Health and Healthcare
Analysts Have 12 Top Biotech Picks for Big Upside in 2018
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After a horrible 2015 and 2016, the biotechnology industry finally came back to life in 2017, shrugging off many of the issues that have clouded the waters, especially during the lengthy and hard-fought presidential campaign of 2016. Candidates making threats about price controls when it costs billions of dollars sometimes to get a new drug to market held shares down, but when Donald Trump emerged the winner, the shrill rhetoric died down and the sector flourished in 2017.
Many on Wall Street feel that mergers and acquisitions activity is set to pick up in 2018, and many top analysts also feel that the lower corporate tax rate may be a huge lift to the companies with U.S.-focused operations, while the lower repatriation tax rate could jump-start companies with billions overseas.
Many drug and biotech giants appeared to wait on making deals while tax reform worked its way through Congress. With clarity around repatriation, and with the corporate tax rate dropping to 21% from 35%, as well as research and development write-off criteria being defined, many may start to take a step forward. New leadership at the U.S. Food and Drug Administration (FDA) is also cited as positive.
24/7 Wall St. reviews dozens of daily analyst research reports, and this turns into hundreds of reports each week. In the second half of December there have been many Wall Street strategists making big bold predictions for stocks in the year ahead. That is after the Dow Jones Industrial Average was up about 25% and the S&P 500 was up about 20% so far in 2017.
We screened our coverage of the biotech industry for December looking for the top picks from around Wall Street for 2018. We found 12 top companies that analysts are very positive on and all are rated Buy.
Allena Pharmaceuticals
Investors looking to a small cap play could be very interested in this stock. Allena Pharmaceuticals Inc. (NASDAQ: ALNA) is focused on developing and commercializing non-systemic oral protein therapeutics to treat metabolic and orphan diseases, with a particular focus on nephrologic and urologic conditions. Its lead product candidate, ALLN-177, is in an ongoing Phase 2 clinical trial and is being developed for the chronic management of hyperoxaluria and kidney stones.
ALLN-177 is an orally administered, recombinant oxalate-degrading enzyme. ALLN-177 targets oxalate in the gastrointestinal (GI) tract to reduce the burden of both dietary and endogenously produced oxalate. ALLN-177 has the potential to decrease the oxalate available systemically for deposition as calcium oxalate crystals or stones in the kidneys, as well as to reduce the incidence of calcium oxalate related complications.
Jefferies had this say:
ALLN-‘177 has completed Phase 2 for enteric hyperoxaluria, demonstrating both safety and meaningful effect. The company has an upcoming meeting with the FDA (late 2018 or early 2018) to go over the Phase 3 efficacy endpoint and the procedure for a BLA filing, which we believe could be a catalyst for shares. We expect this to lead to the start of a Phase 3 study in the first quarter of 2018. We see blockbuster potential for ALLN-177 and model $624 million in peak-adjusted sales.
The Jefferies price objective for the stock is $22, and the Wall Street consensus target is $24.67. The stock closed Friday at $10.06.
Amgen
This biotech giant remains a top stock for investors to buy and a safe way to play the potential growth in biosimilars. Amgen Inc. (NASDAQ: AMGN) focuses on areas of high unmet medical need and leverages its biologics manufacturing expertise to strive for solutions that improve health outcomes and dramatically improve people’s lives.
A biotechnology pioneer since 1980, Amgen has grown to be one of the world’s leading independent biotechnology companies, reaching millions of patients around the world and developing a pipeline of medicines with breakaway potential. The company’s five key marketed products are among the top-selling pharmaceutical products in the world.
Merrill Lynch notes that the company has billions in overseas cash and could see some big tax relief with a lower rate for repatriation of those funds.
Shareholders receive a 3.01% dividend. Merrill Lynch has a $209 price target, and the consensus target is $190.78. The shares closed Friday at $173.90.
AnaptysBio
This lesser known biotech has big upside potential. AnaptysBio Inc. (NASDAQ: ANAB) is engaged in developing antibody product candidates focused on unmet medical needs in inflammation and immuno-oncology. It develops its product candidates using its antibody discovery technology platform, which is designed to replicate, in vitro, the natural process of antibody generation.
The company’s product pipeline includes ANB020 and ANB019, which are being developed to treat severe inflammatory disorders with unmet medical need. Its ANB020 product candidate is an antibody that inhibits the activity of interleukin-33 and is used for the treatment of severe adult asthma and severe adult peanut allergy. A Jefferies research report noted this:
AnaptysBio is due to readout Phase 2 data in adult severe peanut allergy in the first quarter of 2018 and we see potential for ANB020 to confer tolerance against ~1 peanut or better in 35-50% of trial patients. If the data reads out as we expect, we think this would bode well for it to surpass peanut immunotherapy efficacy at 6, 9 and 12+ month timepoints in future trials. Depending on the strength of the data readout, we think shares could be up $20-$30.
