4 SMID-Cap Biotechs Barclays Just Confessed It Loves

May 21, 2015

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In a new research note, Barclays analysts said that the run in biotech stocks is not over. In fact, the firm initiated coverage on four names, three of which it started with Overweight ratings.

On that Overweight side, Barclays likes Alkermes Plc (NASDAQ: ALKS), Esperion Therapeutics Inc (NASDAQ: ESPR), and Intercept Pharmaceuticals Inc (NASDAQ: ICPT). The firm also initiated coverage on Trevena Inc (NASDAQ: TRVN), with an Equal-Weight rating.

These companies develop pharmaceuticals that deal with a range of issues, from depression and schizophrenia (Alkermes) to high cholesterol (Esperion), liver fibrosis (Intercept) and pain management (Trevena). Barclays said that it expects the SMID-cap biotech industry to continue to "remain integral to the innovation momentum in healthcare and provide growth opportunities for some time."

For the SMID-cap sector, the analysts also noted that there is obviously an M&A component, as well as opportunities for SMID to partner with large biopharma. That leaves opportunities for many of these names to continue to run higher. Here are the specifics:

The analysts noted that there are key risks for SMID-biotech companies, notably rising reimbursement hurdles in the U.S., as well as the potential that the M&A boom will slow.

Alkermes: Barclays forecasted that this stock will reach $74, up from a $62.10 closing price on Wednesday. The analysts said Alkermes has important catalysts in the next 12 months that will offer insight into its late-stage psychiatry pipeline and the commercial potential of key programs. In particular, the analysts pointed to Q1 2016 Phase 3 data for its depression drug.
Esperion Therapeutics: While noting that shares of Esperion have had a "historic run over the past six months" – up more than 293 percent – Barclays said the price could rise another 30 percent to the firm's $150 price target. The analysts said the company's once-daily therapy to lower LDL cholesterol "is destined to be a blockbuster." The peak sales estimate of $2.5 billion "could even prove conservative."
Intercept Pharmaceuticals: Barclays was not surprised to see the recent selloff in Intercept, noting that the initial sell on the news reaction is an opportunity to enter the stock. The analysts expect Intercept to meet the Phase 3 goals for its liver fibrosis drug, OCA. With the FDA on board, Barclays said that "large biopharma's interest in this setting will increase," suggesting that Intercept could be a take-out candidate. Year-to-date, the stock has gained 73 percent, even after the 10 percent sell-off this week.
Trevena: While Barclays said that the company had "a solid story," it said that the Q3 pain trial "needs to impress." Since "pain trials are notoriously hard to predict," the analysts recommended that investors try to stay on the sidelines until the results are out. The analysts do, however, have a $11 price target on the stock, a 61 percent increase from its $6.80 closing price.