Health and Healthcare

Why Jefferies Sees 3 Big Biotechs Having Key Upside Catalysts Coming

Lee Jackson

Published: August 11, 2016 8:20 am

Last Updated: January 13, 2020 4:42 am

After a year of being beaten down by legions of sellers, the biotech segment of the health care sector is finally starting to make a move back for investors, and the potential for some of the top companies remains outstanding. With the cloud of severe pricing legislation starting to lift some, investors are focusing on fundamentals and near-term catalysts that could provide a tailwind for some of the biotech leaders.

In a series of recent research reports from the analysts at Jefferies, they pointed to companies with specific catalysts that could have a tremendous impact on shares. Three companies show up on the radar that all have the potential to move big for shareholders.

Biogen

Jefferies is very bullish on this large cap biotech, and the stock is down over 30% 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 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.

Biogen posted outstanding earnings in July and the stock has rallied sharply on rumors of a buyout by a large pharmaceutical company. The Jefferies analysts think the company is indeed a legitimate takeout candidate and cite Pfizer, Shire and Roche as companies that could be buyers, in addition to Merck and Allergan. They note that the potential to be a neuroscience bolt-on, the company’s consistent operating cash flows from the MS business and the recent CEO departure as all positives for a potential suitor.

The Jefferies price target for the stock is $319, and the Wall Street consensus target is $333.60. The stock closed Wednesday at $308.87 per share.
Gilead Sciences

This company is trading at an astounding multiple of less than seven times estimated 2016 estimated profits. Gilead Sciences Inc. (NASDAQ: GILD) discovers, develops and commercializes medicines in areas of unmet medical need in North America, South America, Europe and the Asia-Pacific. Its products include Stribild, Complera/Eviplera, Atripla, Truvada, Viread, Emtriva, Tybost and Vitekta for the treatment of human immunodeficiency virus (HIV) infection in adults; and Harvoni, Sovaldi, Viread and Hepsera products for the treatment of liver disease.

Second-quarter total revenues met consensus and earnings-per-share beat on strength in Sovaldi/HIV franchise. 2016 product sales guidance was lowered. HCV sales missed due to pricing, unfavorable payer mix, lower patient starts and shorter treatment duration. Share buybacks are expected to be lower for the rest of 2016, and many on Wall Street think that could suggest willingness for pipeline acquisitions.

Jefferies thinks that a spin-off of the hepatitis C silo of the business is entirely possible as the declining predictable revenues have weighed on the company’s overall valuation. While not a given, a transaction could improve long-term growth and improve the positive impact of a future acquisition or pipeline success.

Gilead investors are paid a 2.37% dividend. The Jefferies price target for the stock, which is rated Hold, is $93. The the consensus price objective is set at $106.35. The shares closed most recently at $78.90.

INSYS Therapeutics

This company has been the target of a short-selling, and a conclusion to a long investigation could spur a big covering of the shares. 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. The company currently markets two products: Subsys, which is sublingual fentanyl spray for breakthrough cancer pain, and a generic version of dronabinol (THC) capsules. The company has been the focus of a long-term U.S. Department of Justice investigation, and the analysts noted this in their recent report:

The Company reported earnings last week and on the conference call the CEO stated that the company had provided an enormous amount of documentation to the DOJ and that the process of the investigation is winding down.

The CEO stated that he was optimistic a settlement could happen by the end of the year, and Jefferies notes that with 72% short interest, a settlement could be a very major catalyst for the shares.

Jefferies raised its price target on the stock to $22, but the consensus target is still higher at $25.40. The stock closed Wednesday at $18.77 a share.

These three companies could all move significantly higher if the catalysts come to fruition. While there is no guarantee any of them happen, they remain solid trades for aggressive accounts on their own merits.