Biotech Stocks Rally to New Highs After 4% Correction

Buyers Are Bottom Feeding Energy Stocks

NASDAQ at 4765

Just as the market appeared to be headed to another test of October lows, challenged by news on slowing global growth and a collapsing energy sector, FED Chair Janet Yellen calmed the markets saying it would be “patient” on raising interest rates. This triggered an amazing 4.5% upside move in just two days showing how sentiment drives markets. Although perceived macro risks have not changed since Monday, any concern about sharp increases in interest rates has been put aside for now. Energy stocks also rallied since Monday with the XLE up 8.8% over five days.

Here is a brief summary of market data, after a huge week, from the life science sector now that we are back to new highs.

• Nasdaq is up 14% YTD, the healthcare sector XLV is up 27% YTD.
• All major biotech ETFs are back to new highs (FBT, XBI, IBB). Our favorite the FBT is up 52% YTD.
• Rayno Biopharmaceutical Sector Picks: Large Caps up 39%, Mid-Caps up 33%,  recent Small Cap Spec picks up 12% over 3 months.
• Institutions are the major driver behind the bull, with deep pockets, seemingly able to move stocks at will.
• Expect volatility in the sector especially in January.

A biotech IPO today, Juno Therapeutics  focused in immunotherapy for cancer (CAR-T), is up 45% from offering price of $24 with 11 M shares being sold. The market cap is approaching $3B with 5 products in the pipeline. The Company was founded by a group of scientists at Memorial Sloan Kettering with major funding by at ARCH Venture Partners and Venrock. We covered the hot T-cell therapy area with a post from the 2014 BIO Investor Forum where four companies presented their potential products and technologies. We will provide an update of these four companies-BLUE, GBIM. KITE , ZIOP- in comparison to JUNO. All of the stocks have soared in a way “feeding off” each other.

Our investment strategy has not changed through year-end.

• Hold core positions in Rayno Large cap picks or FBT.
• Caution on new positions except for trades.
• Keep 10% in cash.

The 2015 J.P.Morgan Conference beginning January 12 will offer an excellent window for Life Science investing with presentations by many companies and potential new themes to emerge. However we are in year five of a secular bull market in healthcare and biotech stocks so it may be difficult to maintain these huge returns of 280% over five years with only one correction. Q1 in 2014 saw a huge “bio-bubble” in February followed by a 9% correction in March/April.