Needless to say, the past two years have been rough on biotech. So rough in fact, that a basket of the largest capitalization stocks now trade with a price-to-earnings growth figure that is in line with the S&P 500 and large cap pharmaceuticals. That is an extraordinary figure when you consider the growth rate comparisons. The question for investors is which stocks are the ones that hold the best potential in 2017.
A recent research report from the biotech team at Baird offers their top picks for 2017. While hardly pounding the table, they are cautiously optimistic on the industry. With that said, they are staying with some of the industry leaders, and that makes sense in an environment that is still dicey.
While Baird likes 10 companies for 2017, here we focus on four that are well known and may offer investors some big upside potential. All are rated Buy at Baird.
This is one of Wall Street’s favorites and it posted solid earnings last 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.
The Baird price target for the stock is $115, and the Wall Street consensus target is $113.67. Shares closed Wednesday at $87.16.
This one has long been considered a buyout candidate. 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.
Its big catalyst for Phase 2 “triple data” in cystic fibrosis could have results in the fall of this year Some feel that the company has a potential parabolic earnings curve and profitability that could go from $0 in per-share earnings to $5 or more in a few years, and two new next generation correctors in Phase 2 as a “triple pill,” which could add $1 billion to 2 billion more down the road from the “hetero” market. In addition, many top analysts feel the company has a fairly good chance that the Phase 3 “triple” will work in the second half of 2017 — a new growth driver with data coming.
The $115 Baird price target is well above the consensus target of $99.35. Shares closed yesterday at $82.52.