Health-sector biotech stocks are a fascinating area for investment. They are risky – these are companies that inhabit a capital-intensive environment requiring heavy R&D expenditures over a significant length of time before they produce a marketable medical product. And once they have a product, be it a new drug, testing protocol, or medical device, they also must satisfy government and industry regulators. This is not an investment sector for the faint-hearted.
It does, however, balance those risks with a high upside potential. New drugs and medical devices can quickly generate serious profits. The large profit potential lies behind the high upside investors can find in the health/biotech sector.
We’ve used TipRanks’ Trending Stocks tool to pick put three biotechs that offer investors just such a high upside. Using the tool’s filters, we’ve sorted for the last three days’ most rated stocks in the healthcare sector, and chosen three Strong Buys with upside potentials in excess of 20%. All have been reviewed in the past five days. Let’s get started.
Acadia Pharmaceuticals, Inc. (ACAD)
Acadia Pharmaceuticals (ACAD – Get Report) is known for its work in the treatment of central nervous system disorders. The company markets Nuplazid, the only FDA approved drug for the treatment of the delusion and hallucinations that can be associated with Parkinson’s disease. In addition, the company announced this week that Nuplazid had just completed another Phase 3 trial, called Harmony, intended to evaluate its efficacy in treating additional dementia-related psychoses. According to the company, Nuplazid showed “robust statistical superiority” over placebos.
The investor response to the trial result was quick and decisive. ACAD jumped 63% after the news, and then another 6% yesterday. The stock still has upward momentum; it is up 5.4% in pre-market trading.
Opening a new market for a pharmaceutical, expanding its base of potential customers, is a path to higher profits, a basic fact that underlies analyst optimism on ACAD. Sumant Kulkarni, of Canaccord Genuity, upgraded his firm’s outlook on the stock, moving it from neutral to buy and setting a $50 price target. His new target indicates confidence in a 21% upside.
From H. C. Wainwright, analyst Andrew Fein set an even more bullish target of $60. In his comments, he said, “Our $60 PT is based on an equally weighted composite of: (a) $72.34/share, as a 35x multiple of taxed and diluted FY22 GAAP EPS of $3.53 discounted back to and (b) an NPV of $47.63/share (discount rate 10%, growth rate 2%).” Wainwright’s target suggests an upside of 45%.
Even after its sudden pop, ACAD shares retain a 23% upside potential. The stock is selling for $41.50, and has an average price target of $51.38. The Strong Buy analyst consensus is based on 9 ratings, including 8 buys and 1 hold, set in the past three months.
Alexion Pharmaceuticals, Inc. (ALXN)
While individual health sector stocks can show a high upside the sector as a whole has only gained 2.99% this year, well behind the S&P gain of 18.85%. Alexion Pharmaceuticals (ALXN – Get report), however, has outperformed its peers, with a year-to-date gain of 12.5%. Alexion has several drugs on the market already, giving it resources to maintain its position in the face of adverse legal decisions.
It used those resources last week, when the European Patent Office rendered a decision that may allow generic copycatting of Alexion’s Soliris as early as 2021. The company has hoped for patent protection to be extended to 2027. But losing the patent decision was not a deal-breaker for Alexion; the company is now engaged in shifting customers to its related medication, Ultomiris. Ultomiris is showing fast growth in the US market, and company expects to see a similar pattern in Europe in the near future.
Top analysts agree that Alexion has a clear pathway to maintain profitability. Piper Jaffray’s Christopher Raymond says, “The only indication affected by the EPO's decision is paroxysmal nocturnal hemoglobinuria. As such, we see a limited impact on Alexion's European franchise from the patent decision.” Raymond keeps a $180 price target on the stock, suggesting an upside potential of 64%.
Phil Nadeau, of Cowen, also takes a bullish stand on ALXN. He writes, “We continue to think that much of ALXN’s C5-inhibitor franchise will be transferred to Ultomiris by the time the first biosimilar launches in the EU in ‘22/23 and therefore that Alexion’s franchise is defensible…” Nadeau’s $165 price target implies a 50% upside for the stock.
Overall, ALXN shares keep a Strong Buy consensus rating, based on 9 buys and 1 hold. The $164 average price target indicates a 50% upside from the $109 share price.
Global Blood Therapeutics, Inc. (GBT)
Not every biotech has drugs on the market. Global Blood Therapeutics (GBT – Get Report) is a clinical-stage company focused on developing treatments for sickle cell disease, a severe genetic condition affecting as many as 100,000 Americans. Last week, the company announced that its Voxelotor program New Drug Application has been granted priority review status by the FDA and an important milestone in the approval process.
Investors are impressed by GBT’s fast track with Voxelotor. The stock spiked 10.8% in the wake of the news, and remains elevated six days later. The priority review is a clear indication that the FDA sees potential for Voxelotor in addressing a serious public health concern. Regulator and investor confidence lie behind GBT’s 25% year-to-date gains.
The Street’s analysts are equally bullish. It’s important to note that even their low-end price target of $60 is higher than the stock’s current share price. William Blair analyst Raju Prasad lays out the buying-side case in a research note: “We continue to believe the mechanism of action of Voxelotor and efficacy/ safety profile in sickle cell disease should lead Voxelotor to become a mainstay of treatment for patients and gives us confidence in its blockbuster potential, if approved. Our model assumes U.S. revenue of about $1.5 billion, EU revenue of roughly $310 million, and licensing revenue of about $15 million by 2027.” With high revenues on the near-term horizon, Prasad gives the stock firm Buy rating.
Wainwright analyst Debjit Chattopadhyay set a $150 price target on the stock, saying, “We estimate approximately 70K patients in U.S., 42K patients in the $60K U.S. and EU launch prices, respectively, a 2020 commercial launch, 70% compliance, and 23% gross-to-net.” His target suggests an eye-opening upside potential of 192%.
GBT’s Strong Buy consensus is based on 12 buy ratings and 1 hold from the past three months. The stock is currently selling for $51, and the average price target of $97 gives it an impressive 88% upside potential.
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