Top Biotech Stock Picks For 2012 (ARIA, DNDN, GILD, HGSI, ILMN, INCY, JAZZ, LIFE, THRX, IBB, XBI)

Health and Healthcare

Published: December 28, 2011 7:01 am

Last Updated: April 28, 2020 8:27 am

The biotech sector has seen its share of ups and downs in 2011 and prior years. It is almost always the case that some of the top performing stocks each year come from this sector due to the possibility of a company rising from no sales at all to having the next blockbuster drug. 24/7 Wall St. has evaluated the biotech sector for its prospects in 2012 and identified those companies which are expected to outperform the broad market.

Our screen process did not limit the scope to positive earnings, but we did use a minimum market valuation of $1 billion to avoid the smaller and even more speculative names in an already speculative sector. The companies are all expected to rise 20% more and include the following stocks tied to biotech and the biohealth sectors: ARIAD Pharmaceuticals, Inc. (NASDAQ: ARIA); Dendreon Corporation (NASDAQ: DNDN); Gilead Sciences, Inc. (NASDAQ: GILD); Human Genome Sciences, Inc. (NASDAQ: HGSI); Illumina, Inc. (NASDAQ: ILMN); Incyte Corporation (NASDAQ: INCY); Jazz Pharmaceuticals, Inc. (NASDAQ: JAZZ); Life Technologies Corporation (NASDAQ: LIFE); and Theravance, Inc. (NASDAQ: THRX).

Unfortunately, some of these are biotech implosions where companies have run into problems. Others are pre-revenue and could be tomorrow’s drug giants in cancer and other indicated treatments. Some may even be acquired. We have included the current share price and recent price history, as well as based the implied upside upon the consensus price target objective from Thomson Reuters. Recent fundamental data and color has been added on each if applicable.

There are also the ETF products via the iShares Nasdaq Biotechnology (NASDAQ: IBB) and the SPDR S&P Biotech (NYSE: XBI). The iShares variation trades at $104.30 and its 52-week range is $83.96 to $110.02. Gilead (and Pharmasset) would be the largest implied holding of the iShares ETF with almost 16% weighting combined. The SPDR variation trades at $66.48 and its 52-week range is $47.01 to $75.17. The SPDR also only contains ARIAD (and Pharmasset) of the biotechs with the most implied upside below.

ARIAD Pharmaceuticals, Inc. (NASDAQ: ARIA) currently trades around $12.50, has a market cap of about $1.65 billion, and the Thomson Reuters consensus price target of $15.91 leaves an implied upside of about 27%. Its 52-week trading range is $5.04 to $13.50 and 2011 has been a year where the company’s share price has come close to challenging the prior highs from 1999 to 2000. It is still pre-revenue for the most part and losses are expected to continue at least through 2012. ARIAD is focused around oncology and its shares are up from a $10.42 per share offering of almost 25 million shares that raised nearly $250 million for the company. This was one of the good secondary offerings that allows the company to raise development and commercialization funds without becoming dependent solely upon a single partner.

Dendreon Corporation (NASDAQ: DNDN) is another implosion story due to lower adoption rates of PROVENGE for prostate cancer, although some are hoping and expecting that the new reimbursement rates (and physician clarity) may help the company regain some of its lost footing. At $7.58, the market cap is barely $1.1 billion and the $11.05 Thomson Reuters price target leaves an implied upside of over 45%. To show just how bad this one has gone, the 52-week trading range is $6.46 to $43.96.

Also Read: Small Caps With 50% Upside in 2012

Gilead Sciences, Inc. (NASDAQ: GILD) recently traded at $39.88 and it is one of the biotech giants with a market cap of about $30 billion. THe 52-week trading range is $34.45 to $43.49 and the Thomson Reuters consensus price target of $48.86 leaves an implied upside of 22.5%. The last time Gilead was above $50.00 was in early 2009. Gilead is somewhat surprising to see on the list considering its controversial $11 billion acquisition of Pharmasset when that target acquisition is not expected to generate sales for at least another year. The company has new HIV medication that is helping to boost the value but the company is diversifying to include more target markets.

Human Genome Sciences, Inc. (NASDAQ: HGSI) is another one of the implosions of 2011 that went from high-flyer to night-crawler due to adoption issues around its lupus drug. At $7.07, its market cap is now only $1.4 billion and its $17.06 price target objective from Thomson Reuters leaves well over 100% in implied upside. The expected upside and high price target seem to be nothing more than left over bullish upside targets that used to be far higher. Alas, many still hope that a takeover could come here as well. It would be a bit of a puzzle as to how such a deal could get done now that the share price implosion would leave so many shareholders buried with assured losses.

Illumina, Inc. (NASDAQ: ILMN) is one of the price implosions where the perceived upside may be solely due to higher share prices of the past. At $29.80, its market cap is about $3.6 billion. The Thomson Reuters consensus target of $36.26 implies more than 21% upside, but it needs to be noted that the 52-week trading range is $25.57 to $79.40. This is another systems and sequencing outfit for the biotech and drug sector and shares trade north of 21-times the $1.40 EPS target for 2012.

Incyte Corporation (NASDAQ: INCY) is an oncology, inflammatory, and autoimmune disease player. Shares have been far higher and considerably lower throughout 2011. At $15.14, it has a market value of $1.9 billion and the price target objective of $21.93 leaves an implied upside of about 45%. The summer sell-off was particularly brutal to this stock and the 52-week trading range is $11.76 to $21.15. Revenues have been spotty and are expected to remain that way and it is not yet anywhere close to being profitable and that may last another year or two based upon current expectations.

Jazz Pharmaceuticals, Inc. (NASDAQ: JAZZ) has seen an incredible surge higher over the last two years and change. Analysts are expecting the stock to return to its prior highs and then some. At $39.21, it has a market value of $1.65 billion and its $50.83 Thomson Reuters consensus price target leaves an implied upside of almost 30%. This has a 52-week trading range of $18.85 to $47.88. Earnings are expected to remain flat around $3.40 EPS in 2012 despite revenue growth of $269.8 million expected in 2011 to over $462 million in 2012. The reality is that targets and estimates around Jazz depend mostly upon a merger with Azur Pharma which is expected to close in early 2012. All targets seem to be based upon the company’s guidance and the post-merger company will be based in Ireland and will give it a diversified revenue base from 12 marketed products in the areas of CNS and women’s health.

Life Technologies Corporation (NASDAQ: LIFE) is more or less the systems and equipment player behind biotech rather than a drug-seeking company and it is the combined operations of Invitrogen and Applied Biosystems. With shares at $40.00 and worth about $7.1 billion, the Thomson Reuters price target of $50.47 leaves an implied 26% upside ahead. The sell-off this last summer was particularly brutal for this stock and shares slid from a nigh above $55.00 down to nearly $35.00. If Life Technologies can live up to its $4.09 EPS target for 2012, this one now trades at just under 10-times forward year earnings estimates today.

Also Read: Top 2012 Tech Picks

Theravance, Inc. (NASDAQ: THRX) trades at $22.20 and its current market value is $1.9 billion. The Thomson Reuters consensus price target of $28.43 leaves an implied upside of about 28% and the target is very close to the 52-week high of $28.95. Theravance recently started a new round of trials for an ADHD drug and it recently ran into problems after its supply partner Astellas ran into manufacturing problems for its MRSA superbug injectable drug. This is still considered a pre-revenue story and losses are expected to continue for the foreseeable future.

As with many sector picks that are based generally on consensus upside, there are almost always some severe duds that come up. Some should win, while some should not. It is the nature of the market, particularly when dealing with fallen angel and speculative stocks.