Jefferies LLC analyst Michael Yee on Monday, July 10, initiated coverage on a dozen biotech firms and named Celgene Corp. (CELG) , Vertex Pharmaceuticals Inc. (VRTX) , Spark Therapeutics Inc. (ONCE) , Prothena Corp. plc (PRTA) and Intercept Pharmaceuticals Inc. (ICPT) his best five stock ideas.
In the large-cap realm, Celgene continues to be among the best growth stories, said Yee, who has a $160 price target. He noted that the stock has a cheap 2018 price-to-earnings valuation of 14 times, which stands well below the historical range.
Summit, N.J.-based Celgene, he said, has two big catalysts coming up in the first half of 2018: the release of Phase 3 datasets for ozanimod in ulcerative colitis and GED-301 in Crohn's disease. He thinks ozanimod and GED-0301 could become multi-billion dollar oral pills for inflammatory bowel diseases.
"If both positive - we see CELG at $150+; if GED fails (binary), we see only modest downside risk given mixed expectations for 2 years," Yee wrote.
The other large-cap stock on Yee's list of best ideas is Vertex, to which he assigned a $155 price target. Yee sees around a 65% probability that Boston-based Vertex's Phase 2 cystic fibrosis triple pill will have positive data in the second half of the year.
He attributed his general positive view on the triple data results to factors including the "overall totality of scientific data from their consistent and predictive proprietary CF assays from 3 drugs now working."
Among the mid-cap stocks on Yee's list is Spark, which he described as a "clear 'pure-play' leader in gene therapy."
"We want to buy in front of upcoming hemophilia A data as a key near-term catalyst and also potential first FDA approved gene therapy drug by early 2018 (for rare blindness)," said Yee, who has an $85 price target.
He wrote that ultimately, he thinks Philadelphia-based Spark is turning into an attractive M&A candidate, pointing to factors including its regulatory and clinical expertise, manufacturing capabilities and the potential approval of its retinal drug, as well as the company's partnership with Pfizer Inc. (PFE) in hemophilia B and additional pipeline programs.
A representative for Spark said the company does not comment on market speculation.
As for Prothena, Yee thinks that the Dublin-based company's lead drug, NEOD-001 for amyloid light-chain (AL) amyloidosis, will have positive Phase 2B data in the second quarter of 2018. Yee has a $100 price target on the stock.
Looking at the longer-term, the analyst noted that the company has a robust and growing pipeline of two to three other antibodies that address Parkinson's disease, psoriatic arthritis and TTR amyloidosis.
Also among Yee's five best ideas is Intercept. Yee, who has a $275 price target, thinks the stock will likely go up over the next 12 months partly because U.S. consensus estimates for Ocaliva for primary biliary cholangitis "looks achievable if not beatable" and he thinks estimates need to generally increase. In the EU, Yee's analysis suggests that Ocaliva sales will likely surpass consensus estimates over the next few quarters.
"Longer-term, ICPT has one of the higher potential upside valuations in our universe based on Phase III NASH study working," he wrote. The analyst thinks the Phase 3 NASH (nonalcoholic steatohepatitis) data will be positive in early 2019.
Noting that NASH is a potential $5 billion to $10 billion opportunity globally, Yee thinks that New York-based Intercept could have the first-to-market pill to address the disease "and if data are positive, the company could be a significant potential M&A takeout target given numerous pharma companies would be interested in a multi-billion dollar new pill."
An Intercept representative said the company does not comment on M&A speculation.
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