Biogen and 3 other healthcare stocks sell far less than analysts predict

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Healthcare stocks have been lagging the broad market since the start of the pandemic, but Wall Street analysts see hope for stock pickers looking for opportunities among large stocks. least performing capitalization in the industry.

The


S&P 500 Health Sector Index

is up 26.6% since the start of 2020, well below the 40.2% gain recorded by the


S&P 500.

This year, the health care index is up 13.2%, compared to the 20.1% increase of the broader index.

There have been a few winners this year among health care stocks in the S&P 500, most notably


Modern

(MRNA), up about 220%. The owner of the hospital


HCA Health

(HCA) is up 52.1% this year, while


Eli lilly

(LLY) won 43.1%.

These price increases were more than offset, however, by the industry’s losers. The generic drug maker


Viatris

(VTRS) is down 27.8% this year, while the biopharmaceutical company


Incyte

(INCY) fell 25.1%, and biotechnology


Vertex Pharmaceutical

(VRTX) lost 22.2%.

It is among the companies whose shares have fallen the most this year that analysts see the greatest opportunities for gains in the healthcare sector.

Barron scanned health stocks on the S&P 500 to find the four that are trading the furthest below their average target prices, set by Wall Street analysts to indicate where they expect a stock to go. trades after a set period, typically 12 months.

The screen showed the three S&P 500 healthcare stocks that fell the most this year—


Incyte
,

top, and


Viatris

—More the biotechnology company


Biogenic

(BIIB).

We did a similar filter, looking for five stocks, in June. At the time, both Incyte and Vertex were on the list. Among other past stocks, two have since outperformed the S&P 500 healthcare index.


Organon

(OGN) is up 9.9% since then, and


Hologically

(HOLX) rose 13.5%. The sector index rose 3.4%, compared to 6.3% for the S&P 500.

Company / Teletypewriter Recent price Average target price Implied gain
Incyte / INCY $ 65.22 $ 97.87 50.1%
Biogen / BIIB 267.95 397.80 48.5
Vertex Pharma / VRTX 183.62 260.52 41.9
Viatris / VTRS 13.57 18.85 38.9

Source: FactSet


Cigna

(CI), which also passed the screen in June, has fallen 13.6% since then.

This time around, the S&P 500 stock trading furthest below its average analyst target is Incyte. The stock stumbled, beset by a number of investor concerns. Growing concern from the Food and Drug Administration over the safety of a class of drugs known as JAK inhibitors has dampened the hopes of Incyte’s competitors in this group, including Jakafi and Opzelura.

When the FDA approved Opzelura to treat atopic dermatitis in late September, it demanded that the company include warnings on the drug’s label, noting a risk of serious infections. Incyte shares fell 8.5% on the day of approval.

Despite the concerns, however, many analysts remain enthusiastic about Incyte. Of the 20 that cover Incyte followed by FactSet, 12 credit it with a buy while eight credit it with a hold. The average analyst target price for the stock is $ 97.87, which implies a gain of 50.1% from its recent price of $ 65.22.

“INCY has a deep and promising pipeline,” wrote Oppenheimer analyst Jay Olson in early October. “INCY’s diverse pipeline is expected to result in accelerated revenue growth, which is currently undervalued in our view. “

Next to pass our screen is


Biogen
,

biotechnology behind the most controversial drug launch of the year. Biogen shares are up 9.5% this year, but down 22.3% since early July. Share jumped 38.3% in a single day in early June, when the FDA granted a surprise approval of Aduhelm, the company’s Alzheimer’s disease treatment.

Investor enthusiasm for Aduhelm waned amid a tidal wave of bad news. Experts on the FDA advisory committee who voted overwhelmingly against approval of the therapy resigned after approval, saying the evidence did not support its effectiveness.

Since then, the Centers for Medicare and Medicaid Services have launched a process to decide whether Medicare will cover the drug, the Inspector General of the Department of Health and Human Services has opened an investigation into Aduhelm’s approval, some private insurers reported winning does not cover it, and some health systems in the United States have said they will not administer it.

The deployment is going much less well than expected. The company said on Wednesday it had sold just $ 300,000 of the drug in the third quarter, well below the $ 12.1 million expected by Wall Street analysts, according to FactSet.

In a note early Wednesday, Piper Sandler analyst Christopher Raymond wrote that Aduhelm’s launch was “even worse than we feared.”

Yet despite the decline in investors on the stock and the concerns of some analysts, 16 of 31 analysts covering Biogen tracked by FactSet rate the stock Buy or Overweight, while 15 rate it at Hold. While the stock price has fallen in recent months, analysts’ recent average price target is $ 397.80, just below the $ 417 figure at the end of June, according to FactSet. This target implies a gain of 48.5% over the recent share price of $ 267.95.

Analysts say Biogen’s future largely depends on Aduhelm, and many are confident that it will eventually become the mega-rockbuster Biogen hopes it will become. “While its initial launch is disappointing, based on feedback from our consultants, we remain hopeful that Aduhelm will eventually achieve sufficient sales to bring BIIB back to growth,” Cowen analyst Phil Nadeau wrote in a note of October 15.

Another stock on screen, Vertex, down 22.2% this year, was once the darling of healthcare investors for its cystic fibrosis franchise. However, concern over the company’s pipeline caused the stock to plummet for a year. Shares are down 36.1% since July 2020, a period in which the S&P 500 is up 48.7%. The stock is now trading near its 52-week low at $ 176.36.

The company has had two drug failures to treat alpha-1 antitrypsin deficiency, a lung and liver disorder, first in October last year and then again in June.

However, the company’s core franchise on cystic fibrosis remains strong and analysts have not lost confidence. Earlier this week, Vertex announced positive data from the first patient treated in a Phase 1/2 trial of a new stem cell-derived therapy to treat type 1 diabetes. Of the 27 tracked by FactSet that cover the As a stock, 20 rate it a buy or overweight, while five rate it a hold and two rate it a sell.

Their average target price of $ 260.52 suggests a 41.9% gain from the recent share price of $ 183.62.

“We continue to believe that the stock is not currently evaluating any credit to the pipeline, and credit is currently only given to the core company,” Cantor Fitzgerald analyst Alethia Young wrote in a statement. note published on October 14.

The latest stock to pass our screen was Viatris, formed last year by a merger of generic drugmaker Mylan and a


Pfizer

(PFE) which sold off-patent drugs to foreign markets. Viatris shares are down 27.8% this year.

Viatris is more finely hedged than some of the other stocks on our list, with 16 analysts tracked by FactSet maintaining the stock’s ratings. Of these, seven rate it as overweight or a purchase, while nine rate it as a maintenance. Their average target price is $ 18.85, which implies a 38.9% gain from the recent share price of $ 13.57.

However, many of these target prices have not been updated recently and were established when the stock was trading higher. This suggests that the average target price may be overstating the enthusiasm of analysts.

Still, some analysts like Viatris. “In our opinion, the execution of 21, a strong long-term direction, a compelling / clearly communicated dividend policy and a value-creating business development strategy are essential to overcome the historic downgrade of VTRS to the peer group. Bank of America analyst Jason Gerberry wrote in an Oct. 12 note.

Write to Josh Nathan-Kazis at [email protected]

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