The Jefferies price target is $102. The consensus target is $91.25, and shares closed most recently at $100.72.
24/7 Wall St.Array BioPharma
This stock looks to be breaking out through a triple top formation. Array BioPharma Inc. (NASDAQ: ARRY) is a biopharmaceutical company focused on the discovery, development and commercialization of targeted small molecule drugs to treat patients afflicted with cancer. Its programs include these three cancer drugs: binimetinib, encorafenib and selumetinib (partnered with AstraZeneca).
Binimetinib and encorafenib are in Phase 3 trials in advanced cancer patients, including the COLUMBUS trial studying encorafenib in combination with binimetinib in patients with BRAF-mutant melanoma and has initiated BEACON CRC trial to study encorafenib in combination with binimetinib and cetuximab in patients with BRAF V600E-mutant colorectal cancer.
The SunTrust and Wall Street consensus price target are both $16, and the shares closed Friday at $12.80.
Axogen
Jefferies recently started cover on this biotech/medtech with a Buy rating. Axogen Inc. (NASDAQ: AXGN) offers surgical solutions for peripheral nerve injuries. The company provides products and education to improve surgical treatment algorithms for peripheral nerve injuries. Its portfolio of products includes Avance Nerve Graft, AxoGuard Nerve Connector, AxoGuard Nerve Protector and Avive Soft Tissue Membrane.
The company also offers the AxoTouch Two-Point Discriminator, and AcroVal Neurosensory and Motor Testing System. These evaluation and measurement tools assist health care professionals in detecting changes in sensation; assessing return of sensory, grip and pinch function; evaluating treatment interventions; and providing feedback to patients on nerve function.
The Jefferies team is very positive and noted this:
Axogen targets an underserved nerve repair market, a $2.2 billion opportunity and market that is just 3% penetrated, Historically, nerve injuries were repaired using nerves harvested from the patient’s body. The company offers off-the-shelf tissue products for nerve repair and estimates there are over 900k injuries a year that could be treated with its products. The clinical community is also finding new uses for Axogen’s products which offers upside to current forecasts. We forecast growth in the 35-40% range through 2021 at least.
The $35 Jefferies price target is higher than the consensus price objective of $28.17. The shares ended last week at $28.30.
24/7 Wall St.Biogen
This large cap biotech will partner with Samsung Bioepis in the biosimilar world. Biogen Inc. (NASDAQ: BIIB) discovers, develops and delivers to patients worldwide innovative therapies for the treatment of neurodegenerative diseases, hematologic conditions and autoimmune disorders. Founded in 1978, Biogen is one of the world’s oldest independent biotech companies, and patients worldwide benefit from its leading multiple sclerosis (MS) and innovative hemophilia therapies.
The company markets three products, Avonex, Tysabri and Tecfidera, that combined have the leading share of the worldwide $18 billion MS market. Merrill Lynch feels the company will be a big winner with the lower corporate tax rate as it has extensive operations in the United States.
Merrill Lynch has set its price objective at $365. The consensus price target is $362.73, and shares were last seen at $318.57.
CytomX Therapeutics
This off-the-radar name is a top pick for 2018 in health care at Wedbush. CytomX Therapeutics Inc. (NASDAQ: CTMX) is an oncology-focused biotech company developing a proprietary “Probody” technology to treat cancer. Probodies are specifically activated in the tumor microenvironment to provide enhanced tumor specificity and safety profile. The company has established multiple partnerships that validate the technology.
The analyst feels that 2018 will be a catalyst-rich year with first-in-human data from wholly owned Probody candidates in the first half of the year. The company ended the third quarter of 2017 with $331.3 million in cash, cash equivalents and short-term investments, sufficient to fund operations into 2020. Partnered products with Bristol Myers and AbbVie should enter the clinic in 2018, and most are encouraged by progress of the partnered assets.
The $37 Wedbush price objective compares with the consensus estimate of $33.33. The shares closed trading on Friday at $21.11.
Gilead Sciences
This stock is trading a very reasonable 10.6 times estimated 2018 earnings. Gilead Sciences Inc. (NASDAQ: GILD) is a biopharmaceutical company that discovers, develops and commercializes therapies for the treatment of HIV/AIDS, liver disease, cancer and inflammation. The recent acquisition of KITE allows for entry into the CAR-T space, indicating a renewed focus in oncology.
The company’s products include Stribild, Complera/Eviplera, Atripla, Truvada, Viread, Emtriva, Tybost and Vitekta for the treatment of human immunodeficiency virus (HIV) infection in adults; and Harvoni, Sovaldi, Viread and Hepsera products for the treatment of liver disease.
Gilead also has a large pile of cash overseas, which the analysts feel could come back stateside with the new low repatriation rate.
