Health and Healthcare

Credit Suisse Identifies Top Mid-Large Cap Biotech and Pharma Stocks for Big Upside

Jon C. Ogg

Published: October 3, 2017 10:55 am

Last Updated: January 12, 2020 7:34 am

U.S. pharmaceutical and biotech stocks may have considerable upside if Credit Suisse’s views come to pass. The firm is looking at pharma and biotech opportunities around politics, drug pipelines and new products. This part of the market has not come without controversy in the past year and a half.

Credit Suisse anticipates that the final quarter of 2017 will be a time when investors will continue to keep an eye on macro issues, such as drug pricing and potential corporate tax reform. That being said, a significant amount of product news also should have an impact on how investors view companies in the pharma and biotech spaces.

The analyst believes that investor sentiment remains relatively robust in the pharma and biotech spaces. Noise on the drug pricing side has been far below what it has been, and tax reform may help lead to increased excitement around potential business development and mergers in the industries. Credit Suisse believes that most of the large cap companies it follows are still waiting for further clarity on these issues before announcing transformative deals.

In biotech, Credit Suisse remains cautiously optimistic. The firm sees an uptick in research and development productivity being poised to continue at the same time that there is increasing flexibility from regulators to rapidly approve innovative new therapies. The firm expects a wave of product-related upcoming catalysts over the next 18 to 24 months. Lastly, the firm sees robust cash flow generation followed by attractive dividend yields.

Here, some color has been added on each, along with the consensus analyst price targets from Thomson Reuters. As a reminder, most analyst calls with Buy or Outperform ratings are currently coming with upside of 8% to 15% for major companies at this stage of the more than eight year bull market.

Large-Cap Pharma

Merck & Co. Inc. (NYSE: MRK) is listed as a Top Pick in the Credit Suisse universe, as the firm expects Keytruda to beat expectations and drive upside through the course of the year. Still, it pointed out that the recovery from the recent cyberattack bears watching. Credit Suisse has a $73 target price on Merck. Its $73 price target is 13.6% above the $64.25 recent share price, and the dividend yield of over 2.8% represents a total return of well over 15%. The Thomson Reuters consensus analyst target price is $70.00.

Allergan PLC (NYSE: AGN) is covered as Outperform with a $266 target price, almost 27% higher, before considering Allergan’s 1.3% dividend yield. The team pointed out that sentiment around Allergan remains split, but they are assuming further stability in the base business, improving cash flows and earnings quality should all combine to allow for its focus to shift to the optionality in the pipeline later in the year. Allergan’s consensus target price is $267.44.

Johnson & Johnson (NYSE: JNJ) is covered as Outperform with a $147 target price, up over 11% from the $132 share price, before considering its 2.6% dividend yield. The Pharmaceuticals segment is said to be driving upside for the company, specifically products such as Xarelto, Darzalex, Imbruvica and the schizophrenia franchise.

Small-Mid Cap Picks

Alkermes PLC (NASDAQ: ALKS) was covered as Outperform with a $70 target, almost 40% higher than the $51 share price. The Credit Suisse target is almost $7 more than the $63.33 consensus target price. The firm noted that Vivitrol remains an underappreciated emerging blockbuster, and it expects to see this asset and progress with ALKS 5461, ALKS 3831 and ALKS 8700 to drive up expectations.

Aimmune Therapeutics Inc. (NASDAQ: AIMT) is rated as Outperform with a $36 target price, up over 40% from a $25.25 share price. Credit Suisse feels its pivotal point is ahead in the first quarter of 2018 with the Phase 3 data for AR101. The firm expects that to be positive, but it would be buyers even ahead of the competitor data from DBVT’s Viaskin Peanut that is expected in October 2017. Thomson Reuters has an even higher consensus target price of $36.80, and the market cap is $1.3 billion.

MyoKardia Inc. (NASDAQ: MYOK) is rated as Outperform with a $55 target, up over 30% from a $42 share price. This company was called a leader in developing precision medicine for rare cardiovascular diseases, with the firm pointing out continued progress for mavacamten into the likely pivotal EXPLORER-HCM trial, and progress with MYK-491 into Phase 2 could help drive further upside in the stock even after its recent positive move. MyoKardia’s consensus target price is $56.60, and its market cap is almost $1.5 billion.

These were not all the firm’s top picks in the bio-pharma space, but these were the ones with the most supporting data on why they were seeing such strong potential upside ahead.