If one area has been a standout sector in the bull market, it is biotechnology and the areas surrounding it. 24/7 Wall St. is not alone in being amazed at just how many biotech stocks have risen exponentially in recent years. The current climate is full of opportunity for investors — but this also means that the sector is full of risk. In the past week there were four analyst picks in and associated with the biotech area that came with gigantic upside price targets.
Before investors get stars in their eyes and start counting mega profits before they even pull the trigger, it is time for a reminder that speculative biotech stocks often rise and fall in sweeping moves. Some biotechs even implode months or years after analysts made their calls. What does 50% or 100% upside to analyst price targets tell you? Generally, it implies that the calls are close to being “all or none” in scope.
Esperion Therapeutics Inc. (NASDAQ: ESPR) rallied handily on Thursday, with a 13% gain to $105.24, and it gave back 5.2% to close at $99.79 on Friday. UBS initiated the biotech outfit with a Buy rating and assigned a $140 price target. The analyst is attracted to Esperion’s cholesterol drug as one of the most strategic assets in biopharma at this time.
UBS also said that this makes it a potential buyout candidate among the small-cap and mid-cap biotechs. Its $2 billion market cap is easily within the realm of speculative buyouts, and it goes without saying that any positive cholesterol treatment has blockbuster potential. UBS believes that this asset could ultimately be more valuable under a larger company that has more commercial capabilities.
If the $140 price target is not enough of an enticement here, UBS projected that Esperion could be worth $188 or more under analysis for M&A activity. Esperion is less than two years old and has a 52-week range of $12.75 to $118.95. The consensus analyst target now is over $120, and UBS has the highest analyst target.
Lion Biotechnologies Inc. (NASDAQ: LBIO) released positive data from a pilot trial of its TIL-Ipilimumab combination study in melanoma. TIL stands for tumor infiltrating lymphocytes. The data was based on 12 patients, but shares were as low as $10.10 or so on Monday, and they closed out the week at $12.94.
What investors will pay attention to here is that this is not just one analyst call. Roth Capital assigned a $17 price target, Jefferies gave an $18 price target and FBR Capital assigned a whopping $20 price target. Thomson Reuters now has a consensus analyst price target of $19.
Even after a run of 28%, this leaves substantial upside to the higher price targets. Investors should keep in mind that this is still very early on, so it is not as though the company’s treatment will be producing real revenues any time soon. Lion Biotech’s market cap is $570 million, and the 52-week trading range is $4.97 to $15.03.
TrovaGene Inc. (NASDAQ: TROV) may technically be in molecular diagnostics rather than biotech. Still, it is held by some biotech investors and competes for the same dollars in the emerging pharma and medicine space. Janney Capital Markets started TrovaGene with a Buy rating on Friday. The firm also assigned an $11 fair value estimate, versus a prior $6.75 close.
Janney’s note said:
Having the only non-invasive urine-based diagnostic platform and competing with traditional tissue collection or blood extraction methods, TrovaGene is poised to transform how doctors detect cancer and monitor treatment. With the potential for 9 published abstracts, 6 new assays, and the doubling of its sales force, we see multiple catalysts in 2015.
The prior highest price target from the three analysts who cover TrovaGene was $10. After shares closed up 4.4% at $7.05 after the analyst call, this implies upside of 56%, if Janney is right in being so aggressive in this call.
Because it is so small and unknown to many investors, Agile Therapeutics Inc. (NASDAQ: AGRX) is being featured last in line here. The company has been public less than a year and trades only about 40,000 shares on an average day. The stock was started as Outperform at FBR Capital on Thursday, and it was given a $17 price target.
Of the handful of analysts that cover this one, the consensus target is also at $17. Agile’s highest target is up at $20, which was from a Cantor Fitzgerald call this week as well. The lowest analyst target is $13. After the stock closed at $9.55, the $17 target would imply upside of almost 80%.
If Cantor Fitzgerald is right, then this small-cap biotech could more than double. Agile Therapeutics came public last May at $6 per share, after seeing a price cut and a share count boost in its IPO.
Again, when analysts make bold price target upside calls of 50% to 100%, generally there is much more implied risk than with traditional Dow Jones Industrial Average and S&P 500 stocks. Biotech has made many investors rich, and it has also broken many investors.