All sectors of the market tend to have times of the year that are better than others, and biotechnology is no different. Typically each year, the first quarter is the slowest for the sector, so many analysts tend to be somewhat careful when putting out estimates for earnings and revenue.
A recent research piece from the team at SunTrust Robinson Humphrey notes that while the improving currency environment eventually could be a positive for the biotechs, it probably will have little first-quarter impact. They do feel that positive pricing trends should help to offset the seasonal weakness. They have four stocks rated Buy that should come in fine when numbers are released.
Alexion Pharmaceuticals
Rumors have flown for some time about this stock as a potential acquisition target, but last year it was the buyer. Alexion Pharmaceuticals Inc. (NASDAQ: ALXN) announced a huge deal when it bought Synageva Biopharma for a whopping $8.4 billion in cash and stock. That move added products and pipeline to compliment Soliris, the company’s only marketed product. Soliris is approved for the treatment of paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS).
SunTrust thinks revenues and non-GAAP earnings for the quarter should come in within the company’s guidance range. Sales could come in at the lower level of guidance on some weakness in Soliris and Kanuma, which is an innovative enzyme therapy approved for the treatment of patients with lysosomal acid lipase deficiency. They do think those result could be partially offset by sales of Strensiq, which is a tissue-nonspecific alkaline phosphatase indicated for the treatment of patients with perinatal/infantile- and juvenile-onset hypophosphatasia.
The SunTrust price target for the stock is $220. The Thomson/First Call consensus price target is $199.11. Shares closed on Monday at $158.02.
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BioMarin Pharmaceuticals
This is one of Wall Street’s favorites, and earnings are expected to be announced on Thursday. 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. The company is expected to post around $875 million in revenue this year and possibly around $1.1 billion next year, following the approval of Vimizim, an enzyme replacement therapy for Morquio syndrome. SunTrust thinks the company reports continued growth in the drug and all other major products, with the exception of Aldurazyme, which is seasonally slow in first quarter.
Wall Street analysts as a whole are positive on the PEG-PAL Phase 3 data, which should be released soon.
SunTrust has a $128 price target. The consensus target is $115.37, and the stock closed on Monday at $90.22.
Celgene
This is one of Wall Street’s top biotech picks 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 analysts also think the company can grow earnings 15% on a compounded annual growth rate basis. Otezla, which treats psoriasis and psoriatic arthritis, had achieved considerable prescriptions among physicians, but the scripts have slowed after a solid launch, showing the importance for sales outside of the United States.
The SunTrust team feel that Celgene’s blockbuster blood cancer drug Revlimid will continue to dominate and sales should be solid. Pomalyst sales also continue to be solid. They also feel that its cancer drug Abraxane and Otezla sales are likely to come in below consensus. The biggest overhang for the company as a whole is the uncertainty over 2017 guidance, which SunTrust believes will be addressed on the first-quarter earnings call.
The SunTrust price target is $145, while the consensus target is lower at $137.32. The shares closed Monday at $110.57.
Medivation
This company has been heavily discussed recently in mergers and acquisitions chatter. Medivation Inc. (NASDAQ: MDVN) has a top prostate cancer drug that would be a valuable acquisition for an acquiring company. Xtandi is a highly leverageable likely blockbuster product in prostate cancer, a very large market segment with potential upside in breast cancer.
The partnership with Astellas suggests a natural buyer, but some on Wall Street see the company only taking a huge premium for a takeout, especially after the company announced its drug candidate talazoparib, combined with low-dose chemotherapy, produced a clinical benefit in 23 of 40 patients with heavily pretreated cancers. The company noted that four of seven patients with ovarian cancer showed objective responses, or tumor shrinkage.
The SunTrust team thinks the buyout rumors will continue to dominate the stock and likely will overshadow the first-quarter numbers, which they expect to be in line or above current Wall Street estimates.
The $56 SunTrust price target is well above the consensus estimate of $49.68. Shares closed Monday at $52.07.
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While these stocks are among the sector leaders, they are only suitable for very risk-tolerant accounts. Biotech as a whole has been hammered, and when the sector gets hit, it gets hit very hard.
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