In an almost incredible turn of events due to the massive selling among the biotechs, the four largest companies in the industry on a price-to-earnings multiple basis are actually cheaper than the S&P 500, despite higher growth, according to a new report from Jefferies. In fact, the IBB biotechnology index is now down 30% since mid-July, and the last time the index experienced a drop of 21% was the summer 2011.

With political rhetoric against drug prices increasing, and the volatility of a shaky overall market mixed in, the sector has been shellacked. Jefferies has four top picks for 2016. While they remain suitable for aggressive accounts, they all have substantial upside and may provide investors with solid alpha for 2016.

Biogen

Jefferies is very bullish on this large cap biotech, though the stock is down a stunning 40% from highs that were printed in March of last year. Biogen Inc. (NASDAQ: BIIB) discovers, develops and delivers to patients worldwide innovative therapies for the treatment of neurodegenerative diseases, hematologic conditions and autoimmune disorders. Founded in 1978, Biogen is one of the world’s oldest independent biotechnology companies, and patients worldwide benefit from its leading multiple sclerosis (MS) and innovative hemophilia therapies.

Jefferies has acknowledged in the past that Biogen’s core multiple sclerosis drug market faces 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 Jefferies is still positive on Tysabri, especially for secondary-progressive multiple sclerosis, with upcoming clinical data a big factor.

Jefferies also feels that a combination of cost reductions in tandem with the still strong MS franchise, which may not be as challenged by competitors as some on Wall Street think, can help the company beat earnings estimates this year. With the strong pipeline, the stock is a solid choice for aggressive growth investors.

The Jefferies price target for the stock is $357, and the Thomson/First Call consensus target is even higher at $363.31. The stock closed Wednesday at $273.26, up over 5% after posting strong earnings.

Celgene

Another one of Jefferies top biotech picks, the firm feels it has solid upside potential for 2016. Celgene Corp. (NASDAQ: CELG) has an outstanding partnered pipeline, which most think is low risk and has the potential to yield several blockbuster drugs. Certain Wall Street analysts also think the company can grow earnings 15% on a compounded annual growth rate basis going forward.

Celgene provided strong guidance last year surrounding its Otezla launch and received encouraging feedback from doctors on the potential of new triplet regimens in myeloma. Analysts across Wall Street raised their estimates for the drug as, after more than a year on the market, this psoriasis and psoriatic arthritis treatment has achieved considerable prescriptions among physicians.

Blockbuster blood cancer drug Revlimid continues to dominate. Pomalyst sales also continue to be solid. Cancer drug Abraxane is also growing at a respectable rate, so the company continues to have a strong lineup of top-selling drugs. While third-quarter numbers were pretty much just in line, fourth-quarter revenue surged 23%.

The stock jumped recently when Celgene and Natco came to a patent settlement, which removes a huge, long-standing overhang on the stock. Revlimid makes up over 60% of the company’s total revenue, so having better clarity on the duration of its life cycle should continue to be a positive in 2016 and beyond. Plus some on Wall Street think that the terms of the settlement are incrementally more favorable than many expected.

Jefferies has a $149 price target. The consensus target is lower at $142.75. The shares closed Wednesday at $102.31.
Medicines Company

This stock has been on a total roller-coaster ride over the past year. Medicines Co. (NASDAQ: MDCO) goal is to be a leading provider of solutions in three areas: serious infectious disease care, acute cardiovascular care and surgery and perioperative care. The company is focused on saving lives, alleviating suffering and contributing to the economics of health care by focusing on 3000 leading acute/intensive care hospitals worldwide.

The stock shot up in the fall when the company announced news that an experimental cholesterol drug being co-developed with Alnylam Pharmaceuticals lowered LDL-C or “bad” cholesterol levels by around 83% in a small, early stage study. The drug, ALN-PCSsc, is an injected RNAi therapy designed to block the expression of the enzyme PCSK9, a protein that plays a critical role in regulating circulating levels of bad cholesterol in the blood.

Jefferies expects Phase 2 data for MDCO-216 and ALN-PCSsc, as well as Phase 3 data for Carbavance, all this year. Some Wall Street analysts are currently assigning a 60% probability of success to Carbavance, and successful Phase 3 data would take the probability much higher.

The $50 Jefferies price target is higher than the consensus target of $46.60. The stock closed Wednesday at $33.60, down almost 6.5% on the day, despite recent takeover rumors.

AMAG Pharmaceuticals

The company posted weak sales of a top drug and it shares got hit recently. AMAG Pharmaceuticals Inc. (NASDAQ: AMAG) has a diverse portfolio of products in the areas of maternal health, anemia management and cancer supportive care. AMAG continues to work to expand the impact of these and future products for patients by delivering on its aggressive growth strategy, which includes organic growth, as well as the pursuit of products and companies that align with AMAG’s existing therapeutic areas or those that could benefit from its proven core competencies.

The stock has hit 52-week lows recently and is down huge since July. The Jefferies team notes that AMAG reported very slow Makena sales, and the current valuation implies no sales at all after the exclusivity expires in 2018. They attributed the weakness to sales-force integration issues and higher Medicaid mix. The stock also has been pressured by its pipeline acquisition model.

The bottom line: at current levels, down a huge 58% in four months, not only is there upside, but it’s possible the company becomes a takeover target. It should be noted that purchase of these shares would only be suitable for very aggressive, risk-tolerant accounts.

The Jefferies target is a gigantic $70. The consensus price objective is $72.14. The stock closed on Wednesday at $22.18.

There you have it, four of the top picks from the team at Jefferies. While the volatility in the markets is likely to persist, the ideal trading move may be to slowly scale buy the stocks of choice over the first quarter, and see if we don’t continue the herky-jerky trading pattern.

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