The Big Biotech Winners and Losers for 2013 (AMGN, BIIB, CELG, GILD, ALXN, ARIA, CBST, INCY, JAZZ, MDVN, ONXX, THRX, VPHM, VVUS)


Big biotech had a stellar 2012. In 2013, though, the large biotech companies may be dwarfed in performance by the smaller players in the $1 billion to $5 billion range. If you look at the gains of just the big three in biotech you will be shocked: Amgen Inc. (NASDAQ: AMGN), Biogen Idec Inc. (NASDAQ: BIIB) and Gilead Sciences Inc. (NASDAQ: GILD) created a whopping $60 billion in combined shareholder gains in 2012. We recently highlighted these big-cap biotechs as being overvalued, although there could be an ongoing Celgene-effect, as we already have seen several analysts increase their targets and opinion on Celgene Corp. (NASDAQ: CELG) after the company issued its longer-term guidance on Monday.

In late-December, 24/7 Wall St. stated that the risk-reward analysis for the large biotechs was too narrow for investors to chase. We maintain that stance because the larger biotechs still offer less than 10% upside on average. Note that Biogen Idec Inc. (NASDAQ: BIIB) recently has pulled back on a disappointing ALS study, and that at least brings a bit of cushion. Also, Amgen Inc. (NASDAQ: AMGN) just lowered earnings expectations due to an R&D tax credit moving forward. Our interest lies in what is in store for 2013, and that is in the mid-cap sector.

We screened out most of the companies that were less than $1 billion in market value and that were thinly traded. Many of those small-cap stocks offer the most upside for speculative investors, but they also bring the largest risks to portfolios. In general, most of these offer upside of 20% or more (with some much more).

Our list of biotechs with the most upside in 2013 is as follows: Alexion Pharmaceuticals Inc. (NASDAQ: ALXN), Ariad Pharmaceuticals Inc. (NASDAQ: ARIA), Cubist Pharmaceuticals Inc. (NASDAQ: CBST), Incyte Corp. (NASDAQ: INCY), Jazz Pharmaceuticals PLC (NASDAQ: JAZZ), Medivation Inc. (NASDAQ: MDVN), Onyx Pharmaceuticals Inc. (NASDAQ: ONXX), Theravance Inc. (NASDAQ: THRX), ViroPharma Inc. (NASDAQ: VPHM) and VIVUS Inc. (NASDAQ: VVUS). These stocks are in alphabetical order.

A driving force behind emerging pharma and biotech stocks in 2012 was M&A activity. We expect this to continue in 2013 as big pharma and large biotech companies should continue to spend billions of dollars to acquire new drug pipelines and R&D efforts. Some of these companies may easily fit the bill as potential M&A candidates in 2013 or beyond. That being said, 24/7 Wall St. has tried to avoid including most of the current or past buyout rumors that have surrounded some of these companies. We are looking to evaluate each of these companies based on the underlying fundamentals and expectations based on the facts and base-case outlooks rather than on hope.

All estimates have come from Thomson Reuters, but remember that these estimates can and likely will change through time.

Filed under: 24/7 Wall St. Wire, Biotech, Healthcare, Value Investing Tagged: AAPL, ALXN, AMGN, ARIA, BIIB, CBST, CELG, GILD, INCY, JAZZ, MDVN, ONXX, PFE, THRX, VPHM, VVUS