The biotechnology sector is always volatile, and the recent market sell-off only makes it more so. Consequently, Alan Carr of Needham notes that it is best to focus on “commercial-stage or regulatory-stage companies with substantial cash reserves” at this time, as opposed to clinical-stage companies. However, he points out that the recent market sell-off should not impact the likelihood of biotech acquisitions. Here, Carr provides an overview on his biotechnology coverage universe including Gilead Sciences, Inc. (NASDAQ:GILD), Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), and Intercept Pharmaceuticals Inc (NASDAQ:ICPT).


Gilead Sciences, Inc.

Gilead will report fourth quarter earnings next week. Carr expects Gilead to post total product sales of $7.85 billion, with $1.4 billion derived from Sovaldi and $3.13 billion from Harvoni; the company’s leading hepatitis C therapies. The analyst explains, “Global HCV franchise sales declined, although management believes U.S. Harvoni scripts have stabilized and guided for consistent levels through 2016, with the assumption that U.S. payers will gradually loosen restrictions.”

The company has submitted a New Drug Application for sofosbuvir/velpatasvir to treat all types of hepatitis C, which will be reviewed by the FDA by late June. Carr notes, “We await outcome of these trials to assess whether the drug combination emerges as a universal 8-week treatment regimen for all patients or as more of a 12-week universal salvage regimen.”

Overall, Carr currently has a Buy rating on Gilead with a $125 price target. According to TipRanks, 9 analysts are bullish on Gilead while 2 remain on the sidelines. The average 12-month price target for the stock is $126.82, marking a 38% potential upside from where shares last closed.


Arena Pharmaceuticals, Inc.

Arena had a big year in 2015, beginning with the departure of its CEO to implementing a new strategy focusing on three development-stage therapies: APD334 for autoimmune diseases such as ulcerative colitis; ralinepag for vasospastic diseases such as Pulmonary Arterial Hypertension; and APD371 for pain relief.

Carr highlights Belviq, Arena’s approved drug for chronic weight management. The analyst explains that the drug has faced “challenges in the marketplace” for several reasons, including “patient and physician awareness and limited reimbursement.” As a result, recent data shows that Belviq’s market share has fallen to 6%, marking a 10% year-over-year decrease.

Overall, Carr remains cautious on this stock while awaiting “an update from the company regarding search for a new CEO, results of ongoing APD334, ralinepag, and APD371 trials, and additional details around development strategy for these programs.” Carr currently has a Hold rating on the stock with no applicable price target.

According to the 3 analysts polled by TipRanks in the last quarter, 1 is bullish on Arena while 2 remain neutral. The average 12-month price target between these 3 analysts is $3.50, marking a 120% potential upside from current levels.


Intercept Pharmaceuticals Inc

Carr is bullish on Intercept’s New Drug Application for Obeticholic Acid (OCA) in Primary Biliary Cholangitis (PBC), with an FDA decision coming by June. The analyst believes the drug will be launched in the US by the third quarter of this year and in Europe within the year as well. Ultimately, Carr estimates world-wide sales for the drug could peak between $500 million and $750 million and notes that this value is “not adequately reflected in the share price.”

The analyst points to the company’s trial for OCA in NASH, commenting, “We assume label expansion to NASH around YE18/1H19 based on a planned 72-week interim analysis of 1400 patients.” Carr also touches on the disappointing results from the Dainippon Japanese Phase 2 trial in NASH, released in October, adding that the company has not disclosed when it will initiate its Phase 3 trials for the drug.

The analyst currently has a Buy rating on Intercept with a $500 price target. According to TipRanks, 6 analysts are bullish on the stock, 2 are neutral, and 2 are bearish. The average 12-month price target between these 10 analysts is $338.89, marking a 213% potential upside from current levels.