Like many firms on Wall Street, the biotechnology team at UBS thinks that most of the top mega-cap and large cap biotech stocks are poised to beat earnings estimates across the board. Company guidance is often very conservative, but as the UBS team points out, most companies comfortably beat initial guidance as a rule. Perhaps a trick learned from the technology world, which is notorious for conservative guidance.
The fourth-quarter numbers will also give analysts across Wall Street a look at some of the top new drugs that have gone on the market. For the companies in UBS coverage universe, they have updated their fourth-quarter estimates ahead of earnings, using feedback from recent meetings with management as well as checks on prescription trends. The bottom line? Numbers should be very good, and investors who buy the top names in the sector in front of earnings may be well rewarded.
Alexion Pharmaceuticals Inc. (NASDAQ: ALXN) is a stock to buy at UBS and a potential acquisition target. While not a pure large cap stock, the UBS analysts see likely accretive near-term to an acquirer, given $1.5 billion revenues that are big enough to be significant to a bigger company. The UBS price target for the stock is $150. The Thomson/First Call estimate is posted at $139.70. Alexion closed Tuesday at $133.01.
Amgen Inc. (NASDAQ AMGN) is one of the mega cap biotechs that UBS thinks will handily beat this year’s earnings estimates. Over the past five years, the company has had free cash flow of at least $3 billion a year. Over the past decade, the company has grown after-tax profit by 14% compounded annually. Investors are even treated to a 2% dividend. Amgen posted strong numbers after the close Tuesday. The UBS price target for the stock is $129, and the consensus number is set at $127.57. Amgen closed Tuesday at $120.70.
BioMarin Pharmaceutical Inc. (NASDAQ: BMRN) is a top mid-cap to buy at UBS and a possible takeover target. The UBS team thinks that media speculation of big-pharma interest in BioMarin is likely related to the commercial success of the orphan drug model globally. Its diversified and expanding pipeline could also provide significant strategic value to acquirers. The UBS price target for the stock is posted at $76, and the consensus figure is $81.05. BioMarin closed Tuesday at $68.29.
Celgene Corp. (NASDAQ: CELG) is another mega cap name to buy at UBS. The big biotech recently presented results from an analysis that showed encouraging news for blockbuster drug Revlimid as a treatment for multiple myeloma. A combination of Revlimid and low-dose dexamethasone significantly improved overall survival and progression-free survival rates, leading some experts to conclude that the treatment probably now will become the new standard of care for the disease. UBS has a $200 price target. The consensus target for the stock is $188.65. Celgene closed on Tuesday at $159.98.
Gilead Sciences Inc. (NASDAQ: GILD) is another favorite name to buy for 2014. With a successful hepatitis C drug Sovaldi launching and a very strong and impressive oncology pipeline, the company is poised for another outstanding year. The company also continues to innovate in the HIV arena, which grew 11% in 2013. The UBS price target for the stock is $102. The consensus estimate is $91.68. Gilead closed Tuesday at $80.67.
Incyte Corp. (NASDAQ: INCY) is another Buy-rated name that could be in the sights of a larger company. In addition to its current validated approach in hematology-oncology, there is reason to believe the three wholly owned clinical-stage assets could drive several billions in revenue. Something important for an acquiring company. The UBS price target is $74, and the consensus number is set at $59.60. Incyte closed Tuesday at $65.32.
Medivation Inc. (NASDAQ: MDVN) has a top prostate cancer drug that would be a valuable acquisition. Xtandi is a highly leverageable likely blockbuster product in prostate cancer, a very large market segment with potential upside in breast cancer. The partnership with Astellas suggests a natural buyer, but the UBS team thinks that third parties would also be interested. The UBS price objective for the stock is $90, which is raised from the previous target of $74. The consensus target is $76.33. Medivation closed Tuesday at $75.78.
Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) is another big cap biotech leader to buy. The company also got on the biotechnology map with a blockbuster hepatitis C drug. The company looks poised to get revenue growing again with its cystic fibrosis franchise. It already has one drug approved, but Kalydeco by itself is only appropriate for about 4% of cystic fibrosis patients. To have Celgene-type success, Vertex needs drugs in its pipeline that are being tested with Kalydeco to be a success. UBS has a $93 target, and the consensus target is slightly lower at $92.90. Vertex closed Tuesday at $79.30.
With many of the top names reporting soon, scaling in some stock in front of the numbers may be an excellent move for investors. Putting on a half position may work out the best. If the stock goes higher on the numbers, you are already in. Conversely, if they miss or there is disappointment but the thesis is still intact, investors can add to their position at a lower price. Despite four solid years of returns, most on Wall Street agree that 2014 should be another good year for the sector.