Merrill Lynch Says the Time to Put Money Into Biotech Is Now

[cnxvideo id=”655234″ placement=”ros”]The Nasdaq Biotechnology Index has underperformed the broader market for some time. This year the index is still down about 13%, versus the 6% rise for the S&P 500. We have noted before the many reasons for the disparity, not the least of which was fear on Wall Street that politicians would take draconian measures to force drug prices lower. Many now feel that regardless of the election, that probably doesn’t happen on any large scale.

A new research report from Merrill Lynch says the time to put money to work in biotech is now, and large cap biotechs are the place to be. We screened the firm’s research universe and found four biotech stock that make sense now. All are rated Buy.

Biogen

The Merrill Lynch team is very bullish on is a large cap biotech, and the stock is down over 30% from highs 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 biotech companies, and patients worldwide benefit from its leading multiple sclerosis (MS) and innovative hemophilia therapies.

While many on Wall Street acknowledged in the past that the company’s core MS 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, the firm is still positive on Tysabri, especially for secondary-progressive multiple sclerosis, with upcoming clinical data a big factor.

The analysts also feel 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 a strong pipeline, the stock is a solid choice for aggressive growth investors. Biogen posted outstanding earnings in July, and the stock has rallied sharply on rumors of a buyout by a large pharmaceutical company.

The Merrill Lynch price target for the stock is $374, and the Wall Street consensus target is $333.60. The stock closed Wednesday at $321.34.

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BioMarin Pharmaceuticals

This is one of Wall Street’s favorites. First-quarter earnings were outstanding, and analysts are positive on the second quarter as well. BioMarin Pharmaceuticals Inc. (NASDAQ: BMRN) develops and commercializes innovative biopharmaceuticals for serious diseases and medical conditions. Its product portfolio comprises five approved products and multiple clinical and preclinical product candidates.

Over the past decade, BioMarin has become one of the top orphan drug companies, and it looks poised to stay there. The company is expected to post around $1.09 billion in revenue this year and possibly around $1.32 billion next year following the approval of Vimizim, an enzyme replacement therapy for Morquio syndrome.

In addition, the company may be close to a cure for hemophilia, and the analysts noted this in a recent report:

The updated BMN270 data demonstrated durable Factor VIII expression in Hemophilia A patients. Liver enzyme elevation bears watching but we are hopeful that a lower dose of BMN270 could address the safety signal. BMN270 is work-in-progress; however, we are encouraged by the promising proof-of-concept data that may lead to eventual cure.

The $106 Merrill Lynch price target is lower than the consensus estimate of $115.11. The stock closed on Wednesday at $101.46.
Celgene

This is another top large cap pick the Merrill Lynch team likes. 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. Otezla, which treats psoriasis and psoriatic arthritis, had achieved considerable prescriptions among physicians, but the scripts have slowed after a solid launch, showing the importance for sales outside of the United States.

Celgene’s 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.

The company reported outstanding second-quarter results with revenues up 21% year over year. In addition, the company raised sales guidance to $11 billion on strong growth across most major products driven by 16% in demand and 6% in pricing. Upcoming catalysts include GED-0301 endoscopy study in Crohn’s disease with top-line results expected in August/September.

Wall Street analysts have noted that the company has discussed at its recent conference the benefits of longer duration Revlimid. Celgene has a very compelling pipeline, and with four existing Phase 3 trial assets, that may add strong new drugs and revenue prior to the end of the decade.

Merrill Lynch has a $128 price objective, while the consensus target is up at $136.45. The shares closed Wednesday at $116.14.

Regeneron Pharmaceuticals

This stock remains one of the favorites among portfolio managers and is another large cap stock to buy at Merrill Lynch. Regeneron Pharmaceuticals Inc. (NASDAQ: REGN) has been a performance monster over the past two years, and most Wall Street firms expect it to stay one. The company is focused on the development of therapeutic human antibodies for the treatment of eye disorders, hypercholesterolemia, cancer, inflammation and other diseases.

Regeneron’s product sales are driven principally by its VEGF inhibitor Eylea, which is approved for use in wet age-related macular degeneration and diabetic macular edema, and by Praluent for the treatment of hypercholesterolemia.

The company reported a better-than-expected quarterly profit, as U.S. sales of its flagship eye drug Eylea rose 27%. Eylea generated U.S. sales of $831 million in the quarter, topping the consensus estimate of $812 million. The Merrill Lynch analysts expected the numbers on the drug to come in higher than consensus.

Merrill Lynch has a whopping $522 price target. The consensus figure is lower at $468.05. Shares closed Wednesday at $441.37.

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Though these stocks are cheap relative to the S&P 500, history says they won’t stay that way. In fact, the current consensus four-year growth expectations for the large cap biotechs have dipped since 2012 and are currently at the lowest level since 2010. In other words, cheap and somewhat ignored.