NEW YORK (
) -- The healthcare analyst team at J.P. Morgan released its 2013 Global Biotech Outlook Wednesday, ahead of the investment bank's closely followed healthcare conference that begins on Monday.
The J.P. Morgan biotech analysts are bullish on 2013:
Biotech had a strong 2012 (NBI index: +33%; S&P 500: +14%) driven by steady M&A activity, upside drug launches, and positive pipeline developments. Although multiples have expanded to 16X today from 13X in early 2012, we believe strong fundamentals should continue to drive biotech outperformance in 2013. Indeed, the FDA environment should remain favorable as it was in 2012, and we don't see a higher level of reimbursement risk looking to 2013. In our view, revenue growth expectations look beatable (2013e: +8%; 2011/2012e: +13-14%), especially with several high-profile drug launches. In addition, we see a lot of meaningful phase 3 results on the near-term horizon. While there is risk to the macro picture in 2013 in the US and Europe, the biotech sector has its defensive attributes, particularly for the larger caps or SMids with approved products. So overall, we think that biotech is well positioned for 2013 from a fundamental / sentiment / catalyst perspective.
The firm's favorite U.S. biotech stocks for 2013 are
(GILD - Get Report)
(VRTX - Get Report)
(MDVN - Get Report)
(BMRN - Get Report)
(OREX - Get Report)
Our favorite names for 2013 are GILD and VRTX in large cap and MDVN in mid-cap biotech. All three companies have a significant number of value-creating events in 2013 including: 1) data from multiple phase 3 trials of Gilead's GS-7977 in hep C, which we expect to support a robust regulatory filing in the US and Europe and a launch in early 2014, 2) data from several phase 3 trials of Vertex's Kalydeco in cystic fibrosis (CF), which should expand its current label, as well as additional phase 2 data in the larger F508del CF population, which should increase confidence in the probability of phase 3 success in this population, and 3) a very robust launch of Xtandi in castrationresistant prostate cancer, as well as label-expanding phase 3 data in pre-chemo PC (PREVAIL study) and other phase 2 data in early-stage PC.
Heading into 2013, our preferred mid-cap names remain ONXX and BMRN (both were top 2012 picks as well). On the small-cap side (less than $1B cap), we'd highlight OREX. In our opinion, ONXX is uniquely positioned with 3 approved oncology products, and we believe Kyprolis and Stivarga both offer upside to current 2013 expectations. We believe BMRN has one of the more compelling combinations of tangible commercial value and pipeline optionality, and we anticipate the substantial de-risking that took place in 2012 (GALNS) will drive increased generalist interest in 2013. On the more contrarian side, we'd look to have some obesity exposure. We also like VVUS on the mid-cap side, and OREX offers some shielded leverage to the Qsymia launch as well as its own high-probability clinical event (interim LIGHT CV data).
In Europe, J.P. Morgan likes
Our top picks for 2013 are SHP and UCB in the mid-caps, with ALGETA our top pick within the small caps. We like Shire for the attractive risk/reward ahead of the Vyvanse PIII Depression study, and the PIII Vyvanse H2H vs. Concerta, both expected in H2'13. For UCB we see the start of the growth phase in 2013, boosted by briveracetam PIII data in H1 '13 offering further upside. On Algeta, FDA approval of Alpharadin in Q3 '13, assuming priority review, should go some way to close the significant valuation gap.
Biotech sector headwinds that could cause investors problems in 2013, according to J.P. Morgan:
Economic uncertainty in the US and EU was a major concern in 2012 that didn't result in many negative surprises within biotech. Nevertheless, this uncertainty is likely to continue in 2013. In addition, we expect an increased focus on drug pricing, especially in the EU and typically among the orphan drugs. We remain comfortable with this risk for biotech, especially with the increasing number of first-in-class drugs coming out of pipelines. Finally, disappointing launches can turn sentiment negative very quickly, such as with Dendreon's Provenge, but we view expectations for launch stories as generally beatable looking to 2013.
The 31st Annual J.P. Morgan Healthcare Conference runs Jan. 7-10.
-- Reported by Adam Feuerstein in Boston.