The XBI, which is the S&P 500 biotech index, has been hit hard this week and is down almost 14% since last Friday. While still up big over the past year, and crushing the performance the S&P 500, it is still a pretty big hit for any long the stocks and the sector. In a new report from RBC, while they think the selling and profit taking could go on some, they also hold fast that industry fundamentals are still very positive.
The RBC team cites multiple reasons for the recent pullback and compare it with the pullback experienced a year ago. Despite all the chatter, the RBC analysts feel that there are three big reasons to still like the sector:
- Mergers and acquisition activity should still stay strong.
- Innovation is alive and well with many new drugs in the pipeline for Alzheimer’s, cystic fibrosis and many other diseases.
- Growth is hard to come by, and biotech price to earnings numbers do not look overly rich compared to other sectors.
The RBC team suggest investors buy Biogen Inc. (NASDAQ: BIIB), BioMarin Pharmaceutical Inc. (NASDAQ: BMRN), Dyax Corp. (NASDAQ: DYAX) and Vertex Pharmaceutical Inc. (NASDAQ: VRTX). All are rated Outperform at the firm.
Biogen recently posted outstanding early results from its exciting new drug to treat Alzheimer’s. The drug, which is known as BIIB-037, put up results in early stage human trials that are very promising to researchers, doctors and patients. In that Phase 1b trial, the drug succeeded in its mission to destroy amyloid plaque buildups in the brain that many believe may be closely related to Alzheimer’s disease.
Many Wall Street analysts, including those at RBC, see the company as among the most catalyst-rich stocks in the biotech universe, with the most upside versus downside on three specific events, including Tysabri SPMS, Alzheimer’s and the continued impressive LINGO Phase 2 data.
The RBC price target for the stock is $470. The Thomson/First Call consensus price target is $474.98. The stock closed Thursday at $428.93 a share.
BioMarin develops and commercializes innovative biopharmaceuticals for serious diseases and medical conditions. Its product portfolio is made up of five approved products and multiple clinical and preclinical product candidates. Many Wall Street analysts feel that, while BioMarin has an attractive pipeline, concern remains about management’s ability to control costs and allow the company to become sustainably profitable.
Over the past decade, BioMarin has become one of the top orphan drug companies, and it looks poised to stay there. It is expected to post around $700 million in revenue this year and possibly around $810 million next year, following the approval of Vimizim, an enzyme replacement therapy for Morquio syndrome. The RBC analyst note the company could have two big read-outs this year.
RBC has a $125 price target, and the consensus target is $119.74. BioMarin closed Thursday at $115.55 per share.
Dyax is a fully integrated biopharmaceutical company focused on the discovery, development and commercialization of novel biotherapeutics for unmet medical needs. It currently markets Kalbitor (ecallantide) for the treatment of acute attacks of hereditary angioedema (HAE) in patients 12 years of age and older. Dyax is also developing DX-2930 for the prophylactic treatment of HAE.
RBC expects there could be solid data presented in April for this best-in-class drug. Results from 25 physician survey could favor DX-2930 over other current and pipeline options, which could have a big impact on the stock. HAE is a very rare and potentially life-threatening genetic condition that occurs in about one in 10,000 to 50,000 people.
RBC has as $18 price target, and the consensus figure is posted at $17.06. Shares ended trading most recently at $16.20.
Vertex was hit hard on Monday, and Deutsche Bank, another major Wall Street firm we cover, was quick to advise customers to buy the stock on the current weakness, which was exacerbated even more over the past few days.
The RBC team is also very positive on the stock and indicated that the company could have as much as $10 in potential earnings per share power, and that Vertex its treatment for cystic fibrosis should receive FDA approval. They also still see the potential for the stock as an acquisition candidate.
RBC has a $130 price target for the stock, and the consensus target is higher at $134.67. Shares closed trading on Thursday at $117.60.
The RBC analysts make a solid point that bear markets are usually caused by changes in general and specific secular fundamentals. They see the fundamentals in biotech still intact, and this may be just a noisy bout of profit taking by portfolio managers before the first quarter ends.
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