Like all sectors in the S&P 500, biotech has struggled mightily out of the gate this year. In fact, the iShares Biotechnology ETF is down a staggering 13% since the beginning of the year and 30% since last summer. Given the nature of the sector, it tends to move up and down faster in times of volatility and in market rallies. For aggressive investors looking to add shares or initiate positions, now may be one of the best entry points for the top stocks in the past few years.

In a recent research report, the team at Jefferies makes its picks for this year and has a positive feeling toward sentiment for the sector in the second half of 2016. The analysts note that continued populist drug pricing rhetoric from political candidates will remain through the election cycle and remind investors that certain therapeutic areas are very crowded trades at this point.

Ten top stocks make the grade as top picks at Jefferies, and we focus on three, two which are large cap sector giants and the other a top mid-cap company. All are rated Buy at Jefferies.

Biogen

Jefferies is very bullish on this large cap biotech leader, though the stock is down a stunning 40% from highs that were printed in March of last year. Biogen Inc. (NASDAQ: BIIB) discovers, develops and delivers to patients worldwide innovative therapies for the treatment of neurodegenerative diseases, hematologic conditions and autoimmune disorders. Founded in 1978, Biogen is one of the world’s oldest independent biotechnology companies, and patients worldwide benefit from its leading multiple sclerosis (MS) and innovative hemophilia therapies.

Jefferies has acknowledged in the past that the company’s core MS drug market faces challenges going forward, with most diagnosed patients now treated, payers limiting net benefits from price increases and competing entrants expected. With those issues in mind, Jefferies is still positive on Tysabri, especially for secondary-progressive multiple sclerosis, with upcoming clinical data a big factor.

The analysts also feel that a combination of cost reductions in tandem with the still strong MS franchise, which may not be as challenged by competitors as some on Wall Street think, can help the company beat earnings estimates this year. With a strong pipeline, the stock is a solid choice for aggressive growth investors.

The Jefferies price target for the stock is a gigantic $357. The Thomson/First Call consensus price target is even higher at $366.87. The stock closed Wednesday at $267.25.
Celgene

This is another of Jefferies top biotech picks, and the analysts feel this large cap stock also has solid upside potential for 2016. Celgene Corp. (NASDAQ: CELG) has an outstanding partnered pipeline, which most think is low risk and has the potential to yield several blockbuster drugs. Certain Wall Street analysts also think the company can grow earnings 15% on a compounded annual growth rate basis going forward.

The company provided strong guidance last year on its Otezla launch and encouraging feedback from doctors on the potential of new triplet regimens in myeloma. Analysts across Wall Street raised their estimates for the drug as, after a little more than a year and a half on the market, Otezla which treats psoriasis and psoriatic arthritis, has achieved considerable prescriptions among physicians.

Celgene’s blockbuster blood cancer drug Revlimid continues to dominate. Pomalyst sales also continue to be solid. Cancer drug Abraxane is also growing at a respectable rate, so the company continues to have a strong lineup of top-selling drugs. While third-quarter numbers were pretty much just in line, fourth quarter and 2016 could prove to be better.

The stock jumped recently when Celgene and Natco came to a patent settlement, which removes a huge overhang on the stock that has been there for some time. Revlimid makes up over 60% of the company’s total revenue, so having better clarity on the duration of its life cycle should continue to be a positive in 2016 and beyond. Plus some on Wall Street think that the terms of the settlement are incrementally more favorable than many expected.

The Jefferies price target is raised to $149, compared to a consensus target of $142.75. The shares closed Wednesday at $100.67.

Medicines Company

This stock has been on a total roller-coaster ride over the past year. Medicines Co.’s (NASDAQ: MDCO) goal is to be a leading provider of solutions in three areas: serious infectious disease care, acute cardiovascular care and surgery and perioperative care. The company is focused on saving lives, alleviating suffering and contributing to the economics of health care by focusing on 3,000 leading acute/intensive care hospitals worldwide.

The stock shot up in the fall when they announced news that an experimental cholesterol drug being co-developed with Alnylam Pharmaceuticals lowered LDL-C or “bad” cholesterol levels by around 83% in a small, early stage study. The drug, ALN-PCSsc, is an injected RNAi therapy designed to block the expression of the enzyme PCSK9, a protein that plays a critical role in regulating circulating levels of bad cholesterol in the blood.

Jefferies expects Phase 2 data for MDCO-216 and ALN-PCSsc, and Phase 3 data for Carbavance this year. Some Wall Street analysts are currently assigning a 60% probability of success to Carbavance, and successful Phase 3 data would take the probability much higher.

Jefferies has a $50 price target, and the consensus estimate is $46.60. The stock closed Wednesday at $32.60.

Again, these stocks are only suitable for very aggressive accounts. However, they are well along in the clinical trials and some are close to presenting Phase 3 results. Sticking with industry leaders always makes sense in a very volatile sector.

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