Get ready for more mergers and acquisitions in biotech and in emerging pharmaceuticals in 2018. This theme is believed by many investors, and now Credit Suisse is touting that tax reform may spark a wave of mergers in the space, which could produce sector outperformance. Credit Suisse added a 17-year biotech analyst named Martin Auster in 2017 as a managing director, and he is the lead small-cap and mid-cap biotechnology analyst for the firm.

Before investors get overly excited about biotech M&A, they should consider that Credit Suisse’s stance is cautiously optimistic on this front. The firm also pointed out that some perceived acquisition targets have pre-emptively run up over 2017.

Credit Suisse believes that the political and pricing rhetoric has faded into the background, but it also expects that the upcoming elections and other events will reawaken the pricing theme.

Auster further noted that M&A historically has been a driver for generalist interest in small to mid-cap names, and commentary from multiple larger biopharmaceutical companies have raised expectations for more deal-making in 2018. It was also noted that new company formation in the space continues at a high clip.

The following have been listed in alphabetical order, with the new initiations featured first with more detail and the assumed coverage listed second with basic data included. Consensus analyst target prices are from Thomson Reuters.

Arena Pharmaceuticals Inc. (NASDAQ: ARNA) was started as Outperform with a $44 price target. Credit Suisse noted that there is new management and multiple ways to win. The firm sees Arena as one in which the pipeline remains catalyst-rich, with proof-of-concept data expected on three compounds across multiple indications in the first half of 2018, highlighted by etrasimod in ulcerative colitis.

Arena shares were last seen trading at $34.21 apiece, with a $1.34 billion market cap, and its consensus analyst target price is $43.50.

AveXis Inc. (NASDAQ: AVXS) was started as Outperform and assigned a $134 price target. The firm believes that a lot of good news is being baked in, but it sees AVXS-101 emerging as a foundational therapy for type 1 SMA (and eventually in type 2/3). The firm also sees recent regulatory updates strengthening the case for a 2019 launch.

AveXis traded up 4% at $109.25, and its consensus target price was $116.20 ahead of the call. The market cap is $3.5 billion.

Esperion Therapeutics Inc. (NASDAQ: ESPR) was started as Outperform with a $103 price target (versus a $75.84 close) at Credit Suisse. The firm believes that upcoming Phase 3 data could support major upside in 2018. Its view is that the bempedoic acid franchise is well positioned to emerge as an orally-dosed and cost-efficient LDL-C lowering agent for roughly 12 million U.S. patients who are unable to achieve goals on traditional oral therapies.

Esperion was 0.4% at $75.52, and its market cap is $1.98 billion. The consensus target was $77.50.

Spark Therapeutics Inc. (NASDAQ: ONCE) was started as Outperform and assigned a $61 price target (versus a $51.53 prior close) at Credit Suisse. The firm sees Spark’s unique gene therapy development, manufacturing and regulatory expertise continuing to make the name an attractive investment opportunity. Near term, the firm feels this is a risk-reward play on a constructive SPK-8011 update in mid-2018, while its Luxturna plus the technology platform offer a solid base value for the stock. Potential upside is also seen from the hemophilia programs.

Spark Therapeutics had a $51.50 share price, a $1.9 billion market cap and a consensus price target of $70.32.

Ultragenyx Pharmaceutical Inc. (NASDAQ: RARE) was started with an Outperform rating and assigned a $67 price target (versus a $47.77 close) at Credit Suisse. The firm is looking forward to 2018 being a transformational year, but its target is under the $65.65 consensus estimate. This view has multiple catalysts: burosumab is among the most positive it has received on near-term product launches; a $1 billion-plus opportunity setting a floor for the stock; a transition to a commercially-oriented biotech with two product launches in 2018; and an extensive pipeline.

Ultragenyx Pharma was last seen up 0.6% at $48.06, with a $2.04 billion market cap. The consensus target price is $65.65.

Credit Suisse also has other Outperform ratings that were listed as assumed coverage by Auster. These were shown as follows:

Acceleron Pharma Inc. (NASDAQ: XLRN) was assumed as Outperform with a $55 price target as a high-probability oasis within the binary biotech landscape. Shares were down almost 3% to $43.70, with a market cap of $1.98 billion and a $49.08 consensus target price.

Alexion Pharmaceuticals Inc. (NASDAQ: ALXN) was assumed as Outperform with a $147 target. Its shares were trading down 0.5% at $121.46, with a $27.1 billion market cap and a consensus analyst target of $160.38.

Biomarin Pharmaceuticals Inc. (NASDAQ: BMRN) was assumed as Outperform with a $113 price target. The stock was last seen up 0.8% at $90.40. The market cap is $15.9 billion, and the consensus target price was $110.14 ahead of the call.

Edge Therapeutics Inc. (NASDAQ: EDGE) was assumed as Outperform with a $17 price target ahead of key interim analysis for NEWTON-2. Shares were trading up over 7% to $11.44, which compares with the consensus analyst target price of $18.33 ahead of the call. The market cap is $353 million market cap.

MyoKardia Inc. (NASDAQ: MYOK) was assumed as Outperform with a $60 price target as it is getting to the heart of HCM. The stock was last seen trading flat at $52.60. MyoKardia has a $1.9 billion market cap and a consensus target price of $57.00.

Ra Pharmaceuticals Inc. (NASDAQ: RARX) was assumed as Outperform with a $16 price target as a long-term complement play. It traded down almost 2% to $7.95, and the market cap is $180 million. The consensus target price was listed as $25.00, but that comes from just five firms with Buy or Outperform ratings.

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