2015 has been a turbulent year for pharma stocks. Deals have helped the sector remain in favor, but concerns about pricing and the Valeant scandal are just two of the factors that have tarred the sector's reputation, bringing valuations back to earth.
Analysts at Credit Suisse believe that 2016 is set to be yet another volatile year for the sector, especially small and mid-cap names. However, they believe that seven pharmaceutical names have what it takes to outperform via a combination of strong product stories, near-term pivotal catalysts, financial strength and experienced management teams.
Portola (PTLA) and Alkermes (ALKS) are the bank's top small and mid-cap pharma picks for 2016. PTLA is awaiting the Mar 2016 phase 3 data release from its betrixaban APEX Study in the acute medically ill population. Credit Suisse's pharma analysts see a high likelihood of success for this study, and are also encouraged by the progress PTLA is making on andexanet alfa's commercial manufacturing ahead of its 2016 launch.
When it comes to ALKS, analysts believe that the market is underappreciating ALKS's pipeline. Specifically, analysts believe that the market hasn't fully grasped the potential of the company's ALKS 5461 treatment. Three phase 3 studies of this drug will be completed during the first half of 2016.
Pharma pick 1: Alkermes
As mentioned above, one of Credit Suisse's two top pharma picks for 2016 is Alkermes (ADMS). With an enterprise value of just under $12 billion, Alkermes is hardly a small-cap but the company is expected to report positive EPS until FY 2017. Still, Credit Sussie sees four main catalysts for the stock during 2016; (1) Phase 3 data for ALKS 5461 (1H 2016); (2) Uptake of Aristada; (3) Phase 3 data for ALKS 3831; (4) Launch tracking of Invega Trinza.
ALKS 5461 is undoubtedly Alkermes' most important treatment as it is expected to account for the majority of the company's growth going forward. Credit Suisse sees a 75% chance of this drug successfully passing through its Phase 3 studies later in the year. A positive commercial launch or commercial partnership with ALKS 5461 could see Alkermes' shares hit $94 in the best-case.
