After a very poor 2016 for the biotechs, some on Wall Street are beginning to think that the light at the end of the tunnel may not be another train ready to run investors over. The slump this year was a result of rhetoric from Hillary Clinton, who this time last year called for lower drug prices. Shares rallied after the election, but then faded as President-elect Trump said some of the same things. The reality is that while there appears to be a period of renegotiating prices, a Republican House and Senate may be loathe to pursue huge changes.
In a new research report, the biotech team at RBC reveal their top picks for 2017, and while hardly pounding the table, they are cautiously optimistic. They are staying with large cap leaders, and that makes sense in an environment that is still dicey.
While 13 companies make the cut at RBC, here we highlight the top five that make sense for aggressive accounts.
This is a top large cap pick with big upside potential. Celgene Corp. (NASDAQ: CELG) has an outstanding partnered pipeline, which most think is low risk and has the potential to yield several blockbuster drugs. Certain Wall Street analysts also think the company can grow earnings 15% on a compounded annual growth rate basis going forward. Otezla, which treats psoriasis and psoriatic arthritis, had achieved considerable prescriptions among physicians, but the scripts have slowed after a solid launch, showing the importance for sales outside of the United States.
Celgene’s blockbuster blood cancer drug Revlimid continues to dominate. Pomalyst sales also continue to be solid. Cancer drug Abraxane is also growing at a respectable rate, so the company continues to have a strong lineup of top-selling drugs. Wall Street analysts have noted that the company has discussed at its recent conference the benefits of longer duration Revlimid.
Celgene has a very compelling pipeline, and with four existing Phase 3 trial assets, that may add strong new drugs and revenue prior to the end of the decade.
RBC noted this in the report:
Celgene is best large-cap de-risked growth story, 15-20% earnings growth over the next five years, two new growth drivers (two new oral pills for UC and Crohn’s), a large pipeline of 25+ partnerships of early-stage next-generation cancer drugs and our view that it would not be surprising if the company were to remain a potential M&A target by big pharma given it is the only large-cap growth story with visible growth over the next five years, a significant pipeline, high margins, and synergy with other major pharma players in cancer and immunology.
The RBC price target for the stock is $135, and the Wall Street consensus target is $188.04. Shares closed Wednesday at $115.85.
Many top analysts are very bullish on this large cap biotech, even though the stock is down almost 40% from highs printed in March of 2015. 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 biotech companies, and patients worldwide benefit from its leading multiple sclerosis (MS) and innovative hemophilia therapies.
While many on Wall Street acknowledged in the past that the company’s core MS drug market is facing 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, the firm is still positive on Tysabri, especially for secondary-progressive MS, with upcoming clinical data a big factor.
Top analysts also feel 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 a strong pipeline, the stock is a solid choice for aggressive growth investors. Toss in some rumors of a possible buyout, and Biogen makes even more sense.
RBC has a $375 price target, while the consensus target is $339.07. The stock closed Wednesday at $283.11.
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