Health and Healthcare

4 Large Cap Biotech Leaders Are Huge Tax Reform Winners

By Lee Jackson Updated Jan 12, 5:35AM EST · Published Dec 11, 9:50AM EST

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4 Large Cap Biotech Leaders Are Huge Tax Reform Winners — © Thinkstock

With the U.S. House and the Senate now working together to patch up differences between the two tax reform bills, one thing looks pretty certain: In one shape or another, tax reform most likely will come to U.S. citizens and corporations. With some of the changes being the most dynamic ever in the tax code, there could be some dramatic impact. The expected changes could spark profound economic growth over the next few years.

One sector that could be a huge winner, and may surprise some investors, is biotechnology, especially for the large cap leaders in the group. A new research report from Merrill Lynch notes that the lower corporate rate may be a huge lift to the companies with U.S.-focused operations, while the lower repatriation rate could jump-start companies with billions parked overseas.

The analysts focus on four top companies, and three of the four are rated Buy at Merrill Lynch.

Amgen

This biotech giant remains a top stock for investors to buy and a safe way to play the potential growth in biosimilars. Amgen Inc. (NASDAQ: AMGN) focuses on areas of high unmet medical need and leverages its biologics manufacturing expertise to strive for solutions that improve health outcomes and dramatically improve people’s lives.

A biotechnology pioneer since 1980, Amgen has grown to be one of the world’s leading independent biotechnology companies, reaching millions of patients around the world and developing a pipeline of medicines with breakaway potential. The company’s five key marketed products are among the top-selling pharmaceutical products in the world.

Merrill Lynch notes that the company has billions in overseas cash and could see some big tax relief with a lower rate for repatriation of those funds.

Amgen shareholders are paid a 2.65% dividend. Merrill Lynch rates the stock a Buy and has a $209 price target. That compares with the Wall Street consensus price target of $190.55. The shares traded early Monday at $175.80 apiece.

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Biogen

This large cap biotech will partner with Samsung Bioepis in the biosimilar world. Biogen Inc. (NASDAQ: BIIB) discovers, develops and delivers to patients worldwide innovative therapies for the treatment of neurodegenerative diseases, hematologic conditions and autoimmune disorders. Founded in 1978, Biogen is one of the world’s oldest independent biotech companies, and patients worldwide benefit from its leading multiple sclerosis (MS) and innovative hemophilia therapies.

The company markets three products, Avonex, Tysabri and Tecfidera, that combined have the leading share of the worldwide $18 billion MS market. Merrill Lynch feels the company will be a big winner with the lower corporate tax rate as it has extensive operations in the United States.

Merrill Lynch rates the company a Buy and has a $365 price objective. The consensus price target is $358.42, and shares were last seen trading at $324.30.

Gilead Sciences

This stock is trading a very reasonable 10.6 times estimated 2018 earnings. Gilead Sciences Inc. (NASDAQ: GILD) is a biopharmaceutical company that discovers, develops and commercializes therapies for the treatment of HIV/AIDS, liver disease, cancer and inflammation. The recent acquisition of KITE allows for entry into the CAR-T space, indicating a renewed focus in oncology.

The company’s 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.

Gilead also has a large pile of cash overseas, which the analysts feel could come back stateside with a low repatriation rate.

Shareholders are paid a very solid 2.8% dividend. Merrill Lynch’s Neutral rating comes with a price objective of $82. The consensus price target is at $85.70. The stock traded at $74.65 Friday morning.

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Regeneron Pharmaceuticals

This is a top biotech play for aggressive accounts to consider. Regeneron Pharmaceuticals Inc. (NASDAQ: REGN) is a biopharmaceutical company focused on the development of therapeutic human antibodies for the treatment of eye disorders, hypercholesterolemia, cancer, inflammation and other diseases.

Regeneron’s product sales are driven principally by its VEGF inhibitor Eylea, which is approved for use in wet age-related macular degeneration and diabetic macular edema, and by Praluent for the treatment of hypercholesterolemia.

This is another company with extensive operations in the United States and a current high tax rate. A lower corporate rate could be huge for the bottom line.

The Merrill Lynch price target is a whopping $535. The Wall Street consensus target is $458.78, and shares traded at $383.85.

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Four top biotech companies that all look to benefit big-time from the changes in the new tax reform bills. While not a given quite yet, it sure appears that the House and the Senate will work their way to an agreement on a final version.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.