Biotech investing has always proven to be a slippery slope. It is one thing to own one of the large-cap biotech stocks, but it can be a challenge when looking for the stocks that have the potential to be the next leading names. Many major biotechs are even becoming very high in valuation, and share prices have hit all-time highs recently.
Biotech stocks often hinge on what is known as a binary event. That can be anything from a pending drug approval to a buyout by a larger company. It takes solid research to size up the odds of such an event, so investors know which names to consider.
In a recent report, the research team at Propthink highlighted some solid biotech names for investors to consider. It is important to remember that capital in any portfolio dedicated to biotech names should be considered speculative. It can sometimes take years for a catalyst or major binary event to propel biotech stocks higher.
Illumina Inc. (NASDAQ: ILMN) has been on the radar screen since last year. This maker of DNA sequencing equipment was almost purchased by Roche Holding earlier this year. Its tremendous earnings ability combined with the possibility that Roche returns to the table keeps this stock in play. The Thomson/First Call consensus is $60.50.
Keryx Biopharmaceuticals Inc. (NASDAQ: KERX) has had investors on a roller coaster for the past six months. The nice run by Keryx was powered by high expectations for its kidney disease drug Zerenex. Some analyst have been concerned over the patent estate at Keryx, but the Propthink team feels very comfortable with it. The consensus price target for the stock is $14.
Exact Sciences Corp. (NASDAQ: EXAS) phase 3 trial for its colon cancer detection test passed, but the stock dropped 20%. The test worked, but the detection rate was 42% lower than a colonoscopy. With $100 million in the bank and often rumored as a takeover target, Exact Sciences is a volatile name. The consensus price target is $13.50.
AVEO Pharmaceuticals Inc. (NASDAQ: AVEO) is a micro cap name that has also seen its share of volatility. According to briefing documents released yesterday, it appears that the FDA may want AVEO to run an additional trial to confirm the added benefit of its cancer drug Tivozanib, based on that reduction in overall median survival noted during the study. AVEO meets with the FDA tomorrow and that could be a tipping point. Consensus price target for the stock is $11.50. That would represent a 100% move from current trading levels.
Endo Health Solutions Inc. (NASDAQ: ENDP) has been a very strong stock recently. The FDA has barred generic drug companies from selling older formulations of the painkiller Oxycontin. Endo Health is marketing its new tamper-resistant formulation of Opana ER (oxymorphone) as an alternative, which may prove to be a strong challenger. The consensus price target for the stock is $35.50.
Biotech investing can prove to be a very challenging arena for investors. It can also be one of the stock markets most profitable areas. Look for stocks that have multiple drugs or procedure applications in their pipeline or currently on the market. Also look for companies that have enough cash to survive the testing and approval process.