If there was a sector that joined energy in taking a beating in 2015, it was specialty pharmaceuticals. In fact, it never fails, the guilt by association when something goes awry in a high-profile stock almost always bleeds to others, even if they have not a thing in common with the offender. The specialty pharmaceutical sector is down a stunning 30% since the end of July. With drug pricing and sales channels an issue, and politicians howling for action, the perfect negative storm hit the sector.

In a new research report, RBC thinks that none of the above should seriously impact outlooks for the top companies in 2016, and fundamentals remain very positive. The firm also thinks that companies have the chance to initiate new and larger stock buyback programs, especially at such low levels price wise. RBC notes that while the favorable set-up for the best companies is very positive, investors need to remain selective.

The analysts have six top stocks to buy for 2016, but we focus on the four companies with the biggest potential upside.

Endo Health Solutions

This is the top pick at RBC, and it could hold incredible potential for patient investors. Endo International PLC (NASDAQ: ENDP) is a specialty health care company focused on branded and generic pharmaceuticals and devices worldwide.

The company took a huge hit in the fall due to the Valeant issues and may be offering patient investors an incredible entry point. The company answered the big drop in October by pointing out that the percentage of the company’s projected U.S. Branded 2015 revenues at the midpoint of 2015 guidance that flow through specialty pharmacies is less than 10%, which represents approximately 3% of the company’s projected overall 2015 revenues. It also pointed out that the specialty pharmacies used by Endo are fully independent of the company. Endo does not have any ownership interest in, consolidate any financial results of or have affiliations with any specialty pharmacy.

RBC continues to like the company’s generic business and cites the continuing improving trend of FDA approvals. The firm also notes their 47 potential first-to-file or first-to-market opportunities, with several expected to hit in the next one to two years.

The RBC price target for the stock is a huge $91. The Thomson/First Call consensus target is $83.35. The stock closed Monday at $61.82 a share.

Teva Pharmaceuticals

This generic giant could be giving investors the best entry point in years. Teva Pharmaceuticals Industries Ltd. (NYSE: TEVA) is a leading global pharmaceutical company that delivers high-quality, patient-centric health care solutions. It is the world’s largest generic medicines producer, leveraging its portfolio of more than 1,000 molecules to produce a wide range of generic products in nearly every therapeutic area.

In specialty medicines, Teva has a world-leading position in innovative treatments for disorders of the central nervous system, including pain, as well as a strong portfolio of respiratory products. The company integrates its generics and specialty capabilities in its global research and development division to create new ways of addressing unmet patient needs by combining drug development capabilities with devices, services and technologies.

The company acquired Allergan’s generic-drug business for $40.5 billion in cash and stock to bolster its position as the world’s largest maker of generic drugs. RBC thinks that the deal will close early next year and sees an improving product mix combined with accelerating growth as a positive for investors. With the largest generic pipeline in the United States, and the possibility that 2016 emerges as the inflection year for generic approvals, the stock makes good sense for more conservative investors.

RBC has an $85 price target, while the consensus target is posted at $77.59. The stock closed Monday at $65.93.
Flexion Therapeutics

This is the RBC top selection as a clinical data-driven catalyst pick. Flexion Therapeutics Inc. (NASDAQ: FLXN) is a clinical-stage specialty pharmaceutical company focused on the development and commercialization of novel pain therapies. It is currently advancing a portfolio of local, injectable drug candidates that have the potential to provide better and more persistent analgesia compared with existing therapy.

The company’s lead product, Zilretta, is an intra-articular sustained-release steroid in development for patients with moderate to severe osteoarthritis pain. RBC is bullish into the next data release, expected in February. The stock has been weak since the first pivotal data was released, but the analysts think the upcoming data will be very positive and put concerns to rest. They also think the company is a very possible acquisition target after the post-Phase 3 data are released.

The $44 RBC price target is higher than the $36.33 consensus target. The stock closed Monday at $19.04.

Agile Therapeutics

This company has seen solid insider buying lately. Agile Therapeutics Inc. (NASDAQ: AGRX) is a women’s health specialty pharmaceutical company focused on the development and commercialization of new prescription contraceptive products. Its product candidates are designed to provide women with contraceptive options that offer greater convenience and facilitate compliance. The lead product candidate, Twirla (ethinyl estradiol and levonorgestrel transdermal system), also known as AG200-15, is a once-weekly prescription contraceptive patch currently in Phase 3 clinical development.

RBC doesn’t see Phase 3 results being released until the fourth quarter of 2016, but the firm is very positive and thinks the results will drive the stock higher. RBC also thinks that the company could attract significant interest from other major players in women’s health. With a longer duration patent for Twirla, solid manufacturing capabilities and additional pipeline opportunities, the analysts feel the company could fetch as high as a $20 per share buyout.

The RBC price target is $13. The consensus price target is $15.75. The stock closed Monday at $8.48.

With the exception of Teva, these companies are only suitable for very aggressive accounts. With that caveat in place, they have tremendous upside potential for 2016 and could be offering investors outstanding entry points at current trading levels.

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