During the election battle, and for a while after, the health care stocks, including biotechnology and big pharmaceutical, were constantly buffeted by threats over drug pricing and other potential changes in regulation. With almost a full year into the Trump administration in the books, much of the shrill bellicose rhetoric has died down. In fact, the Nasdaq Biotech Index actually has slightly outperformed the S&P 500.
A new RBC report is reasonably positive on the biotech sector for 2018. Here are some of the reasons why:
Political rhetoric and concerns over drug pricing policy initiatives have cooled off substantially since this time last year, opening the door for broader money flow into the sector. Innovations in both new (CAR-T, gene therapy, cystic fibrosis) and old (depression, headache) areas abound. And with Scott Gottlieb at the helm, the FDA has maintained its more permissive, pragmatic, and predictable approach.
RBC has eight top picks for 2018, and here we focus on what could be the five top plays. All are rated Outperform and offer aggressive accounts the potential to be solid alpha plays.
This is the top large cap biotech pick at RBC and it has big upside potential. Celgene Corp. (NASDAQ: CELG) is a very profitable biopharmaceutical company that develops and markets therapies for the treatment of hematologic malignancies, solid tumors and inflammatory conditions. The company’s key growth driver and contributor to the top line is Revlimid for the treatment of multiple myeloma and myelodysplastic syndromes.
Its blockbuster blood cancer drug Revlimid continues to dominate. Pomalyst sales also continue to be solid, and cancer drug Abraxane is growing at a respectable rate. So the company continues to have a strong lineup of top-selling drugs. RBC feels that Celgene remains the best large-cap de-risked growth story:
We think sentiment is at the bottom for Celgene, and as concerns about Revlimid intellectual property abate, revenues bounce back, they potentially do a deal, and the pipeline starts to come through, investors will return to the name for its best-in-class growth and underappreciated long-term earnings sustainability. We see a great entry point here and view it as one of our preferred top large caps.
The RBC price target for the shares is $148. The Wall Street consensus price objective is $124.83. The stock closed Wednesday at $108.27.
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.
RBC has remained positive on the stock for some time:
We continue to like ALexion for Soliris’ expansion into MG with a broad label and ALXN 1210’s likelihood of success in its phase 3 Paroxysmal Nocturnal Hemoglobinuria programs on the back of best-case pharmacokinetic and supportive efficacy data seen at ASH. While the Street may view ALXN 1210’s probability of success as a binary, we view compelling phase 1 PK/PD modeling (pharmacokinetic/pharmacodynamic modeling) data supportive of a more attractive risk/reward into its second quarter read-out.
RBC has a $166 price target, and the consensus price objective is $163.43. The stock closed Wednesday at $118.35.