May looked as though it was ignoring the “Sell in May and go away!” mantra. Biotech investors also had to absorb many political jabs over drug pricing, as well as concern over valuations reaching epic levels the prior year. It is without argument that many of the would-be future drug companies in biotech and other aspects of biohealth might have cures for unmet needs or have new treatments not yet on the market. That means that the government is unlikely to be a factor for many of the companies, unless they start coming out with a max-margin mandate.
Investors have to understand that the biotech and biohealth industry is perhaps the most speculative of them all. The losses can be absolute, but the reward can be exponential if the right companies are picked. Creating new drugs for cancer, heart disease, inflammation, autoimmune issues and diabetes is no simple task. That means many investors want or need help in identifying which companies in biotech and biohealth may be the big winners — or which may be the big losers.
24/7 Wall St. tracks many analyst upgrades and downgrades each day, and this turns out to be hundreds each week. Many biotech and biohealth stocks end up standing out above the rest of the pack because they often come with upside price targets that sound too good to be true.
When analysts issue upside calls for Dow and S&P 500 stocks, they generally target upside of 8% to 15% with most Buy and Outperform ratings. If the projected upside is 40%, 75% or even well over 100%, investors just have to automatically assume the risk is massively higher than they might expect elsewhere.
In some ways, speculative biotech investors are just gambling, and their bets may be on layers of assumptions that may take five years or longer before the outcome is even known. Many revenue and upside price targets in biotech are also not the traditional one-year target prices. These assumptions might be focusing on revenue outlooks for 2020 or even beyond.
The final warning here is that some of these speculative biotech and biohealth stocks could implode and disappear. These are serious risks. Others may operate in a zombie mode for years and years, often valued lower than their balance sheets might suggest.
Now that the warnings have been made, here are seven speculative biotech and biohealth players in which analyst calls during the week ending May 27 have given major upside projections. And for a reference, here were the 10 speculative biotech and biohealth picks featured for the week ending May 20.
GW Pharmaceuticals PLC (NASDAQ: GWPH) is believed to be the closest cannabinoid player to U.S. drug approval. It had international sales of $43 million last year, and it is still a ways off before Thomson/First Call sees U.S. revenues. Don’t tell that to Merrill Lynch, after the firm reiterated its Buy rating and $165 price objective this past week. The prior close was $87.95, and shares were up at $90.48 on Friday’s close.
Merrill Lynch talked about Phase 3 trial of Epidiolex for Lennox-Gastaut syndrome, as well as the NDA filing and commercialization. If the team is right, this could be some 83% more in upside. GW Pharma’s 52-week high is up at $133.98, and the consensus analyst price target is almost $148.