Business Corpus: Amid Broader Downturn, These 3 Biotech Stocks Look 'Compelling'Gilead Sciences, Celgene and Incyte look "compelling" amid a broader downturn that has sent shares of biotech companies tumbling 13.4% this month, an analyst said Friday. The post Amid Broader Downturn, These 3 Biotech Stocks Look 'Compelling' appeared first on Investor's Business Daily.

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Gilead Sciences (GILD), Celgene (CELG) and Incyte (INCY) look "compelling" amid a broader downturn that has sent shares of biotech companies tumbling 13.4% this month, an analyst said Friday.

Typically, shares of biotech companies don't underperform in market corrections, RBC Capital Markets analyst Brian Abrahams said. This gives investors a chance to look for biotech companies with solid fundamentals and relatively inexpensive valuations.

"With some sell-off already in the sector going into the broader market correction, biotech stocks — particularly large-caps — look fundamentally and relatively cheap," Abrahams said in a report to clients.

In midday trading on the stock market today, shares of biotech companies rose 1.4% into the black for the first time in seven trading days. In seven of the past nine sessions, shares of biotech companies have ended the day in the red.

Catalysts For Biotech Companies

In general, the SPDR S&P Biotech (XBI) index and iShares Nasdaq Biotechnology Index (IBB) aren't any harder hit than the S&P 500 during market corrections, Abrahams said. An exception includes a sell-off in 2016, he noted.

"This could be due to the competing forces of biotechs being perceived as both volatile but also defensive, effectively offsetting one another," he said.

Abrahams calls for biotech companies to have a steady third-quarter earnings season and for rising interest rates to only impact cash-flow opportunities or noncommercial stage biotech companies. Meanwhile, the drug-pricing debate is likely to grab some election attention.

"We acknowledge that concerns about drug pricing could escalate as campaign rhetoric likely increases into midterm elections and a Democratic majority in Congress remains possible," he said. "In any case, we believe any draconian changes remain unlikely to be implemented."

Further, shares of biotech companies could see upside if the GOP wins the House. They also could benefit from a mixed House and Senate, Abrahams said.

Strong Fundamentals In Large Caps

Still, the broader market correction is likely to send investors seeking biotech companies with good fundamentals and growth potential. In this environment, Gilead, Celgene and Incyte look promising, Abrahams said.

Gilead stock continues to trade at a modest discount vs. slow-growing large pharmas, he said.

"We expect positive pull-through from strong commercial executive and underappreciated pipeline progress that should finally be realized in the coming months once a new CEO (chief executive officer) is named and it becomes perceived as more investable," he said.

Celgene remains a growth leader in the space. Abrahams expects Celgene to see regulatory and commercial success in 2019. He calls for the biotech company to beat third-quarter earnings views. The firm is also on track to file for approval of multiple sclerosis drug ozanimod.

Also among large-cap biotech companies, Abrahams sees Incyte as interesting and near a bottom. He see investors now accounting only for sales of cancer treatment Jakafi and other products in their valuation. He says it's possible Incyte could unlock some value through other strategic options.

"There is little downside to Incyte's current valuation and any pipeline success or strategic initiative is likely to drive upside from here," Abrahams said.

Small-Cap Biotech Stories

Among small- and mid-cap biotech companies, he sees some potential in Sage Therapeutics (SAGE), Sarepta Therapeutics (SRPT), Dynavax Technologies (DVAX) and Alder Biopharmaceuticals (ALDR). All four biotech companies have near-term catalysts that could help their stocks turn around.

Sage is working on a drug called brexanolone to treat postpartum depression. Meanwhile, Alder faces one final hurdle before grabbing approval of its migraine prevention drug. Alder would rival Amgen (AMGN), Teva Pharmaceutical (TEVA) and Eli Lilly (LLY).

For Sarepta, Abrahams looks ahead to the first quarter of 2019. Then, the biotech company is likely to unveil the results of a study in a form of muscular dystrophy. The results are expected to be positive as Sarepta's gene therapy has had good results in another form of the disease.

And like Incyte, Dynavax stock appears to be near a bottom, Abrahams said. This creates a catalyst for its immunotherapy cancer treatment. Dynavax will likely have data next week for this drug.

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