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: