Biotech Stocks Have Recovered From Early October Lows

We have been traveling for two weeks and have not posted new content nor made portfolio changes. Despite a significant correction in the biotech sector in early October when major ETFs (IBB)  and funds such as the Fidelity Select Biotech Fund (FBIOX) dipped 8-10% briefly from Oct.4-10, the market has shown resilience over the last week recovering 10% of its losses. In the abrupt sector sell-off, many momentum stocks slid showing major profit taking by institutions. For example among our biopharmaceutical portfolio picks : Pharmacyclics (PCYC), Regeneron REGN) and Seattle Genetics (SGEN) were hit hard on October 8 as government shutdown fears grew but now have recovered most of their losses. Dysfunctional politics in Washington DC has taken a back seat to bull market dynamics as the FED and institutional deep pockets rule. Our core large cap picks Biogen Idec (BIIB) and Gilead (GILD $70) gave you a brief buying window on October 9 and both have recovered to new highs. Shorting anything these days is risky business.

We have not made any changes in our Portfolios but urge investors to have a 10% cash cushion and maintain a hold on all core positions as we expect a year-end rally. The sector can easily be tracked on technicals at this phase of the bull market as you can see with our post on October 7 when risk was rising and our Mid Cap Index flashed a warning.Today and over the past week our mid-cap biopharma index shows good strength on good trading volume though off early October highs. Good clinical news still sparks major gains such as Medivation (MDVN) up over 20% in 3 days on positive news of their Phase 3 clinical trial results for XTANDI which met Co-primary endpoints of overall survival in chemotherapy naive patients.

Rayno Life Science Movers-Among our top picks:

Cardiovascular Sciences (CSII) soared 40% over 3 Weeks on Coronary FDA Approval

The Diamondback 360 device is used to clear calcium from clogged arteries. One analyst at Leerink Swann said this product approval sets up CSII as a potential acquisition target.

Cepheid (CPHD) Recovers to High on Guidance and Q3 Earnings

Cepheid, a premier growth story in molecular diagnostics, grew revenues 24% to $100M for Q3. The Net Loss was $1.4M or (.02) sh. 574 GeneExpert Systems were sold in Q3 for a total of 5000 placements.

Illumina (ILMN $93.81) rocketed up 10% to an all time high on 25% Revenue Increase

GAAP income for ILMN was $32M vs $30M previous quarter 2012 $1.75-$1.77 vs $1.72, and projecting 22% Annual Revenue growth for 2013. Free cash flow was $64M. “Demand for sequencing will be enormous”.

As Q3 earnings news is reported we will review all Rayno Life Science Tools and Diagnostic picks. Two new names on our watch list but not yet added to the Rayno Portfolio are Meridian Bioscience (VIVO $24.77) as a long term DX value play and Nanosphere (NSPH $2.04) an emerging DX growth stock providing rapid tests for bacterial blood culture.

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