Looking for 1,600% Returns? Biotech Has No Shortage of Analyst Optimism

(Bloomberg) -- Large swings in market value are common in the biotech industry, and analysts covering the sector have no shortage of ideas on which stocks could be next to pop.

Wall Street’s biggest bulls expect 159 of the 218 stocks in the Nasdaq Biotech Index to double over the next year, data compiled by Bloomberg show. Eleven analysts even see potential for members of the index to be worth ten times or more than their current value in 12 months.

On Wall Street, where selling stock is the business, analysts are not known for excessive pessimism -- sell ratings are generally assigned to less than 10% of companies. Perhaps nowhere is confidence in the future more pronounced than in biotech, where volatility is the rule among early stage companies and analysts can make their name by getting one giant rally right.

Investors have gotten hefty payouts by sticking with calls on companies like Amarin Corp., Eidos Therapeutics Inc. and Spark Therapeutics Inc. At the same time, it’s worth noting that big blow ups are not uncommon, even when Wall Street is unabashedly optimistic. Analysts were whipsawed in recent months by Biogen Inc.’s Alzheimer’s flop, Tocagen Inc.’s failed brain cancer drug, Aquestive Therapeutics Inc.’s generic battles and Nektar Therapeutics’ cancer-drug woes.

Here are some of their biggest calls right now:

Proteostasis Therapeutics Inc.

Cantor Fitzgerald’s Elemer Piros has a $14 price target that is roughly double the rest of the Street and more than 1,600% above where the stock currently trades. Proteostasis is a penny stock after falling 90% from last year’s peak, but Piros remains bullish on the company’s cystic fibrosis portfolio. Bottom line: While all four analysts tracked by Bloomberg hold buy-equivalent ratings, Cantor expects Proteostasis can compete with juggernaut Vertex Pharmaceuticals Inc., which is a hefty statement.

Five Prime Therapeutics Inc.

RBC Capital analyst Kennen Mackay has held a $50 price target on Five Prime Therapeutics since November 2017 despite the stock’s 90% drop since then. The next closest price target among his peers is $16, which would still mean the shares more than quadruple in the next year. Bottom line: Late-stage study results in the first half of next year are key for RBC’s big call, although Five Prime also has drug data coming up in November that could spark some optimism among investors.

Kala Pharmaceuticals Inc.

Wedbush’s Liana Moussatos has been among the company’s biggest fans since launching coverage back in 2017. Her price target of $51 implies a more than 1,300% gain from the current share price and is almost double the stock’s peak level from two years ago. Bottom line: Data for Kala’s dry eye drug later this year will be a key catalyst to revive the stock.

Adamas Pharmaceuticals Inc.

JMP analyst Jason Butler likes the company’s drug for uncontrolled movements in patients with Parkinson’s disease despite the stock’s continued slide since May 2018. Butler sees an inflection in sales of the drug, Gocovri, in the back half of this year ahead of late-stage clinical results due in coming months. Bottom line: The bull case depends on Gocovri after slowing prescription growth raised questions over the last few quarters. Analysts see a longer term benefit from a recent shakeup in the company’s management team.

Acorda Therapeutics Inc.

Cowen analyst Philip Nadeau’s call for Acorda shares to be worth $30 -- compared to less than $3 currently -- is a stark contrast from the rest of Wall Street. He’s the only buy rating, and the stock has fallen 86% in the last year. His position on the stock has weighed on his overall returns, with his recommendations losing 24% of their value in the past year compared to a 15% decline for peers, according to data compiled by Bloomberg. Bottom line: Nadeau expects a pickup in sales for Acorda’s Inbrija through year-end after struggles with limited reimbursement access.

Foamix Pharmaceuticals Ltd

Foamix is another big call for Cowen, this time from Ken Cacciatore, who sees a ten-fold gain in the share price for the maker of acne drugs and birth control. Notably, Cowen has acted on each of the company’s offerings since at least 2014. Bottom line: Foamix has universal buy ratings from analysts while the shares have lost about half their value in the past year. A key aspect of the bull thesis is Foamix’s ability to spark interest from larger companies, although there has been little evidence of traction on that so far.

To contact the reporter on this story: Bailey Lipschultz in New York at blipschultz@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Jennifer Bissell-Linsk

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