In what has become truly the most challenging investing environment in decades, it is probably no surprise to most investors that health care is the top-performing sector this year in the S&P 500. Driving that solid performance is the strength in biopharmaceutical stocks, some of which are for companies pursuing a vaccine for the novel coronavirus. Handicapping who will be the vaccine winner is extremely difficult, and some of the bigger companies have been whipped around as details of clinical tests leak out.
A new Goldman Sachs research report, while positive on some of the vaccine contenders, is even more positive on some of the large-cap sector leaders. The analysts noted this when discussing the large-cap stocks in their coverage universe:
Notably, the large cap companies in our coverage and large cap biotech as a whole, have remained more insulated from COVID-19/macro factors in a defensive play as an initial flight to quality/safety sustained the group in general on the back of strong balance sheets and relatively intact revenue streams.
Four companies are highlighted in the research report as those the Goldman team likes into upcoming first-quarter earnings reports. All four are rated Buy.
This is a Wall Street favorites and a member of the Goldman Sachs Conviction List of top stocks to Buy. 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. Roche recently has been mentioned as a company that could be looking at BioMarin. Roche is heavily focused on oncology drugs and invests heavily in early-stage molecules.
The Goldman Sachs price objective for the shares is $162, and the Wall Street consensus price target is way below that figure at $117.64. BioMarin stock closed trading on Friday at $97.31, up 4.5% on the day. The upside to the massive Goldman Sachs target is right at 70%. Earnings are expected to be reported on April 29.
This top mid-cap is rumored to be in the sights of a larger biotech company. Incyte Corp. (NASDAQ: INCY) has a current validated approach in hematology-oncology, and there’s reason to believe the three wholly owned clinical-stage assets the company has could drive several billion in revenue, something important for an acquiring company looking to acquire assets. Many on Wall Street are bullish on the company’s rich pipeline of small molecule therapies in all stages of development, and they see the company as a key player in the cancer space.
Incyte focuses on the discovery, development and commercialization of proprietary therapeutics in oncology. It offers Jakafi for the treatment of myelofibrosis and polycythemia vera cancers. The company’s commercial products also include baricitinib for rheumatoid arthritis, which was approved in early June by the FDA.
The analysts noted this regarding potential takeover interest:
Our M&A rank of “1” (representing a high probability (30-50%) of the company becoming an acquisition candidate) is related to its role as a commercial oncology story with a broad immuno-oncology pipeline.
Goldman Sachs has a $122 price target, well above the consensus target of $95.07. Incyte stock ended Friday trading at $103.48 per share. It is scheduled to post results on May 5.
This is yet another potential takeover candidate, and it has been for years. Seattle Genetics Inc. (NASDAQ: SGEN) is a biotechnology company focused on the development and commercialization of therapeutics for the treatment of cancer.
Its lead drug, Adcetris (brentuximab vedotin), is marketed for several indications, including Hodgkin lymphoma, peripheral T-cell lymphoma and anaplastic large cell lymphoma. The company also has a drug development platform that generates revenue from licensing and collaborations.
The analyst noted this when discussing the probability of a buyer stepping in:
We retain an M&A rank of “2” (representing medium or 15%-30% probability of the company becoming an acquisition target) given Seattle Genetics is a commercial oncology player with a leading platform of antibody-drug conjugate (ADC) drugs targeting a range of cancer indications.
The $174 Goldman Sachs price objective compares with a much lower $135.06 consensus price target. Seattle Genetics will report on April 30, and its last trade hit the tape on Friday at $146.04.
This outstanding company is at a potential crossroad. 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.
The company markets Trikafta, Symdeko/Symkevi, Orkambi and Kalydeco to treat patients with CF who have specific mutations in their CF transmembrane conductance regulator gene. It is also developing VX-814, which is in Phase 2 clinical trial, and VX-864, which is in Phase 1 clinical trial for the treatment of alpha-1 antitrypsin deficiency; VX-147 for treating kidney diseases; and CTX001, which is in Phase 1/2 clinical trial for the treatment of beta-thalassemia and sickle cell diseases.
The analysts like the stock but are approaching it with some caution. The research report said this:
Failure to secure reimbursement for Orkambi, Symdeko and triple combination therapies ex-US (specifically the UK and France). Failure to obtain regulatory approval and lack of commercial success for triple combination ex-US would pose significant downside risks to our sales estimates if the drug is not approved. Competition — we note potential competitive threats to the CF franchise, including Proteostasis Therapeutics, and gene editing technologies. Failure to protect IP portfolio — we assume IP coverage into the late 2020/2030s and failure to extend these patents would represent downside to our estimates.
Goldman Sachs has set a $287 price target. The posted consensus target is $269.77, Vertex Pharmaceuticals stock closed most recently at $269.86. It is expected to report earnings on April 29.
These are four top biotech stocks that the Goldman Sachs analysts are bullish on in front of first-quarter results. While their shares only suited for aggressive growth accounts with a high-risk profile, none of these companies is a proverbial one-trick pony. In addition, they all are potential takeover candidates. It may make sense to buy partial positions, just in case of an earnings miss or clinical results that are disappointing.
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