Following a three and a half year rally for biotech stocks, and a more recent sector pullback from July's record high levels, Goldman Sachs analyst Salveen Richter said in a new note to investors that he has a Neutral view of the small- to mid-cap biotech space. Richter believes select small- to mid-cap biotech stocks should continue to outperform the broader market, but thinks stock picking is essential and laid out for investors who he thinks the winning and losing stocks in the space are likely to be.
BUY BLUEBIRD: bluebird bio's (BLUE) - Get bluebird bio, Inc. Report innovative platform, which is designed to cure genetic diseases by introducing functional gene copies into a patient, makes it the "leading gene therapy play," contends Richter. bluebird's key value driver is LentiGlobin, a gene therapy for rare blood disorders, beta-thalassemia major and sickle cell disease, the analyst points out. Richter, who notes that bluebird has a major upcoming catalyst in the form of clinical updates from three Phase I/II studies of LentiGlobin in beta-thalassemia and sickle cell disease, set a 12-month price target of $165 on the stock, giving it 107% upside from current levels if his target is achieved.
OTHERS TO BUY: Richter also recommends that investors own leading names in three areas of innovation, namely orphan diseases, gene therapy/editing, and immuno-oncology. In those areas, he identifies BioMarin (BMRN) - Get BioMarin Pharmaceutical Inc. Report as an orphan drug stock to buy, Incyte (INCY) - Get Incyte Corporation Report as the best-positioned biotech immuno-oncology play for 2016 and Kite Pharma (KITE) as a stock to own for the company's engineered T-cell platform focused on cancer. He set Buy rating on each of the three aforementioned names.
SELL SEATTLE GENETICS: The only stock in the small- to mid-cap biotech space that Richter initiated coverage of with a Sell rating is Seattle Genetics (SGEN) - Get Seagen, Inc. Report . The analyst acknowledges that the company is currently a leader in the antibody drug conjugate field, but thinks the consensus view of future competition for its Adcetris drug is "optimistic" and that the outlook for the rest of its pipeline is unclear. Richter set a 12-month price target of $33 on the stock, giving it 27% downside from current levels if his target is achieved. The analyst also began coverage of Atara Biotherapeutics (ATRA) - Get Atara Biotherapeutics Inc Report , Isis Pharmaceuticals (ISIS) and Juno Therapeutics (JUNO) with Neutral ratings, as he sees them all as having interesting drug platforms, but also believes their prospects are appropriately reflected in current valuations of their stocks.
PRICE ACTION: Over the last six month, bluebird bio shares have fallen nearly 50%, but the stock has still more than doubled from where it was one year ago. In the last six months Seattle Genetics has risen 13%, bringing its gains over a one year timeframe to 28%.
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