Biotechnology tends to have very strong up and down moves, and last year the industry reversed the down momentum that started in 2015 and actually outperformed the S&P 500. Many on Wall Street feel that the U.S. repatriation tax break will help the large-cap companies bring back billions of dollars, which could increase mergers and acquisitions activity. That could be big news for some of the smaller players that have promising drugs in the pipeline.

In a new Merrill Lynch research report, analyst Tazeen Ahmad makes the case that four top biotech companies the firm covers have some powerful catalysts that could drive performance this year. All four are rated Buy at Merrill Lynch.

Acadia Pharmaceuticals

This stock got tagged recently, offering investors a very solid entry point. ACADIA Pharmaceuticals Inc. (NASDAQ: ACAD) is a biopharmaceutical company based in San Diego and focused on the development of therapeutics to treat central nervous system disorders. Its lead asset, Nuplazid (pimavanserin), has been approved for the treatment of Parkinson’s disease psychosis. Nuplazid is also in development for the treatment of dementia-related psychosis.

Top physicians are positive on the lead drug, and the analysts noted that in the report:

The company continued to show strength in Nuplazid sales in fiscal 2017. We are confident that sales would continue to grow in 2018 given physician’s high level of satisfaction with Nuplazid and their expectation to increase Nuplazid use of +24% over the next year. Acadia is expected to report the phase 2 CLARITY trial of Nuplazid in Major Depressive Disorder (MDD) in second half of 2018.

The Merrill Lynch price target for the shares is $44, and the Wall Street consensus target is $505.57. Shares closed trading Wednesday at $25.05.

Amicus Therapeutics

Many top analysts are positive on this small cap company. Amicus Therapeutics Inc. (NASDAQ: FOLD) is an orphan disease focused biotechnology company based in Cranbury, New Jersey, with assets in late stages of development. Lead asset migalastat is an oral small molecule for the treatment of Fabry disease. Its pipeline asset is the combination ATB200/AT2221 for the treatment of Pompe disease.

Merrill Lynch is positive on the potential for the Fabry drug, and said this:

We see solid uptake of Galafold for Fabry disease outside the US in the fourth quarter of 2017, which was up 35% quarter over quarter. We expect sales to strengthen with an expected launch in the US market in the second half of 2018 (PDUFA date on August 13). We see Amicus Therapeutics with upside opportunity de risked by approval and ongoing sales outside of the US.

Merrill Lynch has a $19 price target, and the consensus target is $19.92. Shares closed Wednesday at $15.17.

Clovis Oncology

This top biotech came in with numbers recently that surprised Wall Street, and it has been mentioned as a takeover candidate. Clovis Oncology Inc. (NASDAQ: CLVS) is an oncology-focused biotechnology company that launched its first drug, Rubraca, in late 2016. The drug is indicated for treatment of germline and somatic BRCA-induced ovarian cancer after failing two prior lines of chemotherapy.

The company fully owns rights to Rubraca and is investigating expansion into a broader ovarian cancer market and additional tumor indications. Top analysts have raised their price targets, as many have higher confidence in Rubrica’s potential in BRCA-mutated cancers. A damaged gene in either location can lead to increased risk of cancer, particularly breast or ovarian in women. A BRCA mutation is a mutation in either of the BRCA1 and BRCA2 genes, which are tumor suppressor genes.

Rubraca is another drug that physicians are gaining confidence in, and the analysts noted this:

Rubraca from our doctor check shows favorable safety and efficacy profile in the real world setting supporting our confidence in its continued growth. Clovis expects to report interim data from the phase 2 TRITON2 trial in prostate cancer at European Society for Medical Oncology conference in October, which we think a positive read would provide the company the potential for label expansion for Rubraca.

The $89 Merrill Lynch price target compares with the $86.55 consensus price objective. Shares closed on Wednesday at $59.60.

Sage Therapeutics

This is one of the larger companies that the Merrill Lynch analyst likes. Sage Therapeutics Inc. (NASDAQ: SAGE) is a clinical-stage biopharmaceutical company that develops and commercializes novel medicines to treat central nervous system disorders. Its lead product candidate includes SAGE-547, a proprietary intravenous formulation of allopregnanolone that is in late-stage clinical development as an adjunctive therapy for the treatment of super-refractory status epilepticus, as well as for the treatment of postpartum depression.

The company showed solid clinical results at the end of last year, and that was noted in the research:

The company is expected to file an NDA in postpartum depression of SAGE-547 in first half of 2018, following successful read of SAGE-547 in post-partum depression (PPD) in the fourth quarter of 2017. Sage is expected to initiate additional trials for another GABA-R targeted asset, ‘217 in insomnia, bipolar depression and Parkinson’s disease. We reiterate our positive view on the company, as we look ahead for its key readout of ‘217 in post-partum later this year and NDA filing for ‘547.

The Merrill Lynch price target is $200. The consensus target is $206.13, and shares closed at $173.84 on Wednesday.

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These four top companies have solid catalyst potential and already have shown good clinical results on their leading assets. While not suitable for accounts unless without a very high risk tolerance, these are solid plays for aggressive investors.

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