Biotech stocks look prepared to rise in the next year despite ongoing worries over potential changes to drug- pricing policies that have roiled the broader industry, Credit Suisse predicts.
“While we get the sense that biotech investors are cautious into 2020 with the election and broader macro concerns, we believe that macro issues are unlikely to have material fundamental impact,” Credit Suisse’s Evan Seigerman wrote in a note cited by Barron’s.
“Heading into 2020 we remain positive on the sector with strong fundamentals and clear opportunities for outperformance,” Seigerman wrote. “The election may impact sentiment come 2H (with more rhetoric on drug pricing), but M&A in addition to innovation and commercial execution is likely to continue.”
Seigerman said that his top biotech pick for 2020 was Regeneron (REGN), saying that sales of the company’s blockbuster macular-degeneration drug Eylea would help the company, Barron's said.
“Current estimates for Eylea likely overstate the impact of competition and healthcare reform,” he said.
Seigerman also upgraded Biogen (BIIB) to neutral from underperform, saying he thinks it is increasingly likely that the company’s controversial Alzheimer’s drug will achieve approval. Seigerman set a $300 price target.
Meanwhile, healthcare stocks, led by health insurers, have gained strength in recent weeks, buoyed by solid third-quarter earnings and investor comfort that political risks to the sector have eased, Reuters explained.
Healthcare companies also are wrapping up a strong earnings season, with the sector overall posting earnings growth of 9.5% and revenue growth of 15.4%, both the highest rates of any S&P 500 sector, according to Refinitiv data.
Shares of biotech companies have been strong of late, fueled by dealmaking and promising clinical trial results, said Sahak Manuelian, head of equity trading at Wedbush Securities.
"I think you are starting to see catch-up in healthcare broadly into year end," he said.
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