Shareholders receive a 2.87% dividend. JPMorgan has a price objective of $83, but the consensus target price is higher at $85.50. The stock closed Friday at $71.64 a share.
Intercept Pharmaceuticals
This biotech story has stayed out front on Wall Street for years. Intercept Pharmaceuticals Inc. (NASDAQ: ICPT) is a biopharmaceutical company focused on the development of treatment for chronic liver disease using its expertise in bile acid chemistry. The lead product candidate, obeticholic acid (OCA), is approved for the treatment of primary biliary cirrhosis (PBC) and in Phase 3 trials for the larger nonalcoholic steatohepatitis (NASH), a common but often “silent” liver disease.
The Jefferies analysts had this to say about the prospects for the company going forward:
There have been safety concerns around the Primary Biliary Cholangitis (PBC) franchise, but we don’t believe the drug will be removed from the market and we believe PBC is at least a $300 million indication, which suggests that the stock gets little credit for NASH. NASH could be $1 billion to $2 billion in sales and the market cap of the company as a whole is only $1.5B. Discussions with management suggest that a label revision could come by early 2018 and if changes aren’t that bad, such an event could help remove the overhang. Interim NASH analysis comes in the first half of 2019.
Jefferies has a stunning $135 price target. The consensus target is $127.65, and the stock closed Friday’s trading at $58.42, down almost 7% on the day.
Jazz Pharmaceuticals
This top biotech company is also a new favorite at Merrill Lynch. Jazz Pharmaceuticals PLC (NASDAQ: JAZZ) is a biopharmaceutical company that identifies, develops and commercializes pharmaceutical products for various medical needs in the United States, Europe and elsewhere. The company has a portfolio of products and product candidates with a focus in the areas of sleep and hematology/oncology.
The company’s largest products are Xyrem for narcolepsy (excessive daytime sleepiness), followed by Erwinaze for acute lymphoblastic leukemia (ALL) and Defitelio for veno-occlusive disorder (VOD, blockage of blood vessels in liver).
Merrill Lynch sees this as a very reasonably priced company and said this:
Growth opportunity from Vyxeos (expected to become new standard of care in Secondary Acute Myeloid Leukemia) and JZP-110 (greatest upside potential) Potential for Xyrem patent settlements in 2017-2018 estimated, which we would expect to improve the stock sentiment.
While the Merrill Lynch price target is $164, and the consensus is up at $178.68. The stock closed most recently at $134.65.
La Jolla Pharmaceuticals
This biotech company has been mentioned recently as a possible takeover candidate. La Jolla Pharmaceuticals (NASDAQ: LJPC) is a biopharmaceutical company focused on the discovery, development and commercialization of innovative therapies intended to significantly improve outcomes in patients suffering from life-threatening diseases.
The company’s LJPC-501 is its formulation of angiotensin II for the potential treatment of catecholamine-resistant hypotension (CRH). It has initiated a Phase 3 trial of LJPC-501 for the treatment of CRH, called the Angiotensin II for the Treatment of High-Output Shock 3 (ATHOS) Phase 3 trial. LJPC-401 is its formulation of synthetic human hepcidin for the potential treatment of conditions characterized by iron overload, such as hereditary hemochromatosis, beta thalassemia, sickle cell disease and myelodysplastic syndrome.
SunTrust said this about the company’s treatment of septic or other distributive shock:
Given Giapreza’s broader than expected label, and the high levels of awareness among healthcare providers for a new drug in a setting with significant unmet needs, we believe the Street is likely underestimating the market opportunity, which we now estimate at ~$700 million in the U.S.
SunTrust recently raised its $57 price target on the shares to a staggering $65. That compares with the consensus figure of $57.29 a share, as well as the most recent share price of $32.18.
Regeneron Pharmaceuticals
This is a top biotech play for aggressive accounts to consider. Regeneron Pharmaceuticals Inc. (NASDAQ: REGN) is a biopharmaceutical company focused on the development of therapeutic human antibodies for the treatment of eye disorders, hypercholesterolemia, cancer, inflammation and other diseases.
Regeneron’s product sales are driven principally by its VEGF inhibitor Eylea, which is approved for use in wet age-related macular degeneration and diabetic macular edema, and by Praluent for the treatment of hypercholesterolemia.
This is another company with extensive operations in the United States and the lower corporate rate in the new law could be huge for the bottom line.
Merrill Lynch has a whopping $535 price target for the shares. That compares to the posted consensus target of $453.29. The shares ended last week at $375.96 apiece.
Needless to say, the biotech field is a very volatile area, and while the large cap leaders are somewhat more stable, they too can be subject to big market swings. We always recommended that only very aggressive accounts, with high risk tolerance, are suited for these companies. With that in mind, there can be some big winners in 2018, given the changing landscape, and any of these could be one.
Also check out some top semiconductor and other technology stocks that analysts recommend for 2018.
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