Investors have had a hard time in May. Biotech investors also have faced some hard decisions going into the 2016 elections, where both sides of the aisle seem more than willing to attack pharmaceutical companies for how they price drugs.
What is interesting here is that biotech is the one sector that still offers massive upside for investors — if they can pick the right companies that is. The biotechs are the one group that could one day create a cure or perfect ways to treat cancer, heart issues, diabetes and just about every nasty disease and ailment you can think of. That means they could have unlimited upside — but any savvy investor knows that this also comes with extreme risk.
24/7 Wall St. tracks many analyst upgrades and downgrades each day of the week. This turns out to be hundreds each week. Many biotech and biohealth stocks end up standing out above the rest of the pack because they often come with upside price targets that may be too good to be true.
Keep in mind that Dow and S&P 500 stocks are generally given upside of 8% to 15% for a one-year target with most Buy and Outperform ratings. So when you see projected upside of 40%, 75% or even well over 100%, you better understand you are taking a major swing for the fences here. In some ways, speculative biotech investors are gambling on many hypothetical successes that have yet to come about and that could face many hurdles.
One thing to consider here is that many revenue and upside price targets in biotech are not the traditional one-year target prices. These might be based on drug and treatment developments that won’t even be known until 2018, 2020 or even beyond.
Now that you have been warned that these could implode or even disappear (both are real risks in this sector), here are major upside analyst calls seen in the biotechs in May.
Amarin Corp. (NASDAQ: AMRN) was assumed with a Buy rating and a $3.50 price target (versus a $1.57 prior close) at Jefferies on May 12. The firm said it believes that the off-label Vascepa promotion in mixed dyslipidemia may be starting to bear fruit. It said:
We believe off-label Vascepa promotion in mixed dyslipidemia may be beginning to bear fruit, where our analysis of TRx data suggests a steeper upward trend in recent months v. 2015. Access to this population is a major source of upside, where we see opportunity of $2.5 billion. Focus is also on REDUCE-IT where we believe Vascepa can show a benefit on final analysis in early 2018, and upside could be $14 per share.
Amarin closed on Friday at $1.72. It has a consensus target price of $6.50 and a 52-week trading range of $1.24 to $2.80.