Biotech stocks have been absolutely beaten up over the past eight months, even the iShares NASDAQ Biotechnology Index (NASDAQ: IBB) is down over 20% year to date. However this could be a turning point for the industry, according to one key analyst. While Jefferies believes most of the significant biotech downside already occurred, with funds flowing out of health care, negative drug pricing rhetoric and few major data/launch catalysts, volatility could continue in the near term, or at least until merger and acquisition activity picks up.

Looking at the long-term, the brokerage firm believes this creates excellent buying opportunities with concrete earnings outlooks, attractive up/down scenarios or promising pipelines. The stocks that Jefferies is looking are Vertex Pharmaceuticals Inc. (NASDAQ: VRTX), BioMarin Pharmaceutical Inc. (NASDAQ: BMRN), Medicines Co. (NASDAQ: MDCO), Ultragenyx Pharmaceutical Inc. (NASDAQ: RARE) and Vanda Pharmaceuticals Inc. (NASDAQ: VNDA).

Jefferies believes that Vertex will continue to be the leader in a well-circumscribed, high-margin, high barrier-to-competitive-entry cystic fibrosis space. The company currently is seen at a highly attractive long-term entry point. The firm believes there is already broad street understanding that near-term consensus Orkambi numbers may be optimistic, expectations for VX-661/Kalydeco in het/mins are realistically low. Shares of Vertex were trading down 2.5% at $84.62 on Wednesday, with a consensus analyst price target of $131.67 and a 52-week trading range of $75.90 to $143.45.

At current levels, BioMarin is trading within about 25% of the Jefferies estimated base value of about $63 per share for its five currently marketed products. Thus, the market ascribes little value to its 10 or so pipeline products. With four additional product launches anticipated through 2018, the firm sees potentially meaningful upside with likely limited downside. Jefferies expects regulatory events to be the major catalysts in the back half of 2016. Upcoming events include: updates on BMN 270 (gene therapy) for hemophilia A and vosoritide for achondroplasia programs at R&D day on April 20, BLA/MAA submission for cerliponase alfa for Batten disease in mid-2016 and BLA submission for PEG-PAL for PKU in the second half of 2016. Shares of BioMarin were recently trading up 0.8% at $84.12, with a consensus price target of $117.37 and a 52-week range of $62.12 to $151.75.

Medicines Co. was highlighted as a top pick for 2016, with a Buy rating and $44 price target. The company has multiple catalysts in 2016 that can drive shares higher. Further upside potential is further seen if a permanent injunction in the Amgen v. Sanofi and Regeneron is issued, potentially in April, since it could block all other antibody approaches to PCSK9. Carbavance could address the serious problem of carbapenem-resistant bacteria, and Jefferies sees good odds for Tango I observing noninferiority in complicated urinary tract infections, and the firm estimates carbavance could achieve $237 million in risk-adjusted sales by 2025. There is also potential for upside if the U.S. Federal Circuit Court of Appeals decides to reverse its 2015 decision to invalidate the Angiomax cases. Shares of Medicines were trading down 0.5% at $32.22. The consensus price target is $49.22, and the 52-week range is $25.27 to $43.79.

Jefferies continues to see a favorable risk/reward profile for Ultragenyx ahead of several key catalysts in the second half of the year, given clear biology and promising proof-of-concept data. The firm expects larger magnitude of bone benefit versus December’s update from KRN23 readout in pediatric patients with X-linked hypophosphatemia. Jefferies sees a likely meaningful reduction in seizures from triheptanoin Phase 2 data in glucose transporter 1 deficiency syndrome based on optimized protocol and data from investigator sponsored trials. Shares of Ultragenyx traded down 0.7% at $62.00, with a consensus price target of $99.07 and a 52-week range of $49.00 to $137.05.

Vanda shares are seen as attractively valued on the opportunity for Hetlioz in the United States alone (about $10 per share), with additional value coming from international Hetlioz sales (roughly $3 per share share) and Fanapt ($2 per share). Jefferies has a peak U.S. sales estimate of $277 million, coming from about 1,500 patients on chronic treatment, which on its own justifies a higher valuation than the current stock price. Outside of this opportunity, the firm sees attractive revenue potential for Hetlioz in the European Union. Shares of Vanda were trading down 1.4% at $7.68, with a consensus price target of $17.40 and a 52-week range of $6.91 to $14.50.

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