Today's Biotech Upside Could Be Just the Start - BMO Capital (IBB) (XBI)
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BMO Capital biotech analyst M. Ian Somaiya said a Trump win and a Republican-controlled congress should provide immediate relief from drug price scrutiny, which has pressured Biotechs' for better part of a year. Additional sources of upside are based on industry friendly changes to the Affordable Care Act (repeal unlikely, in our opinion), tax reforms, and repatriation. This in a backdrop of attractive valuations (see our M&A ideas) and highly achievable earnings expectations suggest that the rally today could continue into the new year as long as political and economic stability is maintained (the great unknown).
On M&A, they believe acquirers could be less price-sensitive if repatriation is likely, supporting mid-to-larger cap deals. However, based on an analysis of historical acquisition multiples, they believe small-cap acquisitions are more likely in the near term, until Trump's tax policy strategies are known. Based on continued need for mega caps to fill pipeline gaps, we believe Neurocrine Biosciences (NASDAQ: NBIX), Ionis Pharma (NASDAQ: IONS), AveXis (NASDAQ: AVXS), Retrophin (NASDAQ: RTRX) represent highest probability M&A opportunities, with Incyte (NASDAQ: INCY) and BioMarin Pharma (NASDAQ: BMRN) dependent on success of key pipeline assets.
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