After a very tough year for the biotech stocks last year, they initially jumped after the election of Donald Trump as investors hoped that the rhetoric on drug pricing would taper off. The gains quickly dissipated as Trump also said drug pricing and health care costs as a whole were too high and need to come down. So the question for investors that like the space is where to look for alpha this year.
One good area to keep an eye on is the small and mid-cap companies, as many of the large biotechs may be looking to make acquisitions to add growth that complements internal organic growth. A new Jefferies research report makes the case that five top companies may be right in the cross-hairs of the large cap biotech giants, or perhaps large pharmaceutical companies as well.
This company has been in the takeover rumor mill for some time. Bluebird Bio Inc. (NASDAQ: BLUE) is a development stage biotechnology company focused on the development of gene therapies for the treatment of severe and rare diseases. The company has two clinical stage candidates: LentiGlobin for the treatment of beta-thalassemia and sickle cell disease, and Lenti-D for the treatment of childhood cerebral adrenoleukodystrophy.
The Wall Street consensus price target for the stock is $84.43. The shares closed Thursday at $67.50, in a 52-week trading range of $35.37 to $79.70.
This is another top mid-cap rumored to be in the sights of a larger biotech company. Incyte Corp. (NASDAQ: INCY) has a current validated approach in hematology-oncology, and there’s reason to believe the three wholly owned clinical-stage assets the company has could drive several billion in revenue, something important for an acquiring company looking to acquire assets. Many on Wall Street are bullish on the company’s rich pipeline of small molecule therapies in all stages of development, and they see the company as a key player in the cancer space.
Incyte focuses on the discovery, development and commercialization of proprietary therapeutics in oncology. It offers Jakafi for the treatment of myelofibrosis and polycythemia vera cancers. Its clinical stage products include ruxolitinib cream, which is in Phase 2 clinical trial for the treatment of alopecia areata; and INCB52793, which is in Phase 1/2 for the treatment of advanced malignancies. The company’s clinical stage products also comprise baricitinib, which is in Phase 3 trial for rheumatoid arthritis, as well as a completed Phase 2 trial for psoriasis and diabetic nephropathy.
The consensus price objective is $109.57, and the stock closed yesterday at $104.81. The 52-week range is $55 to $109.95.
This stock has been on a total roller-coaster ride over the past year. Medicines Co. (NASDAQ: MDCO) is a biopharmaceutical company with a focus on critical care patients in the hospital setting. It markets products for cardiovascular, infectious disease and surgical care. The clinical development pipeline has high potential and includes PCSK9 RNAi therapy, ABP-700 for anesthesia and Carbavance for bacterial infections.
The stock closed trading yesterday at $35.52, in a 52-week trading range of $27.50 to $41.79.
This stock has done outstanding since its hot 2014 initial public offering. Kite Pharma Inc. (NASDAQ: KITE) is a clinical-stage biopharmaceutical company that focuses on the development and commercialization of novel cancer immunotherapy products. It is developing a pipeline of engineered autologous cell therapy-based product candidates for the treatment of solid and hematological malignancies. Its lead product candidate is KTE-C19, a chimeric antigen receptors-based therapy that is in Phase 2 clinical trials for the treatment of patients with refractory diffuse large B cell lymphoma, including primary mediastinal B cell lymphoma and transformed follicular lymphoma.
The consensus price target is $75. Shares closed way below that level on Thursday at $49.68. The 52-week range is $38.41 to $64.30.
This company is partnering with a top big pharmaceutical company, and the data has been very solid. Neurocrine Biosciences Inc. (NASDAQ: NBIX) discovers and develops innovative and life-changing pharmaceuticals, in diseases with high unmet medical needs, through its novel research and development platform, focused on neurological and endocrine based diseases and disorders.
The company’s two lead late-stage clinical programs are elagolix, a gonadotropin-releasing hormone antagonist for women’s health that is partnered with AbbVie, and valbenazine, a vesicular monoamine transporter 2 (VMAT2) inhibitor for the treatment of movement disorders. Neurocrine intends to maintain certain commercial rights to its VMAT2 inhibitor for an evolution into a fully integrated pharmaceutical company.
The consensus price objective is $68.27. The stock ended Thursday at $41.38, in a 52-week range of $32.25 to $55.15.
Clearly there is no guarantee any of these companies are acquired. The good thing for aggressive growth investors is that even if they are not taken over, these stocks remain solid biotech investments with great product lines and clear upside potential.