Biotech Recap: Don’t Fight the Tape-More Gains to Come

A surprising market reversal began on February 8 just after a Sean Spicer press conference that re-iterated the Trump Administration’s stance on negotiation of Medicare drug pricing. M&A was the driver at that time with nice moves in stocks like Clovis Oncology (CLVS) and Tesaro (TSRO) both well funded clinical stage companies with pipelines focused in PARP inhibitor drugs for ovarian cancer. February 7 also brought Gilead Sciences (GILD) down to one year lows at $65 due to poor guidance.

We felt that on the February 10 “Rayno Biobeat” the move had legs with both the IBB and XBI showing strength YTD and many other stocks participating. At that time we called Biogen (BIIB) a good buy at $275. Many other Rayno Life Science came on strong that day. Technicals since that time have been strong and big money appears to have returned to the sector.

Here is where the market stands as of the close on February 15:

IBB up 11% YTD at $294 and close to 2016 double top of $298.

XBI up  16.76% YTD at $69 also at 2016 double top highs.

We published a summary of Large Cap valuations after 2016 earnings last week and all of those stocks were strong today including laggard GILD up 3.33%.

Alexion (ALXN) at $132 is up 7.9% YTD

Amgen (AMGN) at $171.79 is up 17.5% YTD.

Mid-caps likely M&A targets are hot:

Incyte (INCY) up 20.6% YTD.

Intercept (ICPT) up 22.3% YTD.

Seattle Genetics (SGEN) up 23.6% YTD.

Tesaro (TSRO) up 37.3% YTD.

Long time laggards like Alnylam (ALNY) and Biomarin (BMRN) are gaining traction.

For now it looks like the best way to play the rally are these two ETFs–IBB and XBI because they have outperformed most large caps. If the sector remains strong then XBI should be favored because of small and mid-cap weightings.