Health and Healthcare

Why 6 Top Biotech Stocks Could Beat Wall Street Q4 Estimates

Lee Jackson

Published: January 31, 2019 7:40 am

Last Updated: January 31, 2020 1:13 am

If most investors thought their portfolios took a beating during the final quarter of 2018, it was a good thing they were not all-in on the biotechnology segment. The VanEck Vectors Biotech ETF (NYSE: BBH) was down a stunning 25% between October 1 and December 24, and while the biotechs have rallied back smartly since then, it was a very difficult climb out of a massive hole.

In a new research report, the biotech team at SunTrust noted the big rally since the late December lows, with most of the commercial biotechs in the firm’s coverage universe up nicely, some as much as 36%. They feel that it would not be a major surprise to see six top companies they cover post results that beat top-line Wall Street expectations.

SunTrust rates all six at Buy, and while these stocks are much more suited for aggressive accounts with high risk tolerance, the companies are well established.

Agios Pharmaceuticals

This is a lower profile stock that makes sense for aggressive accounts. Agios Pharmaceuticals Inc. (NASDAQ: AGIO) is a biopharmaceutical company that engages in the discovery and development of novel investigational medicines to treat cancer and rare genetic diseases. It focuses on diseases that are directly caused by changes in genes or chromosomes, often passed from one generation to the next.

Its therapeutic areas of focus are cancer and rare genetic metabolic disorders, which are a group of over 600 rare genetic diseases caused by mutations, or defects, of single metabolic genes. SunTrust noted this:

Following a strong third quarter for TIBSOVO ($4.5 million vs street of ~$2-3 million), we would not be surprised to see the sales ramp to continue to drive a TIBSOVO revenue beat — above the ~$7.9 million consensus based upon 12 estimates, implying 88% quarter-over-quarter growth.

The SunTrust price target for the shares is $95, and the Wall Street consensus price objective which is $90.44. The stock closed Wednesday’s trading at $51.63.

Array BioPharma

This stock looks to be breaking out through a multiple top formation. Array BioPharma Inc. (NASDAQ: ARRY) engages in the research, development and commercialization of targeted small molecule drugs for the treatment of cancer and other high-burden diseases.

Its portfolio includes binimetinib, selumetinib, encorafenib, filanesib, ipatasertib, varltinib, danoprevir, ARRY-797, larotrectinib, tucatinib, ARRY-382, motolimod, prexasertib, GDC-0575, LOXO-292, LOXO-195 and AK-1830. The analyst report noted this:

Following a strong last quarter for BRAFTOVI + MEKTOVI in BRAF melanoma ($14 million versus street of $4 million), we would not be surprised to see Array beat the $21.7 million consensus for calendar fourth quarter 2018 (based upon 7 estimates, range ~$15-42 million, implying 55% quarter over quarter growth), as we expect the underlying sales ramp to continue.

SunTrust has a $26 price target, and the consensus target is $25.91. Shares closed on Wednesday at $18.47.

BioMarin Pharmaceuticals

This is one of Wall Street’s favorites and it posted solid earnings last year. BioMarin Pharmaceuticals Inc. (NASDAQ: BMRN) develops and commercializes innovative biopharmaceuticals for serious diseases and medical conditions. Its product portfolio comprises five approved products and multiple clinical and preclinical product candidates.

Over the past decade, BioMarin has become one of the top orphan drug companies, and it looks poised to stay there.  Roche recently has been mentioned as a company that could be looking at BioMarin. Roche is heavily focused on oncology drugs and invests heavily in early-stage molecules.

SunTrust remains very positive on the shares and noted this:

Our fourth quarter 2018 total revenue estimate is $371 million, which is slightly below the Street. However, the fourth quarter has historically (past five years) been a strong quarter for BioMarin. Thus, we would not be surprised if fourth quarter results beat consensus again. Three-year durability data from Valrox is expected mid-year, which we believe is the most important data readout in 2019 for BioMarin given the uncertainty.

