Sometimes, whether it’s the sins of many or the sins of none, Wall Street will take a whole sector out to the woodshed for a beating. After a few years of rallying huge, the specialty pharmaceutical sector is down a stunning 30% since the end of July. With drug pricing and sales channels an issue, and politicians howling for action, the perfect negative storm has hit.

In a new research report, RBC sees the third-quarter earnings reports for the top companies in the sector as the first real chance for executives to directly address the big concerns on pricing, other specialty pharma issues and of course the big price pullback since the summer. RBC thinks that none of the above should impact outlooks, and fundamentals remain very positive. The firm also thinks that companies have the chance to initiate new and larger stock buyback programs, especially at such low levels price wise.

We screened the RBC specialty pharmaceutical universe and found six companies rated Outperform with over 100% upside to the firm’s price target.

AcelRx Pharmaceuticals Inc. (NASDAQ: ACRX) is a micro-cap company that aggressive accounts may want to consider. This specialty pharmaceutical company is focused on the development and commercialization of innovative therapies for the treatment of acute pain. The company’s late-stage pipeline includes ARX-04 (sufentanil sublingual tablet, 30 mcg) for the treatment of moderate-to-severe acute pain in a medically supervised setting and Zalviso (sufentanil sublingual tablet system) for the management of moderate-to-severe acute pain in adult patients in the hospital setting.

The RBC price target for the stock is $7, the same as the Thomson/First Call consensus target. The shares closed most recently at $3.47.

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Akorn Inc. (NASDAQ: AKRX) a niche pharmaceutical company engaged in the development, manufacture and marketing of multisource and branded pharmaceuticals. In 2013 the company purchased Hi-Tech Pharmaceutical for $640 million in cash. The combination of Akorn and Hi-Tech transformed the company into a larger, more diversified generic player. It also brought critical mass and scale to Akorn’s business and has strengthened the company’s position with retail and institutional customers.

RBC has long seen this company as a potential takeover candidate. Its price target is a massive $65 and the consensus target is $53.57. The stock closed on Wednesday at $26.03.
Insys Therapeutics Inc. (NASDAQ: INSY) is a specialty pharmaceutical company that develops and commercializes innovative drugs and novel drug delivery systems of therapeutic molecules that improve the quality of life of patients. Using proprietary sublingual spray technology and capabilities to develop pharmaceutical cannabinoids, Insys addresses the clinical shortcomings of existing commercial products. Insys currently markets two products: Subsys, which is sublingual fentanyl spray for breakthrough cancer pain, and a generic version of Dronabinol (THC) capsules.

The RBC price target is a whopping $49, and the consensus target is $43. The stock closed Wednesday at $27.25.

Flexion Therapeutics Inc. (NASDAQ: FLXN) is a clinical-stage specialty pharmaceutical company focused on the development and commercialization of novel pain therapies. The company is currently advancing a portfolio of local, injectable drug candidates that have the potential to provide better and more persistent analgesia compared with existing therapy. The company’s lead program, FX006, is an intra-articular sustained-release steroid in development for patients with moderate to severe osteoarthritis pain. This is another company with pending Phase 3 data that could be high on the radar as a takeover candidate.

The RBC price target is a massive $44, and the consensus target is $36.75. The shares closed Wednesday at $17.42.

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Neos Therapeutics Inc. (NASDAQ: NEOS) is a pharmaceutical company focused on developing, manufacturing and commercializing products utilizing its proprietary modified-release drug delivery technology platform. The company is initially focusing on ADHD and has developed three branded product candidates that are XR medications in patient-friendly ODT or liquid suspension dosage forms. In addition, Neos manufactures and markets its generic equivalent of the branded product Tussionex, an XR liquid suspension of hydrocodone and chlorpheniramine indicated for the relief of cough and upper respiratory symptoms of a cold.

While the RBC price target is $35, the consensus target is $31.50. The shares closed Wednesday at $13.84.

Sagent Pharmaceuticals Inc. (NASDAQ: SGNT) is a specialty pharmaceutical company focused on developing, manufacturing, sourcing and marketing pharmaceutical products, with a specific emphasis on injectables. Sagent has created a unique global network of resources, comprising rapid development capabilities, sophisticated manufacturing and innovative drug delivery technologies, resulting in an extensive and rapidly expanding pharmaceutical product portfolio that fulfills the evolving needs of patients.

The $34 RBC price objective is higher than the consensus target of $27.63. The stock closed Wednesday at $17.14.

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While all these stocks have huge potential upside, they also come with extraordinary risk profiles. They are only suitable for extremely aggressive trading accounts that can handle big swings in price. With that caveat, they also could bring home big wins for investors, especially with the takeover component tossed in.

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