Prices as of 11am PDT May 16

After two attempts at a breakout in 2017 biotech stocks are mired in a trading range with a choppy pattern but off lows of late February. The major biotech indices ETFs are still beating the market YTD: IBB up 12.2% at $294, FBT up 19% at $108.31 and XBI up 18.6% at $70.38. Even though well-known large cap biopharmaceuticals are lagging the sector there are several mid-cap growth stocks with broad pipelines and unique technology that are providing “alpha”: Alnylam (ALNY) up 76%, Agios (AGIO) up 28%, Incyte Corp. (INCY) up 18%, Seattle Genetics (SGEN) up 19% and Vertex (VRTX) up 57.7%. So the sector remains strong because investors and traders still see the biotech opportunity because of M&A and breakthrough therapies. With ASCO coming up on June 2-6 the potential news catalysts should be there.

Consider the once red-hot CAR-T stocks, covered from the Bio Investor Forum in 2014, that promise lasting cures for cancer through gene therapy:

• Bluebird bio (BLUE) is up 44% YTD to $88.85. 52 week high was $100.40.
• Cellectis SA (CLLS) is up 46.6% YTD to $24.80. 52 week high is $34.23.
• Juno Therapeutics (JUNO) is up 36.76% YTD to $25.80. 52 week high was $49.72.
• Kite Pharma (KITE) is up 67.62 % YTD to $75.30. 52 week high was $88.58.
• ZIOPHARM Oncology (ZIOP) is up 36.45% YTD to $7.28. 52 week high is $7.99.

Most of these stocks that were featured in the October 2014 article have 2-3X returns despite some high-profile clinical failures. Kite Pharma (KITE) plunged 10 points from a high of $84 after reporting a cancer patient death from brain swelling. Despite being downgraded by at least 3 bankers the stock has recovered 5 points.The recovery in these more speculative stocks confirms a rising bullish sentiment.

We have passed through earnings season with very few disappointments leaving valuations quite reasonable looking at EPS for the next year despite the slower top line growth. However the barrage of drug pricing articles and “Trumpcare” concerns about fewer patients, investors  apparently still see value in life science innovation.Now that the Trump agenda of tax cuts and regulatory reform has stalled technology has been a winner and healthcare is still up 9.8% YTD.

Investors with a balanced portfolio can hold positions through ASCO at this time. XBI can be added for a more bullish expectation. A break-out from the upward channel and holding above $300 brings us out of the bear market which began with the fall from July 2015 peak. On the downside we need to hold early February lows of $64 to confirm 2017 expectations.The major risk remains political tied to healthcare policies and “repeal and replace” of the Bill recently passed by the House.