Health and Healthcare

JPMorgan's Favorite Biotechs to Buy With Massive Upside Potential

Lee Jackson

Published: May 19, 2017 8:25 am

Last Updated: January 12, 2020 11:51 am

After a couple of down years in which the shrill political rhetoric over drug prices kept a pall over the industry, the biotechs are showing some signs of life. In fact, the Nasdaq Biotech Index (NASDAQ: NBI) is up 9%, compared with less than 5% for the S&P 500. The keyword for investors, especially in the small to mid-cap arena, is selectivity, according to the team at JPMorgan.

In a new research report, they combed through the first-quarter results as they do each quarter, looking for the best values and risk-reward for investors. The analysts presented ideas for investors from five categories: Long Term, Relative Underperformer, Clinical/Binary Event, Pullback and Underfollowed/Undervalued. Here we focus on higher profile companies from these groups that were rated Overweight at JPMorgan.

Array BioPharma

This stock has pulled back 41% from highs printed earlier this year. Array BioPharma Inc. (NASDAQ: ARRY) is a biopharmaceutical company focused on the discovery, development and commercialization of targeted small molecule drugs to treat patients afflicted with cancer. Its programs include these three cancer drugs: binimetinib, encorafenib and selumetinib (partnered with AstraZeneca, PLC).

The analysts noted in the report:

In early May, we upgraded the shares, on the back of shares having pulled back and upcoming catalysts for the company. Indeed, one of these catalysts played out with positive COLUMBUS Part 2 results of binimetinib+ encorafenib in BRAF melanoma, which significantly de-risks the regulatory path forward, in our view (filing expected in the June/July timeframe). Additionally, recently, the company announced a non-exclusive binimetinib I/O collaboration with Merck.

The JPMorgan price target for the stock is $10, and the Wall Street consensus target is $12.11. The shares closed Thursday at $8.14.

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. Its portfolio of products and product candidates has 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.

The report noted:

Jazz remains one of the stocks where we see the most compelling risk/reward and we continue see potential for substantial further stock appreciation in 2017 on the back of a consistent string of catalysts. Looking further a head, in the second half of 2017 we will watch for the approval and launch of Vyxeos as well as progress advancing next-gen Xyrem products JZP-507 (filing by first quarter 2018) and ‘258.

JPMorgan has a $190 price target, and the consensus target is $183.24. The stock closed Thursday at $149.14.

Ironwood Pharmaceutical

This stock saw a big spike up recently and could be poised for a much bigger move. Ironwood Pharmaceutical Inc. (NASDAQ: IRWD) is a biopharmaceutical company focused on the development and commercialization of gastrointestinal therapies. Along with a various partners it markets linaclotide (Linzess/Constella) for the treatment of constipation dominant irritable bowel syndrome and chronic idiopathic constipation.

First-quarter Linzess U.S. sales of $147.6 million were below consensus estimate, due to inventory destocking and Medicare “donut hole.” The near-term focus is on IW-3718 Phase 2b results expected in mid-2017, along with a management decision on Phase 3 studies. The pipeline continues on track with Phase 2a results of IW-1973 and IW-1701, which are expected in the second half of this year, and Duzallo approval in late 2017.

The $20 JPMorgan price target compares with the consensus target of $17.58. Shares closed Thursday at $18.16.

Radius Health

This stock also has pulled back sharply and offers an outstanding entry point. Radius Health Inc. (NASDAQ: RDUS) is a development stage biopharmaceutical company focused on therapies for the treatment of osteoporosis and other endocrine-mediated diseases. Its first product, abaloparatide, should reach the market in 2017 and is for the treatment of osteoporosis.

The FDA approved the company’s abaloparatide-SC for the treatment of postmenopausal women with osteoporosis at high risk for fracture. Label includes a “black box” warning for risk of osteosarcoma, as expected, given a similar warning seen with Eli Lilly’s Forteo. Favorable nonvertebral response compared to Forteo is not in label, but published literature can be used to promote drug use.

The analyst’s report said:

Following the approval and announced pricing for Tymlos (abaloparatide), we see the product positioned for a successful launch (particularly as Part D coverage comes into place in 2018) and view the company’s assets as undervalued at the current stock price. In the near term, we see potential for updated data for RAD1901 (SERD, breast cancer) at ASCO to drive upside in valuation with minimal credit in the stock for it today.

The JPMorgan price target is a huge $74. The consensus price objective is $57.13, and shares closed Thursday at $35.00.

These are four of the favorite small-mid picks for investors to consider, some which are offering outstanding entry points. It should be noted that these stocks are only suited for very aggressive accounts with a high risk tolerance.