Biotech stocks have taken a bit of a stumble this week with the XBI S&P Biotech ETF (XBI) and IBB Nasdaq Biotechnology IShares ETF (NASDAQ: IBB) both down -2.89% and -3.19%, respectively, for the week thus far.
But both of these ETF remain sharply higher for the year. The equal weighted XBI ETF has jumped nearly 21% year to date, which is on track for one of its best quarters ever, while the market cap weighted IBB ETF is up 13%, one of its best quarterly performances in six years.
And according to Craig Johnson, chief market technician at Piper Jaffray, biotechs should continue to do well.
“For a lot of investors, they’re trying to play catch-up at this point in time, and they’re going to continue to play these risk assets,” Johnson said to CNBC. “We still see decent upside from here to go – perhaps about 6 percent higher from here, maybe as high as 13 percent higher.”
“One of the names that looks pretty good to us is Regeneron (NASDAQ: REGN),” Johnson said. “This stock has reversed the downtrend off the ’17 highs. It’s made a higher low and it looks like it’s a pretty good setup back to about $525, so a good setup and a good risk-reward.”
A move to $525—a level not seen since June 2017—would see REGN gain 28%.
Point View Wealth Manager’s John Petrides has a different biotech in mind: Gilead Sciences (NASDAQ: GILD).
“We like to play in the larger-cap space, particularly Gilead,” Petrides, the portfolio manager at Point View, said. “Gilead is about 40 percent off its peak from August 2015. The stock is really attractive from a valuation standpoint, trading at less than 10 times earnings. You have a 3.8 percent dividend yield which they have grown 20 percent per year over the last three years.”
“It has a war chest of a balance sheet with about $20 billion, $25 billion in cash. They’re making a play on oncology and they have more money to throw at future acquisitions to really buy their top-line growth,” Petrides said.
But I’ve got my eye on two other biotechs that have big upcoming catalysts.
Axsome Therapeutics (NASDAQ: AXSM) is in a pivotal trial right now for its AXS-05 treatment, a fixed-dose combination of the common cough-suppressant dextromethorphan with bupropion as a treatment for major depressive disorder (MDD) that resists other drugs.
Earlier this year, the company blew everyone away with mid-stage trial results that suggests AXS-05 is highly effective. The data showed that after six weeks, 47% of patients treated with AXS-05 achieved clinical remission of MDD symptoms, compared to just 16% of the placebo group.
Nearly 7% of all U.S. adults suffer a major depressive episode each year, and around a third of these patients don’t respond to standard treatments. So if Axsome’s combination treatment AXS-05 continues to show impressive study results, the company could see blockbuster sales of the drug once it hits the market.
Wall Street is bullish on Axsome as well. The stock has a consensus Buy rating and the average twelve-month price target for AXSM is $24 – 165.5% higher than Thursday’s closing price.
The other biotech I’m interested in right now is Xencor (NASDAQ: XNCR).
Xencor has developed a technology that allows it to make small tweaks to existing drugs to make them work better. Right now, the company has 12 molecules in development that target diseases ranging from blood cancers to asthma, and beyond.
Some of Xencor’s drugs are wholly owned by the company, while others are in development with big names like Amgen (NASDAQ: AMGN), Alexion Pharmaceuticals (NASDAQ: ALXN), and Novartis (NYSE: NVS). With these big partners, the $2 billion biotech has been able to raise substantial capital in a non-dilutive way while also giving credibility to its technology.
Recently, Xencor partnered with Alexion on a drug called Ultomiris, which treats the rare disease paroxysmal nocturnal hemoglobinuria. The drug is an enhanced version of Alexion’s highly successful drug Soliris. With Xencor’s technology, they were able to make Ultomiris longer-acting and more effective than Soliris is on its own, which goes a long way toward validating Xencor’s ability.
Xencor’s pipeline will take time to mature, but the company has $548 million in cash which alone is enough to fund its operations until 2023. And with that cash-heavy balance sheet and its promising pipeline, Xencor looks like a good bet in the biotech space.
Analysts agree and currently rate the stock a Buy. Their average price target for XNCR is $42.57, suggesting possible upside of 46.3% over the next twelve months. Just last week, Piper Jaffray boosted their price target for the stock to $56 – 93% higher than the current price.