Healthcare Business

RBC Likes Large Cap Biotech Leaders for 2017

Vertex Pharmaceuticals

This has long been considered a buyout candidate, and after the mauling it took in the biotech sell-off to start the year, it is even more of a candidate now.

Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) engages in discovering, developing, manufacturing and commercializing small molecule drugs for patients with serious diseases in specialty markets. The company focuses on developing and commercializing therapies for the treatment of cystic fibrosis (CF) and hepatitis C.

Wall Street as a whole has long been very positive on the stock, and some have indicated that the company could have as much as $10 in potential earnings-per-share power. The consensus also expect that Vertex should receive FDA approval for the company’s CF drug Lumacaftor, or as it is known, VX-‘809, which some think could generate billions in revenues.

The analysts noted this in the research report.

Vertex big catalyst for Phase II “triple data” in Cystic Fibrosis in Fall 2017; they have a parabolic earnings curve and profitability (going from $0 EPS to $5+ EPS in a few years)and two new next generation correctors in Phase II as a “triple pill,” which could add $1 billion-2 billion more down the road from “hetero” market, and we think fairly good chance the Phase II “triple” will work in the second half of 2017 – a new growth driver with data coming.

The $115 RBC price target compares with the $101.05 consensus target and the most recent close of $72.60.

BioMarin Pharmaceuticals

This company is one of Wall Street’s favorites, and it posted solid earnings this year. BioMarin Pharmaceuticals Inc. (NASDAQ: BMRN) develops and commercializes innovative biopharmaceuticals for serious diseases and medical conditions. Its product portfolio comprises five approved products and multiple clinical and preclinical product candidates.

Over the past decade, BioMarin has become one of the top orphan drug companies, and it looks poised to stay there. The company is expected to post around $1.09 billion in revenue this year and possibly around $1.32 billion next year following the approval of Vimizim, an enzyme replacement therapy for Morquio syndrome, which posted big results in the quarter.

Roche recently has been mentioned as a company that could be looking at BioMarin. Roche is focused on oncology drugs and invests heavily in early-stage molecules. Although the company is growing consistently, there is a major biosimilars threat to its three big drugs — Rituxan/MabThera, Herceptin and Avastin. These three drugs accounted for 42% of Roche’s total revenue during the first half of 2016. So an acquisition makes sense should the biosimilars eat into current profits.

RBC noted:

Biomarin for significant upside on Phase I gene therapy hemophilia program showing continued positive data, two new growth drivers in Batten’s and Peg-Pal, and importantly – a high likelihood of the company being acquired in 2017 as it finally becomes profitable and many large biopharmas are seeking M&A candidates; we think Biomarin could fit well into those organizations ($1.5 billion commercial business and large pipeline).

RBC has a $125 price target. The consensus target is $119.29, and shares closed Wednesday at $85.05.

Alexion Pharmaceuticals

The rumors have flown for some time that this may be a potential acquisition target. Alexion Pharmaceuticals Inc. (NASDAQ: ALXN) develops and commercializes life-transforming therapeutic products.

It offers Soliris (eculizumab), a monoclonal antibody for the treatment of paroxysmal nocturnal hemoglobinuria (PNH), a genetic blood disorder, and atypical hemolytic uremic syndrome, a genetic disease. It also provides Strensiq (asfotase alfa), a targeted enzyme replacement therapy for patients with hypophosphatasia, and Kanuma (sebelipase alfa) for the treatment of patients with lysosomal acid lipase deficiency.

The company conducts Phase 4 clinical trials on Soliris for the treatment of PNH registry; Phase 3 clinical trials for the treatment of myasthenia gravis, neuromyelitis optica spectrum disorder, and delayed kidney transplant graft function; and Phase 2 clinical trials for antibody mediated rejection in presensitized renal transplant patients.

The stock is down a whopping 36% year to date and may be poised for a big move higher. It was nailed yet again this week when it announced a delay in filing its 10-Q because the board of directors is looking into recent allegations by a former employee with respect to the company’s Soliris sales practices.

RBC remains very positive, saying this in the report:

We expect the stock to be volatile until the investigation is resolved and the 10Q is filed, but long term we see significant value in the company as we view the fundamentals of the ALXN story, i.e. Soliris in PNH and aHUS, the potential in MG, Strensiq (and Kanuma and the earlier-stage pipeline) as intact. We expect Alexion to continue to dominate the rare disease space and see the shares as a long-term buy.

The RBC price target is $188. The consensus price target is $169.69. The stock closed on Wednesday at $118.99.

Many biotech stocks are cheap relative to the S&P 500, and history says they won’t stay that way forever. In fact, the current consensus four-year growth expectation for the large cap biotechs has dipped since 2012 and is currently at the lowest level since 2010. In other words, cheap and somewhat ignored.