Biotech is a tough market to follow. Promising research avenues hit roadblocks, clinical trials can fail, and regulators can withhold approval. And all of that can happen to companies that frequently operate at a loss, with high initial overhead costs and a long road toward profitability.
The rewards, however, are great. A new drug hitting the market, or news of a successful long-term trial, can bring in new investors and give a tremendous boost to a company’s shares. We’ve sorted through the data to find three biotechs that are making waves. These are mid- to large-cap firms, with new drugs in the pipeline or recently released, and high expectations for near-term returns.
Amarin Corporation, Plc. (AMRN)
Cardiac disease is a leading killer, and the American consumer is willing to pay a premium for cholesterol-reducing drugs of proven efficacy. Amarin has entered that niche with its sole product, Vascepa, a new drug based on Omega-3 fatty acids.
You’ve heard of Omega-3, of course – it has been promoted for years as a dietary supplement for cardiovascular health. With Vascepa, Amarin has concentrated the active factors to create, not a supplement, but a hypertriglyceridemia drug for the specific treatment of high cholesterol. Vascepa was approved by the FDA in 2012, was promptly entered into the multi-year REDUCE-IT study, and in September 2018 Amarin announced the study results. In the controlled study of 8000 patients over six years, Vascepa showed significant results in preventing heart attacks. AMRN shares jumped from under $3 per share to over $15, and have held those gains.
Now the company is looking to use its profits for expansion. Per Roth Capital’s Yasmeen Rahimi, “Amarin provided record revenue for the first half of 2019 for Vascepa, guided $380M-420M for 2019 and unveiled its plans to increase its U.S. sales team to about 800 in October 2019.” Rahimi sees this move as the beginning for Vascepa, heralding the drug’s conversion to a true money-maker for the Amarin. She gives the stock a $31 price target, suggesting an upside of 33%.
Jefferies analyst Michael Yee agrees with the rosy outlook for Vascepa’s profit potential. He notes the “positive pre-announcement with upside Q2 sales beat and full-year guidance raise supporting the thesis of strong Vascepa launch and greater outlook and opportunity than consensus expectations.” Yee adds that he sees the stock moving higher to the upside on increases future sales. His price target, $30, implies a 29% potential for share price gains.
Amarin has been doing well, on Vascepa’s strong reviews and success in the market. The stock has a unanimous analyst consensus of ‘Strong Buy,’ based on 6 buy ratings in the past three months. The average price target, $32, gives a 41% upside to the share price of $23.
Gilead Sciences, Inc. (GILD)
Gilead is well-established in the pharma sector – it’s a major player on the American medical research scene, and holds a dominant position the HCV and HIV drug research segments. Casual consumers are more likely to encounter Gilead through its popular anti-viral drug Tamiflu, marketed as an OTC preventative and treatment for the flu.
In recent development, Gilead has been moving filgotinib, a potential treatment for rheumatoid arthritis, forward in testing. Filgotinib is now if Phase III trials, and the company has announced that it will file a New Drug Application with the FDA – the next step in getting approval before marketing.
Writing from RBC Capital, four-star analyst Brian Abrahams notes several factors that are boosting GILD stock. Filgotinib’s regulatory progress is prominent on the list. Abrahams also says that stock’s “valuation looks cheap and at a floor,” and points out the “strong balance sheet and solid dividend yield.”
That last is an important point; most biotech firms do not pay any dividend, but Gilead initiated payments in 2015. The yield is now up to 3.68%, and payouts are $2.52 annualized, making it a strong incentive for investors. Abrahams’ price target on GILD, $91, indicates a 32% upside to the stock.
Alethia Young, of Cantor Fitzgerald, has been following Gilead for several years, and had previously estimated that filgotinib would launch in the US in 2022 with initial sales up to $93 million. Citing the “positive" U.S. filing update,” she now believes that the timeline has moved up by at least one year and sees a potential approval in late 2020. She raised her price target on the stock to $88 to reflect her optimism.
Gilead’s overall rating is a ‘Moderate Buy,’ based 13 buys, 5 holds, and 1 sell assigned during the past three months. The stock’s current share price is $68, and the average price target is $79; this gives GILD shares a 15% upside potential.
Zogenix, Inc. (ZGNX)
Like many smaller biotech research firms, Zogenix does not yet have a drug on the market. Unlike most such firms, however, Zogenix’ main research program is a reuse of a previously approved drug, fenfluramine. This was used in the past as a treatment for obesity; Zogenix has been researching its potential has a seizure treatment for children with the rare disease Dravet Syndrome. The studies have reached Phase III, and have shown some promise.
The company’s stock took a hit, however, when the FDA last quarter ‘refused to file’ Zogenix’ application for fenfluramine as a new drug, branded Fintepla, for seizure treatment. ZGNX shares lost more than $10, and the company had to shift focus to bureaucratic streams.
ZGNX got a boost last month, when the FDA reversed course. Regulators have said that they will permit the new drug application for Fintepla, and without additional preclinical toxicity data. According to Danielle Brill, pharma sector analyst from Piper Jaffray, this was the “best case scenario for Zogenix.” She says, “Although breakthrough therapy status was rescinded due to the recent approvals of two other drugs for Dravet Syndrome, expect an expedited review [with] approval and launch by Q2 of 2020. [Do] not expect the delay to have any meaningful impact on Fintepla's overall commercial potential.” She gives ZGNX shares a $64 price target, suggesting a 34% upside.
Difei Yang, of Mizuho, also sees the FDA’s regulatory reversal as a win for Zogenix. She says, “A priority review is highly likely and the FDA's decision is a positive.” Yang bumped her price target up to $65, indicating confidence in a 36% upside.
Zogenix’ upbeat regulatory outlook has given it support in the markets. Shares stand at $47, up $8 since the FDA decision. The average price target is $61, giving the stock a 28% upside potential. And like Amarin, the analysts are unanimous on ZGNX – 9 buy ratings give it a ‘Strong Buy’ consensus rating.
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