Winning Ideas in Biotech/Pharma After JPMorgan Healthcare Conference
For health care investors, 2020 looks like a potentially good year after an especially fruitful JPMorgan Healthcare Conference this past week. In fact, brokerage firm Janney spent last week visiting with dozens of private, small-cap and international companies surrounding the conference in San Francisco. According to the firm, the tone of the conference was overall optimistic, but not the irrational exuberance of years like 2003 or the downtrodden lows of 2009.
As a result, Janney released a report listing some of its “Best in Show Awards,” along with the health care outlook for 2020 and some winning ideas.
Coming out of the conference, Janney believes that the biggest driver remains the continued introduction of next-generation biologics, as large molecule sales increase from 20% of global therapeutic sales today. Specifically, investors were upbeat about the number of immuno-oncology and cell and gene therapies in the FDA pipeline. Data from the Alliance of Regenerative suggest cell and gene therapy filings/approvals alone are expected to exceed 10 in 2020, up from five in the past three years.
Janney passed the “Best in Show Crown” award to Thermo Fisher Scientific Inc. (NYSE: TMO). The firm noted that it has visited with many of Themo Fisher’s competitors and they view it as the prime threat in the industry, with its scale ($25 billion sales) and Amazon-sized position in many markets. Janney detailed:
We believe Thermo Fisher is also poised to beat estimates with its pricing power, strong industry fundamentals, and its increased exposure to secular industry growth trends like BioProduction. Illumina, with the share price down for the week, had less new product introductions than past years and guidance drama, but still holds the monopoly in whole genome sequencing and is likely to post double-digit organic growth in 2020.
The “Best New Sector” award went to bioproduction players such as Danaher Corp. (NYSE: DHR), Thermo Fisher and Catalent Inc. (NYSE: CTLT), as well as Repligen Corp. (NASDAQ: RGEN). Shares of all these companies were rated as Buy at Janney.
The “Comeback” winner goes to a few names in life science tools. JPMorgan saw a lot of companies gaining momentum, like Veracyte Inc. (NASDAQ: VCYT), Oncocyte Corp. (NYSE: OCX) and Neogenomics, Inc. (NASDAQ: NEO). Overall, Janney believes that companies in the diagnostic segment hold some of the most significant upside.
Janney concluded its report with one last award:
“Congeniality Winner” or Let’s Beat Conservative Guidance Belongs to Multiple Winners like Agilent Technologies, Inc. (NYSE: A), Perkin-Elmer, Inc. (NYSE: PKI), Bio-Techne Corp. (NASDAQ: TECH), and Mettler-Toledo International Inc. (NYSE: MTD)… The positive factors include a growing US economy and robust global R&D funding for biotechnology research. The surprise factor was the consensus positive opinion for China growth as government funding and academic investing continues. The negative continues to be pessimistic comments around European growth with lingering Brexit uncertainty and the fundamentally slower growth economies.