Take Advantage of Biotech Pullback - Jeffereis (IBB) (VRTX) (BMRN) (MDCO) (RARE) (VNDA)

Jefferies biotech team suggested 5 stocks to buy after the recent pressure in the sector. Analyst, Brian Abrahams believes this creates excellent LT buying opportunities for companies with concrete earnings outlooks, attractive up/down scenarios, and/or promising pipelines, like VRTX, BMRN, MDCO, RARE, and VNDA.

Vertex Pharma (NASDAQ: VRTX) is expected to continue to be the leader in a well-circumscribed, high margin, high barrierto-competitive-entry CF space. They believe there is already broad Street understanding that near-term consensus Orkambi numbers (driven in part by outliers) may be optimistic, expectations for VX-661/Kalydeco in het/mins are realistically low, and longer-term upside/ downside case in our DCF (55%+ upside to $135 if ultimately penetrate het/min and residual function populations; only 25% downside even if persistence and EU pricing poor and no het/min or residual function capture) looks compelling at the stock’s current valuation.

BioMarin Pharma (NASDAQ: BMRN) is trading within ~25% of the base value for its five currently marketed products implying the market ascribes little value to its 10+ pipeline products. With four additional product launches anticipated through 2018, there is potentially meaningful upside with likely limited downside. Regulatory events should be the major catalysts in the back half of 2016.

Medicines Co. (NASDAQ: MDCO) has multiple catalysts in 2016 that can drive shares higher, including: 1) data from the PII ORION trial for ALN-PCSsc in hypercholesterolemia in H2’16, and 2) PIII TANGO data for carbavance for Gram(-) bacteria in mid-/H2’16. Partnered with Alnylam (ALNY, Buy) ALN-PCSsc has demonstrated robust LDL-C reductions with impressive duration in PI, and if the results can be replicated in PII and pivotal trials, MDCO/ALNY could have a differentiated product where we see $1.2B in risk-adjusted sales by 2025. We see further upside potential if a permanent injunction in the Amgen (AMGN, Buy) v. Sanofi/Regeneron (SAN FP, Buy/REGN, Hold) is issued (potentially in April), since it could potentially block all other antibody approaches to PCSK9.

Ultragenyx Pharma (NASDAQ: RARE) has several key catalysts (2H16), given clear biology and promising proof-of-concept data. Catalysts include: 1) larger magnitude of bone benefit vs. Dec’15 update from KRN23 (anti-FGF23 antibody) Ph2 readout in pediatric patients with X-linked hypophosphatemia to support potential EU conditional approval; 2) likely meaningful reduction in seizure from triheptanoin (a type of triglyceride) Ph2 data in glucose transporter 1 deficiency syndrome based on optimized protocol and data from investigator sponsored trials; 3) potentially positive readout for triheptanoin Ph2 data in long-chain fatty acid oxidation disorders based on historical data.

Vanda Pharmaceuticals (NASDAQ: VNDA) shares are attractively valued on the opportunity for Hetlioz in the US alone (~$10/share), with additional value coming from ex-US Hetlioz sales (~$3/share) and Fanapt (~$2/share). Based on YE15 estimates of >500 pts on drug and steady patient growth for Hetlioz (~30-50 net patient adds/quarter), peak US sales of ~$277M should come from ~1,500 patients on chronic treatment.

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