Biotech Seen Grinding Higher, Says RBC Capital (IBB)

RBC analyst Michael J. Yee doesn't thinks biotech will make a v-shaped rally, but he expects the sector to grind higher this year. In the note, Yee also touched on several individual stocks -- Celgene (NASDAQ: CELG), Biogen (NASDAQ: BIIB), Vertex Pharma (NASDAQ: VRTX), BioMarin Pharma (NASDAQ: BMRN), and Intercept Pharma (NASDAQ: ICPT).

"While we are not expecting an easy V-shaped rally, we do continue to believe it will be a general grind-back higher year as investors 1) get past Q1 earnings which tend to be weaker and seasonally impacted by utilization and inventory impacts (and few if no guidance raises) and models get adjusted for the year, and investors find a reason to look forward and perhaps own for Q2 earnings instead, 2) build some confidence it's not as bad as feared and election year concerns wear off over time as politicians move to the middle, 3) perhaps get some M&A going which could signal to buyers the stocks were inexpensive and the bid/ask spread is tightening, 4) find some upside surprise clinical data announcements (this is the harder component of the thesis based on our analysis of 10-20 events in our universe inside)," said Yee.

Yee's top 5 discussions were:

"1) If CELG were to lower 2017 guidance at earnings this month, how much would it be and if most of Street knows this, is there an off chance it's not as bad as feared? We estimate 2017 guidance might go $7.25 to $6.85 range - will stock go up after this overhand passes?;

2) What are scenarios for BIIB Eisai Alzheimer's data and LINGO data and how much will it move? (Eisai we think +/5-7% but LINGO more 7-10% move possible); Are BIIB Tecfidera Q1 consensus too high? USA consensus $747M and we're low end $709M based on $30M inventory drawdown and January seasonality -3-5% impact;

3) Are VRTX 2016 consensus numbers low enough yet (more sellside analysts lowered in last 3 weeks...we still think 5-10% too high and will get reset after earnings; we are 50/50 on whether mgmt gives USA Orkambi guidance and we vote in favor of just giving it so analysts get into the range);

4) Can BMRN go up into and sustain any rally after 4/20 analyst day? WE believe it depends on if dwarfism data still shows 50% growth improvement, gene therapy hemophilia looks good....we still think high on list of M&A candidates over 18 months but bears think might sell off after analyst day given recent rally);

5) What's the risk/reward into ICPT's Adcom panel on 4/7? we think 60-70% chance favorable vote/no issues and stock up 10% and 30% chance Street loses confidence and stock could fall in half but this seems unlikely presuming something out of left field not discussed by mgmt previously."

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