SunTrust has set its price objective at $126. The consensus price objective is $120.59, and shares closed on Wednesday at $96.97, up almost 3% on the day.

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Exelixis

This stock has bounced back nicely from the 2018 lows, and it still has solid upside potential. Exelixis Inc. (NASDAQ: EXEL) is focused on discovery, development and commercialization of new medicines to manage care and outcomes for people with cancer. Its cabozantinib product is an inhibitor of multiple tyrosine kinases, including MET, AXL and VEGF receptors.

The company’s Cabometyx tablets are approved for previously treated advanced kidney cancer, and Cometriq capsules are approved for progressive, metastatic medullary thyroid cancer. The third product, Cotellic, is a formulation of cobimetinib, a selective inhibitor of MEK is approved as part of a combination regimen to treat advanced melanoma. Both cabozantinib and cobimetinib have shown potential in a range of forms of cancer and are the subjects of broad clinical development programs.

SunTrust thinks the company can beat earnings estimates:

We expect cabozantinib revenues to be in line, to above consensus of $168.9 million — with growth driven by both the opening up of the 2L+ indication in kidney as IO moves front line, opportunities in frontline kidney, and expanded use in liver.

The $36 SunTrust price target compares with the $28.78 consensus target and the most recent close at $23.30.

Incyte

This top mid-cap is rumored to be in the sights of a larger biotech company. Incyte Corp. (NASDAQ: INCY) has a current validated approach in hematology-oncology, and there’s reason to believe the three wholly owned clinical-stage assets the company has could drive several billion in revenue, something important for an acquiring company looking to acquire assets. Many on Wall Street are bullish on the company’s rich pipeline of small molecule therapies in all stages of development, and they see the company as a key player in the cancer space.

Incyte focuses on the discovery, development and commercialization of proprietary therapeutics in oncology. It offers Jakafi for the treatment of myelofibrosis and polycythemia vera cancers. The company’s commercial products also include baricitinib for rheumatoid arthritis, which was approved in early June by the FDA.

The SunTrust analysts are positive on Jakafi sales and noted this.

We expect Jakafi sales for fourth to be above consensus — but within upper range of fiscal year 2018 guidance. We expect few surprises from the updates at the beginning of the year. We expect the focus of the fourth quarter earnings call to be on (1) 2019 Jakafi guidance — which is typically below the street but usually finishes above the street, and (2) reiteration of the 2019 data timelines from the start of the year.

SunTrust has a price target of $80, but the consensus target is up at $85.63. The stock closed most recently at $79.98 a share.

Spark Therapeutics

Takeover rumors have swirled around this company for years as well. Spark Therapeutics Inc. (NASDAQ: ONCE) engages in the research, development and commercialization of gene therapies. Its product portfolio intends to treat inherited retinal sickness, liver-mediated and neurodegenerative diseases.

With both FDA and European approval for Luxturna for patients with inherited retinal disease. SunTrust is positive on the growth potential and said this:

Spark noted that the company shipped 75 vials of Luxturna in 2018, which indicates the shipment in int e fourth quarter of 2018 was 33, representing a 38% growth in volume as compared to 3Q18. We expect volume growth to slow down in the U.S. and pick up gradually in Europe. Luxturna was approved by the European Commission in November 2018 and Novartis will market the drug in 28 member states of the EU, as well as Iceland, Liechtenstein, and Norway. Spark is eligible to receive up to $25 million in cash milestones payments based on regulatory approval in Europe and an additional $40 million initial sales outside the U.S. The company is also entitled to receive royalty payments (in mid-20% range) on net sales of Luxturna outside the U.S.

SunTrust has set a $61 price target. The consensus target is $60.75. Shares were last seen trading at $45.96, up well over 7% on the day.

Almost all these top companies will be reporting fourth-quarter results in early to middle of February. It is important to remember that biotechnology stocks can be very volatile, and while the analysts use the best possible data in forming estimates, delays in sales or clinical results that fail to meet major endpoints can have a serious effect on share prices.