Investors have had a hard time in May. Biotech investors also have faced some hard decisions going into the 2016 elections, where both sides of the aisle seem more than willing to attack pharmaceutical companies for how they price drugs.

What is interesting here is that biotech is the one sector that still offers massive upside for investors — if they can pick the right companies that is. The biotechs are the one group that could one day create a cure or perfect ways to treat cancer, heart issues, diabetes and just about every nasty disease and ailment you can think of. That means they could have unlimited upside — but any savvy investor knows that this also comes with extreme risk.

24/7 Wall St. tracks many analyst upgrades and downgrades each day of the week. This turns out to be hundreds each week. Many biotech and biohealth stocks end up standing out above the rest of the pack because they often come with upside price targets that may be too good to be true.

Keep in mind that Dow and S&P 500 stocks are generally given upside of 8% to 15% for a one-year target with most Buy and Outperform ratings. So when you see projected upside of 40%, 75% or even well over 100%, you better understand you are taking a major swing for the fences here. In some ways, speculative biotech investors are gambling on many hypothetical successes that have yet to come about and that could face many hurdles.

One thing to consider here is that many revenue and upside price targets in biotech are not the traditional one-year target prices. These might be based on drug and treatment developments that won’t even be known until 2018, 2020 or even beyond.

Now that you have been warned that these could implode or even disappear (both are real risks in this sector), here are major upside analyst calls seen in the biotechs in May.

Amarin

Amarin Corp. (NASDAQ: AMRN) was assumed with a Buy rating and a $3.50 price target (versus a $1.57 prior close) at Jefferies on May 12. The firm said it believes that the off-label Vascepa promotion in mixed dyslipidemia may be starting to bear fruit. It said:

We believe off-label Vascepa promotion in mixed dyslipidemia may be beginning to bear fruit, where our analysis of TRx data suggests a steeper upward trend in recent months v. 2015. Access to this population is a major source of upside, where we see opportunity of $2.5 billion. Focus is also on REDUCE-IT where we believe Vascepa can show a benefit on final analysis in early 2018, and upside could be $14 per share.

Amarin closed on Friday at $1.72. It has a consensus target price of $6.50 and a 52-week trading range of $1.24 to $2.80.
Amicus Therapeutics

Amicus Therapeutics Inc. (NASDAQ: FOLD) was started as Buy and was assigned a $10 price objective at Merrill Lynch on May 18. The prior close was at $6.61. Its most recent closing price was $8.84. Amicus has a consensus price target north of $12 and a 52-week range of $4.99 to $18.83.

Merrill Lynch called the company’s migalastat an oral small molecule therapy for Fabry disease, where current IV standard of care represents more than $1 billion in total market potential. The firm said that migalastat should launch in the European Union upon full approval by June 1, 2016. An update on the U.S. drug application is expected in mid-2016, and its pipeline includes potential wins for Epidermolysis Bullosa and Pompe disease.

Arrowhead Pharmaceuticals

Arrowhead Pharmaceuticals Inc. (NASDAQ: ARWR) was started with a Buy rating and an upside price target all the way up at $12 at Chardan Capital. This was versus a $4.99 prior close. We question just how much this call was given attention because there was almost no price change and volume was light on May 19 when the call was made. Then it closed up 8% at $5.42 on the following day, despite the call being 24 hours old. Either way, this is exponential upside, if it can come about.

AVEO Pharmaceuticals

AVEO Pharmaceuticals Inc. (NASDAQ: AVEO) was started as Overweight with a $1.70 price target at Piper Jaffray on May 19. AVEO’s prior closing price was $0.88, the same price on Friday’s closing bell. Investors, or speculators in this case, need to consider that AVEO has a market cap that is barely $50 million. Its 52-week range is $0.82 to $2.90, and there is a supposed consensus analyst target of $2.35 but that is because of an FBR Capital Markets target being $3.00 with an Outperform rating issued in March.

