Biotech: A Perfect Storm?

11/28/2016 8:00 am EST


John McCamant

Editor, Medical Technology Stock Letter

The Trump victory has brought a V-shaped reaction to the biotech sector; while it is still very early to make definitive conclusions, several positive impacts have resulted in a major reversal of sentiment, explains John McCamant, editor of The Medical Technology Stock Letter.

It may just be the beginning of a new regime although at the end of the day, as we know the best outcome is often statistically significant clinical trials that lead to commercially successful new drugs.

Just like we were stuck over the past 15 months in a difficult biotech environment, these too are unchartered waters, only this time in the right direction.

Price Control Pressure Will Lessen

a.       Prop 61 in California defeated
b.       No runaway but normal drug price increases
c.       The end of Obamaxare, as it is today, is likely

Repatriation if pharma/bio cash may bring about $100 billion back mome

a.       Global M&A likely to resume
b.       Targets among our buy rated stocks are Ionis Pharmaceuticals (IONS), Incyte (INCY), Acadia Pharmaceuticals (ACAD), The Medicines Co. (MDCO)

Fund Flows May Reverse

a.       Sideline money put to work
b.       Generalists, shift back to health care

Stocks Are Still Cheap

a.       P/Es (15x Big Bio) and dividends (3-4% for Big Pharma)
b.       Small caps – most are still undervalued orphans

Technicals Flip In Our Favor

a.       Indices back above support
b.       Long-term charts need to be intact

Our conclusion is that we are seeing the perfect storm in reverse. The level of anxiety for the future of the biopharmaceutical sector peaked in October and early November.

Since then, the Trump victory has resulted in a major reversal of fortune in a broadly positive way.

There are still many issues to be resolved with drug pricing, the overall cost of health care, changes to Obamacare, etc.

Nonetheless, the sharply improved sentiment is a welcome change and likely to create a more constructive investment landscape for biotech stocks going forward.

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By John McCamant, Editor of The Medical Technology Stock Letter

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