J.P.Morgan Conference: Relief Rally in Life Science Stocks After Rough Start to 2016

Green screen day with improved macro and healthcare sector leading

Who knew biotech stocks traded with energy?

Over the next few days we will review themes and companies from presentations at the 34th Annual J.P.Morgan Healthcare Conference. Our initial focus will be stocks that are in the Rayno Life Science Portfolios with the objective of reshaping the portfolio by the end of January.

  • We have a long way to recover in this bear market. The IBB touched near 52 week lows yesterday at $287 and is currently at $296 after a failed bounce then a recovery.We are down about 12% over five days.
  • We will closely watch the impact of presentations this week on large cap biopharmaceuticals and again after 2015 earnings. We favor larger caps for 2016.
  • M&A was a big theme in 2015 and should continue albeit at a slower pace in 2016. Licensing and partnering will continue aggressively.
  • Our focus in biopharma will be new mid-cap picks as our portfolio is depleted with Pharmacyclics being acquired.
  • We will look for value in diagnostics and tools as many of these stocks have bottomed; sequencing and molecular diagnostics remain attractive markets with many new products. Biomarkers and companion diagnostics are important for validating efficacy of drugs in development.More updates on Dx and Tools companies from JPM are coming later this week

Here is selective news and comments for Rayno Diagnostics and Tools stocks in our portfolio. We reiterate core holdings in Abaxis (ABAX), Illumina (ILMN) and ThermoFisher (TMO). In the intermediate term stocks that look attractive are Cepheid (CPHD) and Qiagen (QGEN).

Roche plc (RHHBY) remains a core holding because of strength in oncology growing at 6% year with synergy from their leading position in diagnostics growing at 7% year and the relative safety of a 3% dividend. Roche has 8 new molecular entities (NMEs) under development in immuno-oncology (I/O).Roche also has important drugs in MS (RMS) and asthma.

  • Alere (ALR) reduced guidance because of currency headwinds and a weak flu season in the U.S.. New Q4 estimates are reduced to $630M from $640-$660. Stock recovered after the news to the $38 level.
  • Illumina (ILMN) is the leader in Next Gen Sequencing (NGS) and announced a bold plan called GRAIL a new spin-off Company for blood-based cancer screening in healthy people.The initial $100M venture funding ¬†includes Jeff Bezos and Bill Gates. The sequencing technology is up to the task but practical cost and regulatory issues are daunting. Revenues for ILMN are estimated at $2,218M with Q4 Revenues of $590M 15% YoY growth.
  • ThermoFisher (TMO) continues to excel in delivering growth and earnings and adding another “bolt-on” acquisitions with Affymetrix (AFFX) with a purchase price of $1.3B. Thermo sees $70M in synergies from the acquisition and accretion go 10 cents to earnings. Affymetrix broadens the Thermo technology platforms in genetic analysis and flow cytometry.

Next up time permitting from JPM coverage: Digital health, mid-cap biopharma ideas, more on Dx and Tools, large cap tracking and new emerging company ideas.


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