if you
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only go back three years ago we only had
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about half of that
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right about 400 maybe 500 companies
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right we're going now through that
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process right and and so you know people
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often ask like
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are we are we sort of at the end of this
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you know it doesn't feel like we're at
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the end of this i think we're going
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through that process right but at the
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same time when you look at you know the
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index that you had mentioned the xbi
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right it's it's pretty close to those
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2018 levels right but we haven't seen
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those companies get weeded out yet
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from you know quality versus you know
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the lesser quality companies
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well that salim i believe is your job as
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an analyst to go through all those
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companies that you cover and find out
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the good companies that are being sold
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off rather unfairly and you believe at
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least based on your your ratings and
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your targets that gilead sciences may be
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one of those names how come well gilead
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you know we we like gilead we don't love
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gillian on a relative basis versus the
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other large caps that we follow gilead
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is one that actually trades close to our
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dcf values it's currently uh you know in
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the free on a free cash flow yield basis
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you know best in class on a dividend
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yield also somewhere in that ballpark
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best in class uh and so and so we like
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it primarily on a valuation basis it's
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hard for me to really pinpoint what that
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catalyst is going to be to get that
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stock really going it's still trading
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you know at around these 60 levels which
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is where it was you know five years ago
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right uh but we like it on a valuation
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basis that's that's that's why we're
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buy-rated on it
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is there is there a company quickly
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selene that you do love
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you like gilead do you love anyone
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look
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we we tend to love some of the smith
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caps that we cover right so so you know
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one that we're very constructive long on
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right now is cytokinetics
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they have a drug for a cardiovascular
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disease companies currently trace for
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about three and a half billion dollars
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market cap there was this very similar
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company called myocardia that was taken
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out for 13 billion dollars by
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bristol-myers squibb not too long ago uh
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we and we think the cytokinetics asset
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is equal or better than that
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and ultimately could get taken out but
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the clinical data that we've seen thus
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far
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seems to support evaluation that could
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be much higher than where it's currently
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trading
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you
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