Fundamentals Still Strong for Large Cap Biotech, But Headwinds Remain

Published: Jan 07, 2015

Fundamentals Still Strong for Large Cap Biotech, But Headwinds Remain
January 7, 2015
By Riley McDermid, Breaking News Sr. Editor

Large cap biotech companies will continue to see solid performance despite potential headwinds in 2015, although companies with more than $10 billion in market capital remain the least represented since 2013, said Joshua Schimmer, a biotech analyst with Piper Jaffray, Tuesday.

Schimmer wrote the prognosis in a note titled “Large Cap Growth Outlook Wanes, But Fundamentals Remain Strong,” the most recent addition to a canon of year-end analyst wrap ups that are attempting to predict where the sector will go in 2015.

“Multiples for biotech have been stable while the non-biotech growth companies have fallen, and valuations for these two groups on average are now more similar than they've been historically,” said Schimmer. “Looking forward, our top picks for 2015 among large-caps are now Biogen Idec, Inc. and Regeneron Pharmaceuticals, Inc. , but we believe the group overall remains well positioned for solid performance despite potential headwinds.”

Overall, Schimmer said Piper Jaffray projects “consistent growth for biotech,” and identified 19 companies projected to deliver more than a 20 percent earnings per share compound annual growth rate for 2015-2018. Fundamentals so far are sound but the tape might get choppy, said Schimmer.

“Pipelines and LT growth outlooks remains strong for biotech, although Fx headwinds, pricing concerns and narrowing of the valuation discount relative to other growth sectors may lead to another choppy year for the biotech,” he wrote. “First quarter results were disappointing across the board in 2014 and similar forces could be at play in 2015. Guidance announcements over the next few weeks will help define companies' confidence in their ability to overcome macro-economic challenges.”

Overall however, mature companies have shown they are able to manage growth: “We continue to believe that these more mature biotech companies have multiple levers to reach their specific growth targets on a very sustainable basis,” said Schimmer.

Back to news