Biotech Stocks Are Due to Bounce Back. Vertex Pharmaceuticals Stands Out.

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The large-cap biotech will offer a smoother ride than the smaller, and the Vertex in particular looks attractive.

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Biotech stocks started the year exactly the way they ended it—with a hammer. Vertex Pharmaceuticals,
However, it held its own, and that may be reason enough to start munching on its shares.

This area had a terrible 2021. The iShares Biotechnology Exchange-Traded Fund (ticker: IBB), which weighs its holdings by market capitalization, rose 1%, its worst year since 2018, while the equal-weighted SPDR S&P Biotech ETF (XBI) fell 25%, its worst year since at least 2007. The year was supposed to be better, but so far it has been anything but, with the iShares ETF down 7.9% and the SPDR ETF down 8% during Friday’s close — their worst start in a year since 2016. Blame it on the hawkish minutes from the Fed’s December meeting.

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Still, there are reasons to believe that things can get better. For starters, biotech stocks don’t do poorly for nearly two years in a row. The last time the SPDR ETF suffered a decline of 15% or more was in 2018, and the fund followed it up with a 33% increase in 2019. It dropped more than 15% in 2016 and rose to 44% thereafter. 2017.

Baird analyst Brian Skorney observed that the sell-off left more than 70 companies with more cash than their combined equity and debt than they’ve seen so far. “With the excitement of catching someone’s falling knife, our view is becoming optimistic on the biotech’s outperformance going forward,” he writes. “While acknowledging the structural risks, we believe this area is now well into oversold territory and we believe we will see strong relative performance in 2022.”

The large-cap biotech will offer a smoother ride than the smaller one, and the Vertex (VRTX), looks particularly attractive. Like many biotechs, it had a miserable 2021, falling 7.1% and underperforming the large-cap iShares Biotech ETF by nearly eight percentage points. Vertex, whose main drug is a treatment for cystic fibrosis, was hit by the failure of two separate trials to treat alpha-1 antitrypsin deficiency, a lung and liver disease — one in March and one in June.

Now the company looks interesting. While the biotech sector has spent the first week of 2022 in ruins, Vertex has gained 1%. One thing in its favor: AbbVie‘s
(ABBV) cystic fibrosis treatment may not be as big a threat as some people think, says Jefferies analyst Michael Yee, who named Vertex a franchise pick last month. “AbbVie is not such a big deal,” he writes. “We argue that the ABBV is far behind and the bar is high for clearly showing some data that matters.”

As far as the pipeline is concerned, despite the disappointments of last year, there may still be some surprises in it. RBC analyst Brian Abraham argues that in December, Vertex reported positive results from a phase 2 trial of a treatment for the rare kidney disease, and that there are ongoing trials for the treatment of type 1 diabetes and post-bunectomy pain that have yielded some positive results. can create surprises.

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“We see … given little value to the company’s pipeline, which should provide upward optionality and a catalyst for appreciation on any positive updates,” they write. Abrahams has a price target of $265 on Vertex, which is up 19% from Friday’s close of $221.85.

Investors can learn more on Monday, when it’s due on Vertex JPMorgan Health Care Conference, It doesn’t usually offer many fireworks, but it can provide an early look at some data from diabetes- or pain-treatment trials.

Either way, the next move in Vertex’s stock is expected to be higher.

Write Ben Levishon at [email protected]


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