It’s no secret that one of the strongest raging bull markets of our lifetime is taking place. At the start of 2018, the bull market was almost nine years old. Many investors have seen massive gains as the Dow Jones Industrial Average and S&P 500 have rallied over 300% from their panic selling lows in 2009 when the recession fears were at their highest. Now many investors are looking for new ideas on how to position themselves for the rest of this year and beyond.
The world of biotech is a frequent destination for investors who are looking for outsized gains over the broader market indexes. After all, coming up with a new cancer treatment, a new heart disease treatment or a new cognitive preservation drug, or treating many of the less common diseases with no cures, can literally take a company from zero revenues to hundreds of millions or even billions of dollars in revenues.
This year is shaping up to be a stellar one for biotech. Investors are looking for growth and upside, and that can drive the interest in biotechs ever higher.
24/7 Wall St. looks for many emerging biotech outfits that could rise 50%, 100% or even rise exponentially. It is important for investors to focus on companies that have promise, and perhaps it is equally important to understand that companies that have had years of disappointments often keep disappointing investors.
Some of the recent headlines about biotech and emerging pharma should pretty much represent the current bullish optimism for the segment:
- On January 26, Barron’s wrote “Biotech Ready to Bust Out” and Dow Jones wrote “Biotech Investors Cured of Worry.”
- Dow Jones also wrote in a health care roundup “Health Care Higher After Strong Biotech Earnings” on January 25. Also on January 25, TheStreet wrote “Why 2018 Will Be Better for Biotech Deals Than 2017.”
- On January 22 MarketWatch wrote “Biotech ETF Rallies On Merger News, On Track For Highest Close Since 2015.”
- And on December 19, 2017, Investors Business Daily wrote “Why These Biotech Stocks Could Be Taken Over In 2018.”
The biotechs are looking ripe for M&A activity in 2018 as well. Our formal biotech forecast for our daily and weekend email readers on January 6 said, “There should be multiple deals announced in the first 4 months of 2018, with a focus on companies with multiple pipelines that can be acquired in the $500 million to $8 billion range.” We have already seen companies like Juno Therapeutics being acquired by Celgene for $9 billion, and Bioverative has been given an $11.6 billion acquisition by Sanofi. And an even larger deal from 2017 was Gilead’s diversification acquisition of Kite Pharma for almost $12 billion in 2017, preceded by Johnson & Johnson’s $30 billion acquisition of Actelion in the same year.
Many more drug companies and top biotech leaders are loaded with cash. 24/7 Wall St. recently identified how just 16 companies had a total of $1 trillion in cash, and at least four of those were biotech and pharma giants. Those that have spent much of their cash on deals could also easily tap the debt market or could choose to make stock-for-stock acquisitions.
With biotech stocks that could rise 50, 100% or even exponentially, some safeguards need to be strongly considered. If a company just experienced a major sell-off and Wall Street analysts insist that their bullish thesis is right, these need at least some caution. If a company does not have a market cap of $100 million or more, it should be treated with more scrutiny than an established biotech that already has drug sales with a market value in the hundreds of millions or billions. And if a company is widely speculated to be a bust, then investors need to use major scrutiny.
It is important to understand that these are not formal predictions. They are currently the most promising biotech and emerging pharma companies with catalysts ahead that could lead to massive drug sales or buyouts from larger biotech and pharma outfits. We have used some Wall Street analyst notes to assist in price targets, and consensus analyst price targets are from Thomson Reuters. And for a final risk and warning, investors need to know that bad news of any kind can lead to a biotech outfit’s death march — and sometimes that bad news may seem good on the surface.