J.P. Morgan: Biotech Stocks Heading Higher in 2013
NEW YORK ( TheStreet) -- 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 Gilead Sciences (GILD) , Vertex Pharmaceuticals (VRTX) , Medivation (MDVN) , Onyx Pharmaceuticals (ONXX) , BioMarin (BMRN) and Orexigen Therapeutics (OREX) .
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).