RBC unveils its 15 top biotech stock ideas for 2021 as the sector is poised to take off on the back of pandemic-related innovations and new funding

  • As COVID-19 vaccines get distributed and administered to citizens in the US, UK, and EU, the biotech sector is likely to ride on the momentum of the immunization effort to outperform in the new year, according to an RBC research report on December 14. 
  • Innovations and goodwill built around vaccine developement, and investor expectations for more dealmaking, are also likely to drive biotech stocks higher in 2021, the report said.
  • However, several macro and micro factors could work against the group, making individual stock selection a priority as investors navigate biotech investing in the post-COVID world.
  • As such, a team of RBC healthcare stock analysts has compiled their 15 top biotech stock ideas for 2021 and shared why the companies are poised to rise. 
  • Visit Business Insider's homepage for more stories.

The biotech sector is riding on the momentum of the COVID-19 vaccine rollout into the new year as the US and European Union nations kick off mass efforts to inoculate their residents.

Many pandemic-related influences are setting up the sector for outperformance but several factors could still work against the group, making individual stock selection a key priority in biotech investing in 2021, RBC's healthcare equity team said in a December 14 report. 

On the positive side, the development of COVID-19 vaccines and treatments have shed light on the innovative science taking place in the sector, drawing increasing investor interest and building goodwill that is likely to take the edge off of regulatory drug pricing concerns. 

"Innovation in new targets and modalities, as well as capital flow into the space, are at all-time highs," RBC analysts including Brian Abrahams wrote. "And while maturing franchises and patent cliffs have slowed growth for larger-cap biopharmas, this – along with strong balance sheets and access to capital – should continue to drive M&A, especially considering that COVID-19 has proven to be less of a barrier to deals than expected."

However, the very promising developments within the sector could also work against biotech stocks in the near term. 

Easy access to capital, shorter development timelines, an expanding pool of vaccine developers, and success stories like Moderna have encouraged small- and mid-cap biotech companies to remain independent and sign partnership agreements instead of resorting to mergers and acquisitions to raise cash reserves, RBC said. 

"While these may set individual companies, and the sector as a whole, up well for longer-term sustainability, this could lead to near-term stock downside for companies perceived to be takeout targets," RBC analysts wrote. "Indeed, our buy-side survey suggests investor expectations for M&A in the space remain high, viewing it as the largest sector tailwind."

Additionally, as herd immunity and a mass vaccinated population are expected to return society to normalcy in the second half of 2021, investors could shift assets to non-healthcare sectors that have been beaten down by the pandemic. 

As a result, biotech investing in 2021 is likely to require a balancing act between these pandemic-influenced macros and micro factors while pushing investors to focus on the winners and losers in a post-COVID world. 

"The advent of telehealth may dramatically improve efficiency of care delivery, boosting the overall market for medicines and facilitating more rapid switching and uptake of new drugs vs. entrenched incumbents," RBC analysts wrote.

They continued: "The experience with coronavirus vaccine and treatment development could catalyze improved interest, funding, and regulatory paths for infectious disease approaches. And we could see a new wave of therapeutics aimed at combatting the long-term side effects of COVID-19 (cognitive, fibrotic, pulmonary) likely to be faced by millions of people."

Taking all the above factors into consideration, RBC's healthcare team has compiled its 15 top biotech stock ideas for 2021, ranging from large-caps to small-caps. The stocks, along with their tickers, price targets, and analyst commentaries are listed below. 

1. Gilead Sciences

Ticker: GILD

Price target: $85

Commentary: "We believe Biktarvy's strong profile and robust launch, along with favorable demographic and pricing dynamics, will underpin good HIV franchise sustainability through at least 2025; with nearer-term competitive threats overblown; we expect this, along with life cycle efforts such as their capsid inhibitor, to maintain a strong foundation for GILD's valuation."

Source: RBC Capital Markets

2. Genmab

Ticker: GMAB

Price target: $40

Commentary: "We continue to see GMAB as one of the most preferred emerging large-cap biotech stocks under coverage with a growing & resilient royalty revenue stream enabling profitability while funding internal development of a differentiated, well-validated, & well-pedigreed pipeline."

Source: RBC Capital Markets

3. Acadia Pharmaceuticals

Ticker: ACAD

Price target: $55

Commentary: "Going into the April 2021 PDUFA decision for expansion in DRP, we continue to like pimavanserin's growth prospects and believe uptake will continue to be strong as the momentum gradually recovers to pre-COVID-19 levels across multiple channels, and the potential strength in Nuplazid revenues and label expansion, in our view, offers a path forward to additional upside over 2021 – we see U.S. peak sales of Nuplazid reaching $2.5B+ in PDP and DRP."

Source: RBC Capital Markets

4. Global Blood Therapeutics

Ticker: GBT

Price target: $75

Commentary: "While COVID-19 headwinds are real though temporary, we expect to see recovery in growth momentum in 2021 as the pandemic gradually subsides with potential vaccine EUA approvals, and continue to see the value of Oxbryta in the long term with peak global sales potential of over $1.6B in age 12+ in the late 2020s with potential additional sales opportunities from label expansion, and complementary pipeline assets contribute to the long-term life-cycle management and pipeline diversity of the company, in our view."

Source: RBC Capital Markets

5. Arrowhead Pharmaceuticals

Ticker: ARWR

Price target: $80

Commentary: "We think: 1) A1AT is potential first-in-class and VRTX is more complementary than competitive, 2) APOC3/ANG3 are promising CV targets with superior profiles vs ASO/mAbs (REGN/PFE/IONS), 3) the company is best positioned to unlock value beyond the liver (ENaC for cystic fibrosis, HSD for NASH, HIF2α for RCC, Lung2 for COPD), 4) potential M&A target given most programs still in-house."

