Jefferies Starts Coverage on Biotechs: 3 Top Stocks to Buy Now

Brian Abrahams, who is highly regarded as a top biotech analyst, joins Jefferies and starts coverage on 13 stocks. We screened the stocks rated Buy at Jefferies, and three of the companies make very good sense for aggressive accounts now.

Celgene

This company is one of the top picks at Jefferies, which feels this large cap stock has solid upside potential for 2015 and next year. Celgene Corp. (NASDAQ: CELG) has an outstanding partnered pipeline, which the firm thinks is low risk and has the potential to yield several blockbuster drugs. The analyst also thinks the company can grow earnings 15% on a compounded annual growth rate basis going forward.

The company provided strong guidance earlier this year surrounding its Otezla launch and encouraging feedback from doctors on the potential of new triplet regimens in myeloma. Analysts across Wall Street are raising their estimates for the drug as after a little more than a year on the market. Otezla, which treats psoriasis and psoriatic arthritis, has achieved considerable prescriptions among physicians.

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Celgene’s blockbuster blood cancer drug Revlimid continues to dominate. Pomalyst sales grew nearly 46% year over year last quarter. Cancer drug Abraxane is also growing at a respectable rate, so the company continues to have a strong lineup of top-selling drugs. While second-quarter numbers were solid, the rest of the year could prove to be better.

The Jefferies price target for the stock is $140. The Thomson/First Call consensus price target is $149.83. Shares closed on Thursday at $122.97.
Biogen

This is another large cap biotech the Jefferies team is very bullish on, and the second big biotech company to announce a gigantic debt offering recently. Biogen Inc. (NASDAQ: BIIB) got absolutely hammered in the summer when the company reported second-quarter earnings that were far below Wall Street estimates. The stock dropped 22%, mainly because the biotech giant substantially reduced its full-year 2015 outlook. Biogen’s blockbuster drug Tecfidera registered much-lower-than-expected revenue growth, resulting in the low full-year 2015 guidance.

The Jefferies team acknowledges that company’s core multiple sclerosis drug market is facing challenges going forward, with most diagnosed patients now treated, payers limiting net benefits from price increases and competing entrants expected. With those issues in mind, they are still very positive on Tysabri, especially for secondary-progressive multiple sclerosis, with upcoming clinical data a big factor.

The Jefferies team also handicaps a 45% probability for Biogen’s Alzheimer’s antibody aducanumab’s profile and ultimate success. With potential sales of $3.6 billion by 2025, it is a huge forward potential benefit.

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The Jefferies price target for the biotech behemoth is $348, while the consensus target is $386.69. The stock closed on Thursday at $312.62.

Incyte

This is another top stock that is often 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 is 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.

The Jefferies team is very positive on the potential for Jakafi, which is a first-in-class JAK1/JAK2 inhibitor approved by the U.S. Food and Drug Administration (FDA) for treatment of people with polycythemia vera who have had an inadequate response to, or are intolerant of hydroxyurea. Jakafi is also indicated for treatment of people with intermediate or high-risk myelofibrosis (MF), including primary MF, post–polycythemia vera MF and post–essential thrombocythemia MF.

Jefferies is also very optimistic about Jakafi’s potential in solid tumors. The analyst estimates a 70% likelihood of success in pancreatic cancer and still meaningful opportunity (30% to 40%) in other solid tumor settings, with potential for out-year U.S. sales to be boosted a whopping 50% or more.

The $140 Jefferies price target is higher than the consensus target of $126.25. The shares closed most recently at $124.50.

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Biotech investing is for aggressive accounts. But these three top large cap names are very good bets for investors looking to add high-quality companies with less volatility and binary clinical data risk.