Biotech stock investing can be a nerve-racking experience for investors, especially if they are focused on the companies that are waiting on some sort of binary event or clinical data to lift the stock. As investors in Keryx Biopharmaceuticals Inc. (NASDAQ: KERX) found out last week, not all FDA approvals drive a stock higher. In fact, in many cases after an FDA approval, stocks trade sideways or down.
One way to participate in the sector without the huge roller coaster rides that smaller stocks sometimes provide is to invest in the large-cap leaders. A new report from the biotech team at Deutsche Bank fields questions from clients asking for specific stocks to buy for the rest of this year and 2015, and the analysts keep the answers short and sweet.
Four stocks at Deutsche Bank that are rated Buy make this list, and are the kind of companies that long-term aggressive growth investors can feel pretty comfortable owning.
Amgen Inc. (NASDAQ: AMGN) is one the top blue chip stocks in the biotech world, and it is a top company for investors to own in health care. The company recently announced that its FOCUS trial of Kyprolis in patients with relapsed and advanced refractory multiple myeloma, a cancer of plasma cells, failed, which was a near-term catalyst many had been watching for. Despite the failure, the stock has bounced back, and the large pipeline the company has combined with its acquisition of Onyx Pharmaceutical last year bodes well for the future.
Amgen is a company that Deutsche bank feels will benefit with much increased revenue from its new cholesterol drug Evolocumab. Investors are paid a 2% dividend. The Deutsche Bank price target for the stock is $163. The consensus price target is posted lower at $144. Amgen closed Monday at $139.27 a share.
Celgene Corp. (NASDAQ: CELG) is one of the Deutsche Bank top picks for 2015. The big biotech presented results this summer 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.
Many on Wall Street see the company working to diversify away from the flagship product through the emerging inflammation and immunology franchise, and a rich pipeline of alliances. The Deutsche Bank team has a $115 price target. The consensus target is $102.36. Celgene closed on Monday at $94.03.
Gilead Sciences Inc. (NASDAQ: GILD) is Deutsche Bank’s top near-term stock pick. The company crushed second-quarter earnings, as its leading drug Sovaldi continues massive sales. During the quarter, revenue for Gilead’s drug to treat hepatitis C delivered product sales of $3.48 billion, exceeding average analysts’ estimates of $2.92 billion. Wall Street analysts are also looking for positive data on the company’s Phase 3 HIV “TAF” (son-of-Viread) pivotal data, which could come as early as this month. Viread is Gilead’s hepatitis B and HIV drug, which will go off patent in 2018.
Deutsche Bank points out that Gilead is trading at just 8.8 times 2016 earnings, versus the company’s peers, which are trading at 16.2 times. They also note that consensus earnings numbers for the company show a stunning 55% compound annual growth rate going forward. The Deutsche Bank price target is $142, and consensus target is $112.43. Gilead closed Monday at $106.53.
Regeneron Pharmaceuticals Inc. (NASDAQ: REGN) is another top pick at Deutsche Bank for 2015. The company has been a performance monster over the past two years, and most Wall Street firms expect it to stay one. With treatments for everything from macular degeneration to colorectal cancer, the company continues to exploit an extraordinary pipeline.
The Deutsche Bank analysts are very positive on the company’s Alirocumab, which is another new cholesterol drug with big expected upside. In fact, doctors think the yearly cost for the new cholesterol drugs could be $8,000 to $10,000 per year per patient. This could add substantial earnings to current estimates. The Deutsche Bank price target is $425, and the consensus is much lower at $366.11. The stock closed Monday at $348.10.
While Keryx was not a part of this analyst call, it was the most recent example of how all the efforts in the world can be accomplished yet the FDA approval tanked the stock. In fact, an analyst downgrade even took Keryx shares lower on Monday.
Clearly the top stocks are much more expensive than the lower priced biotech names. For investors looking for the upside to biotech with less volatility, it is more than worth it to pay this price for the industry leaders in most cases.