Alexion Pharmaceuticals Inc. (NASDAQ: ALXN)
> Share price: $97.00
> Market value: $18.8 billion
Alexion actually did not make the screen the first time in December, but that was solely because of its share price and estimates at the time. It is the largest by market cap of our upside stocks in biotech for 2013, but the $97 share price and $120.26 consensus price target implies upside of about 24% in the next 12 months. Last year Alexion crossed over the $1 billion mark in revenues, and sales are expected to grow about 31% in 2013 to almost $1.5 billion. Its earnings estimate of $2.80 per share for 2013 gives it a forward P/E ratio of almost 35. Janney gave it a cautious Neutral rating at the start of 2013, but the stock was resumed with a Buy rating in December by Goldman Sachs after the company reported that its large U.K. PNH study showed significant clinical benefits were sustained over 10 years in the rare blood disorder called paroxysmal nocturnal hemoglobinuria.
Ariad Pharmaceuticals Inc. (NASDAQ: ARIA)
> Share price: $18.90
> Market value: $3.17 billion
Ariad’s consensus price target is $28.39 and its 52-week trading range is $13.42 to $25.40. If the consensus target is right, this implies 50% upside over the next year. Ariad may be an exception to the rule of screening out the implosions in price, because this one did take a big hit in December. That upside price target has come down, and we would expect it to come down a bit more as analysts adjust their price targets. Ariad has been public since the mid-1990s, and shares recently traded at all-time highs before the sell-off. This oncology-focused player had its expectations lowered by Jefferies due to drug safety issues, and the target is now $23 there. The stock also took a hit early in 2013 after showing that it will collaborate on its SPIRIT 3 clinical study for leukemia with Newcastle University. Ariad intends to market ponatinib beyond Europe and the United States, and in 2012 it began phase I/II clinical trials with ponatinib in Japan. The FDA’s response should be out by the end of March in 2013, so there is a big make or break ahead.
Cubist Pharmaceuticals Inc. (NASDAQ: CBST)
> Share price: $43.88
> Market value $2.82 billion
Cubist’s consensus price target is $51.58 and its 52-week trading range is $36.73 to $49.86. If the consensus target holds up, this implies almost 20% upside over the next year. Cubist took years to live up to our expectations, but now things may have stalled again. We originally expected a larger biotech or pharma player to acquire this company, but now there is an indication that Cubist may be an acquirer to live up to its longer-term sales goals. Cubicin is now well-received and its fight against hospital-acquired infections is a success, along with other products. This company has been public since the late-1990s. Earnings per share are expected to mildly contract in 2013, but the revenue growth expectations of almost 23% in 2012 are expected to rise another 11% to just over $1 billion in 2013. Cubist trades at about 22-times expected 2013 earnings.
Incyte Corp. (NASDAQ: INCY)
> Share price: $18.80
> Market value: $2.47 billion
Incyte’s consensus price target is $25.00 and its 52-week trading range is $14.06 to $26.30. If the consensus target is right, this implies upside of about 33% on top of the strong move this has enjoyed over the past month. Incyte is a riskier bet for upside in 2012 because its shares were slammed down to less than $18 from about $25 over the summer. While the stock has slid lower, the good news is that the chart has been shown twice to use just under $16 as support since that drop. The company’s Jakafi for myelofibrosis has been approved, but the fear now is that Gilead will be a strong competitor in cancers of the blood after an acquisition. Another concern is that Incyte has been public since before 1995 and its peak was way back in the year 2000, when shares were up above $100 for a very brief period. The expected sales growth for 2012 of about 185% to almost $270 million is expected to slow to sales growth of roughly 33% to about $360 million this year. The expected loss of $0.32 per share for 2013 is versus an expected loss of $0.54 per share in 2012. Incyte remains a 2014 to 2017 story, as Incyte has multiple products in its pipeline for cancer and inflammation in Phase I to Phase III studies.
Jazz Pharmaceuticals PLC (NASDAQ: JAZZ)
> Share price: $56.01
> Market value $3.24 billion
Jazz’s consensus price target is $69.60 and its 52-week trading range is $36.29 to $60.00. If the consensus target is right, this implies almost 30% upside over the next year, and that is after a gain of about 6% over the past month. Jazz already was having a decent 2012, but the real gains came from a major jump from $38 to $48 in early January of 2012 before basing out, followed by an even larger gain from $44 to $58 in September. The stock now has seemed to use $50 as a leveling off price on the chart. What really stands out in Jazz is that its shares were around $16 after its 2007 IPO but they slid down to under $1.00 during the height of the early 2009 panic selling. If any investor managed to catch the bottom and decided to hold on forever, this investment in Jazz makes Apple Inc. (NASDAQ: AAPL) look like child’s play. The expected sales gain of more than 100% in 2012 is expected to slow to a gain of 37% to $809 million in 2013. With earnings expected to grow from about $4.73 per share in 2012 to $5.67 in 2013, Jazz shares trade at just under 10-times its expected 2013 earnings. Maybe that massive run up has spooked some new investors, but on paper this one still looks cheap. Jazz has approved products for narcolepsy, psychiatry, pain and oncology. It also has four various pipeline candidates.