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Biotech Investors Bullish On Large Cap; Citi Adds Vertex Pharmaceuticals (MA) (VRTX), BioMarin Pharmaceutical Inc. (BMRN) and Tesaro, Inc. (TSRO) To Most Preferred ( http://www.biospace.com/news_story.aspx?StoryID=354861&full=1 )

11/14/2014 3:27:58 PM

November 14, 2014

By Riley McDermid, BioSpace.com ( http://www.biospace.com ) Breaking News Sr. Editor

Biotech investors remain bullish on large cap firms but are still cautious about small to mid-cap companies as valuations continue to fluctuate, potentially causing a pullback at the beginning of 2015, said Yaron Werber, head of the biotech analysis team at Citigroup, this week.

Werber’s team took a look at the entire biotech sector and found that interest remains high and there is likely still room left for good performance in 2015. But valuations could become more challenging as the relative strength index (RSI) suggests the sector is overbought at current levels, which Werber said is supported by Citi's proprietary valuation model. Fund flows have been flattish, which Citi attributes to generalists who are involved but are not adding to positions.

“While price-to-earnings multiples have expanded driven by solid data and good earnings momentum, the sector is still clearly attractive especially considering that there is lackluster growth across other sectors,” wrote Werber in the note to investors. “We expect that investors will continue to window dress their portfolios that could maintain interest over the rest of the fourth quarter.”

Given the lack of new capital inflows and an RSI “at or close” to overbought levels, the sector will be choppy with a potential for a correction in early 2015 after the much-anticipated industry event by J.P. Morgan.

“We see interest from specialists and generalists to add to positions on any pullbacks and expect the sector to remain strong over the course of 2015,” said Werber.

Citi also made some changes to its most/least preferred list, removing Biogen Idec, Inc. (BIIB) from its most preferred list due to “our bearish stance on anti-LINGO for optic neuritis and potential headwinds from the patent litigation with Forward Pharma.” Citi added Vertex Pharmaceuticals Incorporated (VRTX), BioMarin Pharmaceutical Inc. (BMRN) and Tesaro, Inc. (TSRO) ( http://tesarobio.com/ ) .