Biotech Stocks Could Make a Comeback This Year. The ‘M&A Stars’ Are in Line.

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Piper Sandler said that “conditions across the market cap spectrum are largely positive for this sector.”

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Biotech stocks had a bad 2021: The SPDR S&P Biotech Exchange-Traded Fund dropped 20.5%, while the S&P 500 climbed 26.9%. Piper Sandler analyst Christopher Raymond and his colleagues say this year will be bright for the region.

In a research note published on Sunday, Raymond said he recommended “selective purchases” of biopharma shares. Their list of top picks for the year included AbbVie (ticker: ABBV), Horizon Therapeutics (HZNP), Biohaven Pharmaceutical Holding (BHVN), and Jazz Pharmaceuticals (JAZZ), among others.

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“We see a macro set-up that is largely positive across the market cap spectrum for the sector,” Raymond wrote.

Some of the bigger concerns that have scared investors, including political efforts in drug pricing and questions about the Biden-era Food and Drug Administration’s regulatory approach, seem to be subsiding. Raymond wrote that on drug pricing, “the tone has clearly turned positive” for the industry. And the Biden administration has named a new FDA commissioner, Dr. Robert Califf, a steady hand, to receive confirmation from the Senate earlier this year.

Meanwhile, Raymond argued, this is likely to be a busy year for mergers and acquisitions. He wrote that “the M&A stars … appear aligned like no other time,” a case in point. baron’s Recently built into a smaller facility. “With large cap trading at 12.4X 2022 consensus EPS, we see meaningful value in front of what we posted in November, Biopharma could have a 2022 generalist rotation,” Raymond wrote. “For smid-caps, we see value opportunities as well.”

Raymond’s top large-cap picks, AbbVie and Horizon, are up 26.4% and 47.3%, respectively, over the past 12 months. In a separate note published on Sunday, Raymond raised its target price on AbbVie to $160 from a recent $129. He rates the stock overweight. Shares closed at $135.40 on December 31st, and were down 4% in premarket trading on Monday.

“We continue to see ABBV as an essential holding for any investor looking for relatively safe exposure to the biotech in 2022 and beyond,” Raymond wrote.

For Horizon, Raymond wrote that “the value creation over the past two years has been nothing short of transformative,” citing the launch of its drug Tepeza, a treatment for thyroid eye disease. “Simply put, HZNP has leapfrogged into a full-blown large cap biopharma company, and with high visibility into continued stellar commercial execution, we look forward to further expansion in 2022,” Raymond wrote.

Raymond said he liked the “risk/reward set-up” for BioHaven, which is expected to provide updates on several trials this year. And he wrote that concerns are high over impending competition for a flagship product that has brought Jazz shares down 22.8% over the past 12 months.

Others identified in Raymond in 2022 include midcap biotechs Legend Biotech (LEGN) and Chimera Therapeutics (KYMR), and small-cap biotechs Praxis Precision Medicines (PRX) and Gossamer Bio (GOSS).

Write to josh [email protected]

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