Depomed

Depomed Inc. (NASDAQ: DEPO) had a solid week, rising from under $18.00 on Monday to close up at $19.92. Depomed was reiterated as Buy with a $28 fair value at Janney on May 19 after news that a court extended a 30-month stay for its Nucynta. The Janney report said:

As expected, the District Court has ordered the 30-month stay preventing an at-risk launch by the generic filers be extended until the earlier of its written decision, or September 30, 2016. While not unexpected, having the court formally enjoin the generic filers from an at-risk launch eliminates a potential overhang on DepoMed’s stock while the company and its investors await the final decision of the court, or a settlement agreement, with the generic filers.

Editas Medicine

Editas Medicine Inc. (NASDAQ: EDIT) has become a rather interesting stock for many speculative biotech investors, with gene editing and ties to funding from Bill Gates. It also has been quite volatile. Its shares were trading higher on Monday after news of its quarterly results and after news that it inked a $5 million deal to get into cystic fibrosis with the Cystic Fibrosis Foundation. One of the most bullish views recently issued was by Janney, with a $48 fair value estimate. The Janney report said:

Editas reported quarter end cash of $229 million, guiding to funds for at least the next 24 months. R&D and SG&A were higher than our expectations and we’re adjusting our projections to better reflect extrapolation from the first quarter. No new updates on the preclinical/clinical front and we suspect that IP developments may be the main share drivers through the year, though that could change towards year end when we could get more visibility on clinical plans, possibly including with Juno.

Editas closed up 1.2% at $33.25 on Friday. It has a post-IPO range of $12.57 to $43.99, and it has a $37.00 consensus price target.

Geron

Geron Corp. (NASDAQ: GERN) may have been the boulevard of broken dreams in the past, but Janney started off May with a big call on the stock. Its Buy rating came with a $6.50 fair value estimate, when shares were around $2.70 at the time. Just keep in mind that they had the same rating and same target when Geron was trading above $4.00, but it is rare to see upside like this projected.
Paratek Pharmaceuticals

Paratek Pharmaceuticals Inc. (NASDAQ: PRTK) was started as Outperform with a $30 price target at Robert W. Baird on May 13. What stands out here is that this was after a $12.68 prior closing price. Baird’s upside call was after news that Paratek received FDA affirmation for the design of its proposed omadacycline oral-only skin infection Phase 3 trial study.

Paratek shares closed up 6% at $14.10 on Friday, implying over 100% upside here. This may sound too good to be true, but Paratek’s 52-week range is $12.05 to $32.75, and it has a $250 million market cap. This stock used to trade exponentially higher, but it had to do a reverse stock split late in 2014 due to such a low share price.

Tesaro

Tesaro Inc. (NASDAQ: TSRO) was started as Outperform with a $56 price target at Credit Suisse on May 13. Its prior closing price was $41.09. The firm said that it has an underappreciated top emerging cancer pipeline, and it has abstract presentations at the key American Society of Clinical Oncology event in a few days.

Tesaro closed on Friday at $43.11 and has a 52-week range of $29.51 to $66.95. That means that it could rally 50% without hitting a 52-week high, and that its price is well above 50% higher than its 52-week low. Tesaro has a market cap of almost $2 billion, which is not too shabby for a company with revenues not really expected to be measurable until 2017.

Aduro BioTech

Aduro BioTech Inc. (NASDAQ: ADRO) is featured last on list the recent bullish biotech and biohealth analyst calls because it had a wild week and the massive upside target came with a big price target cut. Aduro’s volatility was after bad cancer drug trial news. Its stock gapped down huge on May 16, to under $8.00 (after a prior close of $10.69) but closing at $8.91. It ended the week at $10.47, after a 6.5% gain on Friday.

Aduro was maintained as Outperform at FBR Capital Markets, but the target price was cut to $22 from $30. If the FBR research team is correct here, then Aduro could still deliver upside of more than 100%. This is a big if, and it needs to be noted that biohealth disappointments often occur over and over.

Aduro has a 52-week range of $7.27 to $37.49, and it still has a $676 million market cap. Thomson Reuters has Aduro’s consensus revenue targets at roughly $47 million for 2016 and $56 million for 2017 — after having been almost $73 million in 2015.

Again, be advised that some of these upside targets are so much higher than normal that they need to be considered as highly speculative. In some cases, some of these stocks could implode and not even exist if things do not turn out as expected. Other than Bulletin Board and Pink Sheet listed stocks, there is just no riskier place to invest outside of the speculative biotech space.

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