The biotech group is heading into 2020 with positive momentum  after a volatile 2019. Indeed,  receding concerns  about the  potential for sweeping healthcare reform  coupled with  an  uptick  in  M&A  drove  a  4Q19  rally  that  saw  biotech to  end  up  roughly  flat relative to the broader markets for the year (NBI up ~24% versus S&P500 up ~25%).

How  sustainable  this  momentum  is  into  2020  is  the  key  question,  and  here  we  see multiple signs for optimism.  First, while  the  political rhetoric  is sure to  continue and need for healthcare reform will be pushed, we do not anticipate any substantive policy proposals  nearing consensus  in 2020 (political gridlock remains the most likely base case  scenario). 

Assuming  the  political  environment  does  not  shift  significantly,  we believe  innovation will ultimately be  a  primary driver for  the  sector  and see multiple
signs  of a robust  cycle  continuing, including 

1)  a catalyst calendar rich in  important clinical  readouts; 

2)  favorable  regulatory  environment,  with  key  approvals  on  the horizon;

3) continued momentum in  strong product launches;  and 

4) of course, M&A, where  large-caps continue to have  both  the cash and need to execute on deals. 

This stance  is  underscored  by  our  recent  buyside  survey,  in  which  the  majority  of respondents expect biotech to outperform the broader markets. Importantly, we believe headwinds in the sector are well-appreciated at this point.

As always, we expect  The 2020  J.P.  Morgan  Healthcare  Conference  (1/13-1/16)  with  potential  preannouncements,  M&A,  and  pipeline  updates,  to  provide  and  early  gauge  on  overall biotech investor sentiment.