Citigroup Sees Big Upside for 2 of the Largest Biotechs

Health and Healthcare

Published: May 23, 2019 11:40 am

Last Updated: January 30, 2020 8:26 pm

After quite some time of muted or negative performance, big biotech may be worth a look again. Citigroup analyst Mohit Bansal assumed coverage of the large-cap biotech space and sees some selective value for investors looking for bargains. His view is that big biotech is returning to stability and growth as the companies are investing internally on their own pipelines while they are also acquiring or partnering with smaller and early-stage biotechs for future blockbuster drugs.

Despite the wearing down of hepatitis C drugs and the political climate targeting drug prices, Bansal sees stabilization and predictability in the base businesses of two key biotech leaders.

Citigroup raised Amgen Inc. (NASDAQ: AMGN) to Buy from Neutral and adjusted its prior target price of $210 to $205. Amgen shares closed up 1% at $171.30, in a 52-week range of $166.30 to $210.19 and with a consensus target price of $206.10. It was up 0.5% at $172.11 on Thursday.

To prove the acquisition and collaboration angle: Amgen announced over the past 24 hours that it would acquire a Danish collaborator called Nuevolution for a price of $167 million. This was shown to be a 169% premium over its local trading in Nasdaq’s Stockholm listing.

Gilead Sciences Inc. (NASDAQ: GILD) was upgraded to Buy from Neutral with a $78 price target. Citigroup sees value driving the cart here after multiple quarters of shares not performing well. The shares were last seen up 0.7% at $66.96, in a 52-week range of $60.32 to $79.61 and with a consensus analyst target of $80.51.

Shares of Gilead were last seen up just over 6% year to date, with an $85 billion market cap, while Amgen shares were trading down 12% so far in 2019, with a $105 billion market cap. This sector call would represent more than 20% in implied upside for both Amgen and Gilead if dividends are included.

Bansal also has Buy ratings on Alexion Pharmaceuticals Inc. (NASDAQ: ALXN), BioMarin Pharmaceutical Inc. (NASDAQ: BMRN) and Vertex Pharmaceuticals Inc. (NASDAQ: VRTX). All three were last seen down less than 1% on the day.