We have written at length on the beating the biotechs have endured. Another sub-sector that has been right alongside for the trip to the Wall Street woodshed has been specialty pharmaceuticals, and with good reason. Between total corporate meltdowns, failed inversions and a host of other issues, that part of the sector also got hammered. It’s starting look as though things are settling out, and there may be some big-time opportunity.

In a series of new research reports, the analysts at Stifel focus on three companies that could be offering big opportunity. While not suitable for most accounts, aggressive investors may want to take a shot at these unique opportunities. All three are rated Buy at Stifel.

Valeant Pharmaceuticals

This company took a headline beating for raising prices way too much. It is also a gigantic holding in Bill Ackman’s Pershing Square hedge fund. Valeant Pharmaceuticals International Inc. (NYSE: VRX) develops, manufactures and markets pharmaceuticals, over-the-counter products and medical devices worldwide.

The company has an extensive list of products that treat everything from severe acne to Wellbutrin XL for major depressive disorder in adults; Jublia for onychomycosis of the toenails; Xenazine for chorea; Targretin for cutaneous T-cell lymphoma; Arestin, a subgingival sustained-release antibiotic; and Provenge for the treatment of prostate cancer.

While it appears the bleeding has stopped for the company, and a new chief executive was brought in to fix the problems, some remain very skeptical of the company going forward. The company recently reaffirmed guidance for the year, and the Stifel team think it is definitely on the right track. They said this in the report:

With expectations low and concerns regarding 2016 guidance, we were pleased that Valeant not only maintained guidance but provided a realistic road-map to reaching its 2016 targets and its debt obligations through 2018, amounting to >$5 billion in payments (the majority of which will be satisfied by cash flow).

The Stifel price target for the stock is a massive $55, and the Wall Street consensus target is $42.56. The stock closed most recently at $24.49, down over 10% on the day.

Jazz Pharmaceuticals

While not under the pressure some of the companies have been, the stock is still down big from highs printed this time last year. Jazz Pharmaceuticals PLC (NASDAQ: JAZZ) is a biopharmaceutical company that identifies, develops and commercializes pharmaceutical products for various medical needs in the United States, Europe and elsewhere. The company has a portfolio of products and product candidates with a focus in the areas of sleep and hematology/oncology.

The company markets Xyrem, an oral solution for the treatment of cataplexy and excessive daytime sleepiness in patients with narcolepsy; Erwinaze to treat acute lymphoblastic leukemia; Defitelio for the treatment and prevention of severe hepatic veno-occlusive disease, a potentially life-threatening complication of hematopoietic stem cell transplantation; and Prialt, an intrathecally administered infusion of ziconotide for the management of severe chronic pain.

Jazz pharmaceutical posted solid revenues that were above consensus driven by sales of Xyrem. Stifel said this in its report:

The company continues to expect mid/high-single digit volume growth for 2016. Despite this continued volume growth the current managed care environment has become more difficult, with JAZZ noting increased rates of prior authorizations and reauthorizations at the central pharmacy. However, reimbursement approval rates remain high.

Stifel has a $200 price target, and the consensus estimate is $187.07. Shares closed on Thursday at $138.08.

Zogenix

We actively covered this stock a couple of years ago, as it had a top long-lasting painkiller approved. Zogenix Inc. (NASDAQ: ZGNX) develops and commercializes therapies for the treatment of central nervous system disorders in the United States. The company’s lead product candidate is the ZX008, a low-dose fenfluramine for the treatment of seizures associated with Dravet syndrome. It also develops Relday, an injectable formulation of risperidone that is in Phase 3 clinical trial to treat the symptoms of schizophrenia and bipolar disorder in adults and teenagers 13 years of age and older. In addition, Zogenix provides contract manufacturing services.

Stifel notes there are multiple clinical studies underway for ZX008, and the company is still in negotiations, looking for a partner for Relday. The analysts point out that Relday is a Phase 3-ready asset that could quickly get into Phase 3, pending partner decision/strategy. They do caution that while discussions continue the company does not envision or intend to take on the program itself.

The gigantic $28 Stifel price target compares with the consensus of $18.25. The shares closed most recently at $9.57, up 4.6% on the day.

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All three of these stocks provide big upside potential, but come with a fair share of risk as well. Again, they are only suitable for extremely aggressive accounts.

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