Source: RBC Capital Markets

6. Sarepta Therapeutics

Ticker: SRPT

Price target: $191

Commentary: "We remain bullish on Sarepta for the company's potential to deliver a gene therapy for DMD with best-in-class efficacy on top of a solid commercial franchise and an innovative pipeline. Data from placebo-controlled Study 102 of SRP-9001 in DMD will read out in 1Q21 and, if positive, should enable a regulatory filing and start SRPT on a path towards $5B in annual gene therapy revenue."

Source: RBC Capital Markets

7. Exelixis

Ticker: EXEL

Price target: $34

Commentary: "We think shares can move higher in 2021 from key catalysts in 2021 including (i) a PDUFA for CHECKMATE-9ER (2/20) where the CaboNivo combination are set to compete with other immunotherapy regimens; (ii) potential registrational data from COSMIC-311 & COSMIC-312; and (iii) recovery tailwinds from a potential COVID-19 vaccine adding support behind Cabo uptake in a "pandemic sensitive" market (oncology)."

Source: RBC Capital Markets

8. Constellation Pharmaceuticals

Ticker: CNST

Price target: $52

Commentary: "We believe the company's phase II data, particularly with the latest update emerging from ASH, strongly supports the promise of lead drug '610 in myelofibrosis, and despite some residual market debate, that the data show added benefits very likely due to the agent and not the Jakafi background therapy. We also see $1B potential within a well-understood market ripe for additional entrants with novel mechanisms. Though others have taken note of CNST's promising data, CNST remains 1-2 years ahead of competition, and increasing large cap biopharma interest in the space could provide enhanced BD opportunities."

Source: RBC Capital Markets

9. Athenex

Ticker: ATNX

Price target: $33

Commentary: "We continue to like ATNX ahead of key near-term catalysts including two FDA approval decisions for (i) tirbanibulin ointment for actinic keratosis (12/30) and (ii) Oraxol (oral paclitaxel + encequidar) for metastatic breast cancer (2/28) with 2021 set to be an inflection year. We see Oraxol's ph3 data sufficient to support approval which was further supported by the updated OS/PFS data presented at SABCS and we anticipate high commercial demand in the ~40K+ metastatic breast cancer patients/yr expected to be eligible for single-agent paclitaxel before broadening to other indications."

Source: RBC Capital Markets

10. Aprea Therapeutics

Ticker: APRE

Price target: $40

Commentary: "With a novel mechanism of action and solid clinical data to date for the treatment of MDS and severe heme-malignancies, we believe APRE's small molecule p53 reactivator pipeline in oncology, led by eprenetapopt, has an established path for a role in the treatment paradigm for TP53 mutant patients. We see investor focus sharpening going into the highly binary pivotal readout of eprenetapopt in MDS, and remain confident in the favorable efficacy and safety profiles of the asset from the consistently encouraging clinical data and physician enthusiasm and believe the timeline for regulatory, and commercial steps remain intact."

Source: RBC Capital Markets

11. Adverum Biotechnologies

Ticker: ADVM

Price target: $30

Commentary: "We think: 1) gene therapy may revolutionize $12b antiVEGF retinal market, 2) ADVM's delivery method is ideal for retinal diseases, 3) data in wAMD is robust and our KOLs think inflammation is manageable with steroids, and 4) strong potential for M&A optionality."

Source: RBC Capital Markets

12. Clinigen Group

Ticker: CLIN LN

Price target: 1300p

Commentary: "In addition to its strong positions within structurally growing pharma services niches, we believe that the market is failing to price in any upside from Proleukin (IL-2, aldesleukin) in new indications. This drug is being studied in over 100 trials, including alongside Iovance's Lifileucel in melanoma and cervical cancer, and in ALS. These trials provide immediate revenue and, should they be successful, could ultimately be worth more than Clinigen's existing market cap. We expect the first BLA for Lifileucel to be submitted in 2021, with Proleukin's use in ALS having been granted orphan drug designation."

Source: RBC Capital Markets

13. Aptose Biosciences

Ticker: APTO

Price target: $9

Commentary: "We believe APTO's targeted oncology pipeline has potential to garner increasing attention as it clinically matures over the year. Our confidence remains strengthened by the continued clinical progress of oral pan-FLT3/BTK inhibitor CG-806 – APTO's main value driver we estimate with over $1B out-year sales power, which is an early sketch of an intriguing multi-pronged end-market asset with foundational potential across the B-cell and AML landscapes."

Source: RBC Capital Markets

14. Dicerna Pharmaceuticals

Ticker: DRNA

Price target: $35

Commentary: "We think: 1) Nedosiran offers meaningful differentiation vs ALNY, 2) RNAi will be the backbone of HBV cure and we like the "X-sparing approach" that has polarized investors, 3) the company is well capitalized and platform's versatility offers optionality for further non-dilutive capital."

Source: RBC Capital Markets

15. Hansa Biopharma

Ticker: HNSA SS

Price target: CHF 287

Commentary: "Hansa's lead asset, Idefirix (imlifidase), is an antibody-degrading enzyme that has been conditionally approved in Europe for highly sensitised kidney transplant patients – the company will start to roll out to specialist transplant centres in Europe in the coming months. We expect the drug will be approved in the US in 2024, following completion of phase 3 studies."

Source: RBC Capital Markets

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