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Small Cap Rally Pulls in Speculative Biotech’s

So far 2023 is going well with our game plan -an end-of-year seasonal rally coupled with a run in speculative biotechs driven by innovation. The themes gaining traction are genomics, gene therapy and neuroscience. The past four weeks have been very strong for SMID cap stocks. Several high-profile deals have been announced which have catalyzed the run and we expect more to be announced at the upcoming JPMorgan Healthcare Conference beginning January 7.

• Two major speculative ETFs are leading the life science rally the equal-weight SPDR S&P Biotech ETF (XBI) and the ARK Genomic Revolution ETF (ARKG). Both are up about 20% over the past 4 weeks.
• Also as part of this MOMENTUM move largely helped by lower interest rates are the large more liquid SMID cap ETFsRussell 2000 (IWM) and the iShares S&P Small Cap 600 (IJR) each up about 15% YTD.
• Volatility of individual stocks is huge however even tracking them daily so you just need to buy on the dips and have conviction.

We traded in and out of a few after huge gains simply because we have to limit our allocation to small caps and risk. It may become more volatile this upcoming week with fewer people at their trading desks and many investors rebalancing end-of-year portfolios. But the bulls have the edge. First I’ll highlight a several stocks we own:

1. Catalyst Pharmaceuticals (CPRX) is a new pick and a commercial-stage biopharma Company focused on neurological and rare neuromuscular disease (LEMS)  including epilepsy with two approved products, strong R&D and balance sheet of about $100M in cash’s of 9/3023.
2. Hologic (HOLX) and Quide (QDEL) are well-known diagnostic and device companies that are expected to resume growth in 2024 Low FWD/PE and P/S. HOLD.
3. Genomics Plays: our new pick is Illumina ILMN) with new momentum trades TWST and TXG; We have owned and traded PACB for years.
4. EVH came back strong after a dip on a big ~$300M equity offering.
5. Neuroscience momentum plays look attractive after AbbVie's deal for Cerevel (CERE), a recent pick. Watch Acumen (ABOS), Biogen (BIIB), Supenus (SUPN).
6. Healthcare sector coming back over past few weeks (XLV).
7. Favorite large cap biopharmas: ABBV, GILD, MRK, REGN, and VRTX. PFE as a long trade at $28.
8. AI Play: We see GEHealthcare (GEHC) as a near term AI  play because of the ability to use software on various imaging platforms (X-Ray, MRI, CT etc) to assist physicians with improved diagnosis.

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Biotech Is Coming Back, Can The Run Last?
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