The pharmaceutical sector has been the World's Fair for the past few months and it has been the heart of my long portfolio. Large cap biotech is very similar to the pharmaceutical sector, except it has a better growth profile. Large cap biotech has lagged during that period. The most recent catalyst for the underperformance was a pipeline failure from Gilead.
Merck now trades at 11 times forward earnings, while Amgen trades at less than 10 times (net of cash). I have been very slowly shifting some of my pharma exposure to the lagging large cap biotech space. The reason I am not more aggressive is because I am respecting the momentum.
The catalyst for the rally in pharma has been two high profile, largely cash takeovers. However, at current valuations it would now make sense for large cap pharma companies to consider taking over biotechs. If the valuation gap continues to widen it would be a no brainer.