This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Analysts Issue Bullish Biotech Outlooks for '14, Except Goldman, Which Is Negative

Stocks in this article: CELG GILD REGN ALKS NPSP INCY CLVS AEGR MDVN PBYI INSM AMGN GEVA

Today is the first Monday of the new year, which means sell-side analysts are posting their outlooks for the biotech sector in 2014 and talking up their favorite stocks.

J.P. Morgan's biotech analysts are bullish on the sector heading into next week's big investment conference in San Francisco:

The biotech sector had a stellar 2013 (NBI: +65%; S&P: +29%) driven by strong demand for the sector's key products, many positive phase 3 studies and a wave of successful IPOs. Looking to 2014, we think the fundamental backdrop is very similar with 1) beatable revenue growth expectations (2014e: +16% vs. 2012/2013: +12%) including several high-profile drug launches, 2) many pivotal studies set to read out and 3) a stable/favorable regulatory and reimbursement environment. Notably, these factors should continue to make biotech attractive to generalist investors, who played a major role in the 2013 outperformance. Our bias is to stick with large caps as well as mid-caps with approved products; revenue/EPS/cash flow forecasts for 2015 and beyond look broadly beatable, in our view. In contrast, we suspect that "pure pipeline" or tech platform small caps could be more volatile in 2014. We continue to believe that the biotech industry is in the early innings of an innovation cycle with many label expansion opportunities and novel agents in phase 2 or 3 trials that are largely unaccounted for in Street models. Hence, we are bullish on the group for 2014.


Favorite stocks: Gilead Sciences (GILD), Vertex Pharama (VRTX), NPS Pharma (NPSP), Incyte (INCY), ALkermes (ALKS), Clovis Oncology (CLVS) and Aegerion Pharma (AEGR).

UBS offers four reasons biotech should stay strong in 2014:

(1) Fundamentals are still very strong for many individual companies, in terms of visibility into new product cycles and 3+ year growth;

(2) We're bullish on bellwether product launches for Gilead's Sovaldi and Biogen's Tecfidera, which will keep confidence high in the commercial relevance of biotech innovation;

(3) Several key pipeline events are expected, particularly among mid-caps where we are most bullish;

(4) Macro conditions appear to favor risk-taking and growth, considering our Equity Strategy and Economics teams' positive views on investment in 2014 and GDP growth.

Notably, UBS upgrades Vertex and Idenix Pharma  (IDIX) to buys; favorite stocks for 2014 include Gilead, Celgene (CELG), Incyte, Medivation (MDVN), Puma Biotech (PBYI) and Insmed (INSM).

Goldman Sachs is taking a more negative view on biotech for 2014, downgrading the sector to Neutral from Attractive:

In 2013 the biotech sector outperformed (+66% vs. S&P +30%), and since the start of the recent rally (which we peg to the readout of the first Tecfidera Phase 3 data on April 21, 2011) the sector is up +116% vs. S&P +37%. We see current valuations on the majority of the stocks as fair and expect earnings rather than multiple expansion to dictate future stock performance. While we continue to believe biotech deserves to trade at a premium multiple to the S&P (given its superior growth profile), we find it difficult to make a case for continued multiple expansion (or a higher premium relative to S&P) or lower discount rates based on the following: (1) our estimates for key product cycles are now in line to slightly below consensus, (2) we have a more measured view of upcoming 2014 pipeline readouts, (3) revenues from the sector are continuing to shift towards small molecules and away from biologics (BIIB, CELG and GILD) whereas pharma's revenue mix has been moving in the opposite direction (ABBV and BMY), and (4) GS economists are projecting the 10-year Treasury rate to rise to 3.25% in 2014. In conjunction we downgrade ALXN to Neutral and CELG to Sell. We are also changing our estimates and price targets for ARIA, CBST, UTHR, VRTX, ALKS and INFI to reflect recent pipeline updates.


Goldman's top picks for 2014: Amgen (AMGN), Regeneron Pharma (REGN), Medivation and Synageva Biopharma (GEVA)


-- Reported by Adam Feuerstein in Boston.  

Follow Adam Feuerstein on Twitter.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,030.21 +6.04 0.03%
S&P 500 2,081.88 -0.29 -0.01%
NASDAQ 4,773.4720 +8.0480 0.17%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs