If any industry has done a head-spinning turnaround recently it was biotechnology. Last week saw the Nasdaq Biotech Index spike up almost 9%. While some was given back so far this week, it was still an impressive gain against the S&P, which was close to flat. Many on Wall Street feel that some of the more speculative institutional tech money may be rotating into the biotechs, and with good reason. Many of the large cap biotech leaders trade at multiples more associated with large cap pharmaceuticals.

An outstanding research report by the biotech team at Baird makes the case that short sellers need to leave and leave fast. The report noted:

We found that there was a good correlation between biotech stock performance and short interest this week indicating that at least some of the strength may have been driven by covering. As we noted last week, there are rumblings out of D.C. that an executive order is in the works. It is being billed as industry-friendly, with a draft discussed by the N.Y. Times earlier last week, leading to proactive efforts to lobby against it by the Democrats.

Much of the pressure on biotech stocks has been from short sellers, counting on a big government push to lower drug prices. With things still as cheap as they have been in over two years, some aggressive accounts should probably stick a toe in the water. We found four top biotech stocks rated Outperform at Baird that look solid.

Celgene

This is a top large cap pick with big upside potential. Celgene Corp. (NASDAQ: CELG) is a very profitable biopharmaceutical company that develops and markets therapies for the treatment of hematologic malignancies, solid tumors and inflammatory conditions. The company’s key growth driver and contributor to the top line is Revlimid for the treatment of multiple myeloma and myelodysplastic syndromes.

Blockbuster blood cancer drug Revlimid continues to dominate. Pomalyst sales also continue to be solid, and cancer drug Abraxane is growing at a respectable rate. So the company continues to have a strong lineup of top-selling drugs. Top Wall Street analysts feel that Celgene is best large-cap de-risked growth story, with possible 15% to 20% earnings growth over the next five years, two new growth drivers (new oral pills for UC and Crohn’s), and the large pipeline of more than 35 partnerships of early-stage next-generation cancer drugs.

Top analysts on Wall Street feel that there is considerable potential to drive long-term growth, even post-Revlimid. Some have revenue probability adjusted forecasts for partnered programs as high as $4.7 billion, and some believe much of the pipeline is being overlooked by Wall Street. There could be data points from 16 of the company’s partnered programs due over the next 12 months.

The Baird price target for the shares is $162, and the Wall Street consensus target is $142.04. The stock traded early Tuesday at $133.85.

Gilead Sciences

This company is trading at an astoundingly low forward multiple and offers big potential upside. Gilead Sciences Inc. (NASDAQ: GILD) discovers, develops and commercializes medicines in areas of unmet medical need in North America, South America, Europe and the Asia-Pacific.

Its products include Stribild, Complera/Eviplera, Atripla, Truvada, Viread, Emtriva, Tybost and Vitekta for the treatment of human immunodeficiency virus (HIV) infection in adults; and Harvoni, Sovaldi, Viread and Hepsera products for the treatment of liver disease.

The stock was hit on 2017 guidance, which was much lower than expected on diminishing hepatitis C revenue. However, the analyst is positive on the company’s HIV franchise going forward. It also cited new drug filings this year as potential catalysts.

The analyst comments on whether the company is a buyout candidate:

When will Google buy Gilead? OK, probably not Gilead but there certainly seems to be an effort underway in tech to move into healthcare. We met with former FDA commish Robert Califf last week, just one of the many recent big name hires by a tech company (in this case Alphabet’s healthcare subsidiary Verily). Although biotech may not be the next natural progression of tech into healthcare, it wouldn’t surprise us to see Silicon Valley start putting more than just their charity-dedicated capital to work in tackling disease.

Shareholders receive a 2.92% dividend. Baird has an $87 price objective for the shares, and the consensus target price is $77.66. The shares traded Tuesday at $71.65.

Neurocrine Biosciences

This company is partnering with a top big pharmaceutical company and the data has been very solid. Neurocrine Biosciences Inc. (NASDAQ: NBIX) is a biopharma company focused on developing and commercializing therapies for neurological and endocrine disorders.

The company’s lead asset is Ingrezza, approved for the treatment of tardive dyskinesia (TD) and in development for the treatment of Tourette syndrome. Neurocrine is also partnered with AbbVie on elagolix, in development for the treatment of endometriosis and uterine fibroids, and it is developing opicapone as an adjunct therapy for Parkinson’s disease.

Recent results have shown anticipated uptake for the company’s Ingressa and Teva’s Austedo in moderate to severe TD, but preference has swung toward Neurocrine’s offering, partially due to the lower price point. This has many analysts on Wall Street raising their earnings estimates.

While the Baird price target is $66, the posted consensus target is up at $70.77. The shares traded on Tuesday at $46.75.

Vertex Pharmaceuticals

Long considered a buyout candidate, after the mauling this stock took in the biotech selling to start the year, it is even more of a candidate now. Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) engages in discovering, developing, manufacturing and commercializing small molecule drugs for patients with serious diseases in specialty markets. The company focuses on developing and commercializing therapies for the treatment of cystic fibrosis (CF) and hepatitis C.

Wall Street as a whole has long been very positive on the stock, and some have indicated that the company could have as much as $10 in potential earnings-per-share power. The consensus also expect that Vertex should receive FDA approval for the company’s CF drug Lumacaftor, or as it is known, VX-‘809, which some think could generate billions in revenues.

The $136 Baird price target is higher than the consensus target of $127.13. The share price was last seen at $132.25.

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Four big opportunities for aggressive investors. There are also substantial risks, should current outcomes and clinical’s not play out favorably. With that in mind, some smaller speculative positions could be the right play for aggressive risk-tolerant accounts.

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