Credit Suisse Outlines Top Biotech M&A Targets and Catalyst Stocks for 2018

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Get ready for more mergers and acquisitions in biotech and in emerging pharmaceuticals in 2018. This theme is believed by many investors, and now Credit Suisse is touting that tax reform may spark a wave of mergers in the space, which could produce sector outperformance. Credit Suisse added a 17-year biotech analyst named Martin Auster in 2017 as a managing director, and he is the lead small-cap and mid-cap biotechnology analyst for the firm.

Before investors get overly excited about biotech M&A, they should consider that Credit Suisse’s stance is cautiously optimistic on this front. The firm also pointed out that some perceived acquisition targets have pre-emptively run up over 2017.

Credit Suisse believes that the political and pricing rhetoric has faded into the background, but it also expects that the upcoming elections and other events will reawaken the pricing theme.

Auster further noted that M&A historically has been a driver for generalist interest in small to mid-cap names, and commentary from multiple larger biopharmaceutical companies have raised expectations for more deal-making in 2018. It was also noted that new company formation in the space continues at a high clip.

The following have been listed in alphabetical order, with the new initiations featured first with more detail and the assumed coverage listed second with basic data included. Consensus analyst target prices are from Thomson Reuters.

Arena Pharmaceuticals Inc. (NASDAQ: ARNA) was started as Outperform with a $44 price target. Credit Suisse noted that there is new management and multiple ways to win. The firm sees Arena as one in which the pipeline remains catalyst-rich, with proof-of-concept data expected on three compounds across multiple indications in the first half of 2018, highlighted by etrasimod in ulcerative colitis.

Arena shares were last seen trading at $34.21 apiece, with a $1.34 billion market cap, and its consensus analyst target price is $43.50.

AveXis Inc. (NASDAQ: AVXS) was started as Outperform and assigned a $134 price target. The firm believes that a lot of good news is being baked in, but it sees AVXS-101 emerging as a foundational therapy for type 1 SMA (and eventually in type 2/3). The firm also sees recent regulatory updates strengthening the case for a 2019 launch.

AveXis traded up 4% at $109.25, and its consensus target price was $116.20 ahead of the call. The market cap is $3.5 billion.

Esperion Therapeutics Inc. (NASDAQ: ESPR) was started as Outperform with a $103 price target (versus a $75.84 close) at Credit Suisse. The firm believes that upcoming Phase 3 data could support major upside in 2018. Its view is that the bempedoic acid franchise is well positioned to emerge as an orally-dosed and cost-efficient LDL-C lowering agent for roughly 12 million U.S. patients who are unable to achieve goals on traditional oral therapies.

Esperion was 0.4% at $75.52, and its market cap is $1.98 billion. The consensus target was $77.50.