Analyst Has 4 Biotech Stocks to Buy Now as Risk Has Dropped Dramatically

Health and Healthcare

Published: November 8, 2016 9:55 am

Last Updated: January 13, 2020 1:20 am

It has been a long year for the biotech sector, and if Hillary Clinton wins today’s election, it could stay difficult for some companies. The general consensus is, even if she does win the election, the House will stay firmly in the hands of the Republicans, and while drug pricing will remain a topic, huge government interference would seem unlikely in the near term.

A new RBC report features three baskets of biotech stocks to Buy that have three very distinct differences. We focused on the basket of four stocks that they think investors can buy now, because the timing in their view is irrelevant, and they see the stocks de-risked and having mergers and acquisitions potential.

Aerie Pharmaceuticals

This clinical-stage pharmaceutical company already has presented outstanding Phase 3 data that RBC feels has a very good chance of working. Aerie Pharmaceuticals Inc. (NASDAQ: AERI) is focused on the discovery, development and commercialization of first-in-class therapies for the treatment of patients with glaucoma and other diseases of the eye.

The company has reported very positive results on its Phase 3 trials for Rhopressa, which is being developed as a once-daily dosed glaucoma therapy. The trials have achieved their primary efficacy endpoint, demonstrating non-inferiority of Rhopressa compared to timolol, the most widely used comparator. In September, the company reported the successful 90-day primary efficacy results of its 12-month Phase 3 “Mercury 1” clinical trial for its fixed-dose combination product candidate, Roclatan.

With 31 million prescriptions being written for glaucoma, this could be a huge winner. The stock dropped last week after the company noted a delay in the product launch while also reporting growing losses that missed expectations. Wall Street analysts, though, remain positive on the shares overall.

The Wall Street consensus price target for the stock is $54.11. The shares closed on Monday at $34.05 but were down more than 2% Tuesday morning.

Medicines Company

This stock has been on a total roller-coaster ride over the past year. Medicines Co.’s (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 3,000 leading acute/intensive care hospitals worldwide.

The RBC team noted this in the report:

Carbavance for gram negative infections looks good with one positive Phase 3 reported (more trials coming) and PCSK9si with Phase 2 details pending is differentiated. Cash per share as of the last reported quarter was ~$8.55.

The company partners with Alnylam for PCSK9si, but both revusiran and PCSK9si use the same platform: RNA interference (RNAi) with a GalNAc, a type of sugar molecule, conjugate to knock down messenger RNA levels, which in turn lowers the amount of protein the messenger RNA encodes for.

It should be noted that last night after the market closed, the company announced it would be discontinuing MDCO-216 ahead of the 11/15 presentation at AHA, as it did not show effects on atherosclerotic plaque to warrant further development. While disappointing, many on Wall Street had not included MDCO-216 sales in their models and this development should not impact valuation.

The consensus price objective is $50.80. The shares closed yesterday at $32.52 and were down fractionally in morning trading.

Seattle Genetics

This company has seen massive insider buying over the past year from one of the biggest biopharmaceutical funds. Seattle Genetics Inc. (NASDAQ: SGEN) develops and commercializes targeted therapies for the treatment of cancer worldwide. It markets Adcetris (brentuximab vedotin), an antibody-drug conjugate for the treatment of relapsed Hodgkin lymphoma and relapsed systemic anaplastic large cell lymphoma.

The company has collaborations for its ADC technology with various biotechnology and pharmaceutical companies, and the Baker Brothers, which is one of the largest biotech hedge funds in operation, has continued to buy huge amounts of the stock all year long and are a 10% holder of the company.

RBC notes this in its report:

Adcetris label and commercial opportunity could expand significantly if the front-line HL study works plus SGN-CD33A has advanced to Phase 3 studies, and we think other pipeline programs, such as ASG-22ME, could follow. Pipeline continues to broaden.

The consensus price target is $53.36, and shares closed above that on Monday at $59.73, after rising more than 6% on the day.

Tesaro

This is a fourth biotech the RBC team likes, and it has upcoming data that could move the stock. Tesaro Inc. (NASDAQ: TSRO) is an oncology-focused biopharmaceutical company that identifies, acquires, develops and commercializes cancer therapeutics and oncology supportive care products in the United States and internationally.

Its product portfolio consist of Rolapitant, a neurokinin-1 receptor antagonist, which is in Phase 1 intravenous clinical trials for the prevention of chemotherapy induced nausea and vomiting; Niraparib, an orally active and potent poly polymerase inhibitor to treat ovarian or breast cancers; and TSR-011, an anaplastic lymphoma kinase inhibitor, which is in phase 1/2a dose escalation clinical trial in cancer patients. The company also offers Keytruda and Opdivo, anti-PD-1 antibody products, for the treatment of certain non-small cell lung cancers.

In a huge clinical victory, the company announced in late June that the Phase 3 NOVA trial of niraparib successfully achieved its primary endpoint of progression-free survival (PFS). This trial demonstrated that niraparib significantly prolonged PFS compared to control among patients who are germline BRCA mutation carriers, among patients who are not germline BRCA mutation carriers but who have homologous recombination deficient tumors as determined by the Myriad myChoice HRD test, and overall in patients who are not germline BRCA mutation carriers.

The RBC analysts noted this:

Niraparib is de-risked and appears approvable as maintenance therapy for patients with ovarian cancer plus could work for later-stage treatment and earlier-Stage maintenance too. Label could expand with more studies and data in breast, lung and prostate cancer.

The listed consensus price target is $118.23. The shares closed Monday way above that level at $123.55.

Needless to say, these are only suitable for very aggressive accounts. If a binary event goes the wrong way, the downside these companies can be big. The odds are somewhat tilted in the four companies’ favor, but caution should be observed. The clinical success they have all been achieving could be a key for a larger company to gobble one or all of them up.

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