Biotech Is the Cheapest Since 2011: 4 Top Stocks to Buy Now

Health and Healthcare

Published: January 28, 2016 10:10 am

Last Updated: January 13, 2020 2:26 pm

In an almost incredible turn of events due to the massive selling among the biotechs, the four largest companies in the industry on a price-to-earnings multiple basis are actually cheaper than the S&P 500, despite higher growth, according to a new report from Jefferies. In fact, the IBB biotechnology index is now down 30% since mid-July, and the last time the index experienced a drop of 21% was the summer 2011.

With political rhetoric against drug prices increasing, and the volatility of a shaky overall market mixed in, the sector has been shellacked. Jefferies has four top picks for 2016. While they remain suitable for aggressive accounts, they all have substantial upside and may provide investors with solid alpha for 2016.

Biogen

Jefferies is very bullish on this large cap biotech, though the stock is down a stunning 40% from highs that were printed in March of last year. Biogen Inc. (NASDAQ: BIIB) discovers, develops and delivers to patients worldwide innovative therapies for the treatment of neurodegenerative diseases, hematologic conditions and autoimmune disorders. Founded in 1978, Biogen is one of the world’s oldest independent biotechnology companies, and patients worldwide benefit from its leading multiple sclerosis (MS) and innovative hemophilia therapies.

Jefferies has acknowledged in the past that Biogen’s core multiple sclerosis drug market faces challenges going forward, with most diagnosed patients now treated, payers limiting net benefits from price increases and competing entrants expected. With those issues in mind Jefferies is still positive on Tysabri, especially for secondary-progressive multiple sclerosis, with upcoming clinical data a big factor.

Jefferies also feels that a combination of cost reductions in tandem with the still strong MS franchise, which may not be as challenged by competitors as some on Wall Street think, can help the company beat earnings estimates this year. With the strong pipeline, the stock is a solid choice for aggressive growth investors.

The Jefferies price target for the stock is $357, and the Thomson/First Call consensus target is even higher at $363.31. The stock closed Wednesday at $273.26, up over 5% after posting strong earnings.