One sad trend that has exploded in the new millennium has been the increase in hepatitis C cases in the Unites States and around the world. One startling fact is that two out of three of the 4 million Americans living with hepatitis C infection are baby boomers. Hepatitis C, or HCV as it is often called, is an insidious virus that can hide in the body for two or three decades without causing symptoms — and then wreak havoc with the liver, scarring it so extensively that it can fail. Half of all people waiting for liver transplants have hepatitis C. This is proving to be a huge windfall for pharmaceutical and biotech stocks that are focusing on treatment.
A new research report from the analysts at UBS focuses on four companies — AbbVie Inc. (NYSE: ABBV), Achillion Pharmaceuticals Inc. (NASDAQ: ACHN), Gilead Sciences Inc. (NASDAQ: GILD), Merck & Co. Inc. (NYSE: MRK) — that stand to benefit from rising demand for the drugs they produce that treat the virus. They also see numbers for these drugs rising in 2015, numbers that could contribute significantly to the stocks’ top and bottom lines.
AbbVie announced last month it is recommending that shareholders vote against the merger with Shire Pharmaceuticals, as the changes in the tax inversion laws just don’t make the deal practical. The stock has rallied from lows not only from last month’s sell-off, but very possibly from risk arbitrage funds selling it short.
The company has reported much better-than-expected growth and sales in Humira, one of its top-selling drugs. Plus, it has thrown its hat in the ring in the race of oral interferon-free combination therapies for HCV, and this could be a huge catalyst for the company in the next few years. It has finished up its Phase 3 clinical-trial program for its all-oral hepatitis C drug cocktail. AbbVie’s drugs only have to be taken for 12 weeks in most cases and do not require peginterferon.
AbbVie investors are paid a very solid 3.2% dividend. The UBS price target for the stock is $73. The Thomson/First Call consensus target is $65.85. Shares closed trading on Wednesday at $63.76.
This one may be a small-cap home run for investors. The company is developing a drug in the same class as Idenix, which Merck paid a sizable premium for, and many observers see it as the only real buyout target left in this field. The company’s drug candidates for treating chronic HCV infection comprise:
- Sovaprevir, a NS3/4A protease inhibitor, which has completed a Phase 2a clinical trial
- ACH-3102, a NS5A inhibitor that is in Phase 2a clinical trial
- ACH-3422, a NS5B nucleotide polymerase inhibitor, which has completed preclinical studies
- ACH-2684, a NS3/4A protease inhibitor that has completed Phase 1a and 1b clinical trials.
The stock was up huge Wednesday after the company reported encouraging interim results from the Phase 2 study of ACH-3102.
The UBS team has a rating of Buy on the stock, with a price target of $15. The consensus target for the stock is $13. Shares blew through that target Wednesday, closing at $14.85, up almost 20% on the day.
Gilead disappointed investors with mediocre third-quarter numbers, and the UBS analysts feel that this gives investors an entry point to the stock on a one-off issue that is probably smoothed out after this past quarter. The third-quarter numbers were a little soft compared to very high expectations.
The UBS analysts and others on Wall Street are confident that launch of Gilead’s new HCV drug Harvoni will significantly restrengthen the company’s HCV franchise trends. They also contend that Gilead has the superior HCV combinations and likely will maintain its dominant position, though they do expect AbbVie to take 10% to 20% share.
UBS places a $130 price target on the stock, while the consensus is posed at $122.63. Shares closed down Wednesday at $106.90.
Merck & Co.
Investors in this blue chip stock have enjoyed an outstanding year, with the stock up well over 20%. It may also be a way for conservative investors to be involved with the HCV demand increase. Merck remains a leading health care company that is on the focus lists of many of the top firms we cover. The company’s numerous prescription medicines, vaccines, biologic therapies and consumer care and animal health products are provided to customers in more than 140 countries.
The company’s purchase of Idenix this past summer for $3.85 billion was to acquire its hepatitis C pipeline and could pay off huge for investors in the future.
The pharmaceutical giant pays shareholders a very solid 3.0% dividend. The UBS price objective for the stock is $68, and the consensus price target is $63.03. Merck closed Wednesday at $59.31.
The UBS research gives investors very different ways to play this current medical problem. From small cap and very aggressive to conservative large cap diversified pharmaceuticals. The increase in the virus and the patient population will continue to grow, as well as increase demand for better drugs.