Biotech stocks jumped early this week after pharmaceutical companies delivered positive drug trial results on experimental medicines that could turn into breakthrough treatments for some of the world’s most difficult-to-treat cancers.
The SPDR S&P Biotech XBI ETF—which tracks the sector’s largest companies—was up as much as 4% between Monday and Wednesday, and the sector has been led this week by cancer drug maker Mirati Therapeutics (NASDAQ: MRTX), which is up just under 39% for the week, as of Friday morning.
Mirati began climbing after Amgen (NASDAQ: AMGN) presented encouraging data on Monday at the 2019 American Society of Clinical Oncology meeting regarding its experimental drug that targets a mutated form of the KRAS gene.
Researchers found that Amgen’s treatment shrank tumor growth in patients with KRAS mutations—which are believed to cause cancer and are found in some patients with lung, pancreatic, and colorectal cancers—in a small clinical trial of lung cancer patients. The data was seen as a positive for Mirati, a smaller biotech company, as it is also developing drugs that target KRAS mutations.
“We think that Amgen’s phase 1 results should read positive to Mirati’s stock,” said Varun Kumar, an analyst at Cantor Fitzgerald. The analyst said that Amgen’s results “reflect a higher likelihood of a positive readout” from Mirati from its KRAS mutation-blocking drug candidates.
Biotechs have had a difficult last few months along with the broader healthcare sector as concerns have grown around the possibility of Washington lawmakers making significant changes to the U.S. healthcare landscape. Despite this, the XBI Biotech sector ETF is up 13.4% so far this year.
“Among large cap names, we think that Vertex has the best revenue and earnings growth profile,” Seigerman wrote in a note to clients. Seigerman said that while shares look expensive in the short term, the stock looks like a steal over the long term considering the cash flow potential offered by Vertex’s cystic fibrosis treatments and its solid pipeline.
Seigerman also likes Neurocrine Biosciences, a California-based company focused on treatments for endometriosis, and other conditions. “Among our SMid-cap names, Neurocrine is our top pick due to our projected strong revenue growth… namely from Ingrezza,” the company’s dyskinesia drug.
The analyst rates both stocks an Outperform. Seigerman set a price target for Vertex at $209 and for Neurocrine at $95, indicating possible upside of 21% and 16%, respectively, over the next twelve months.