BofA: The Biotech Sector Is In A 'Perfect Storm' For M&A

Few would call the biotech sector as exciting as the "FAANG" group. But throughout 2017, investors who completely ignored biotech stocks missed out on strong gains. The Nasdaq Biotechnology index outperformed the S&P 500 index throughout the year.

The Analyst

Bank of America Merrill Lynch's Ying Huang and a team of analysts.

The Thesis

The biotech sector was once considered a "hyper growth sector with high risk/high reward," but is now "less exciting" than technology stocks, Huang said in an industrywide research report. (See the analyst's track record here.) 

The biotech sector is characterized by an aging product lineup, fewer blockbuster launches, large revenue bases and thinning pipelines, Huang and his colleagues said. 

But the sector-wide woes create a "perfect storm" opportunity for M&A activity, according to BofA.

The two biggest industry titans, Amgen, Inc. AMGN and Gilead Sciences, Inc. GILD, ended the third quarter with $39 billion and $32 billion, respectively, in ex-U.S. cash, Huang said. If "consolidation type of deals are consummated," it should come as no surprise to investors, the analyst said. 

Here are some of BofA's top calls, upgrades and downgrades in the sector. 

Top Picks

• Vertex Pharmaceuticals Incorporated VRTX.
• Amgen.

Biggest Winners From The Tax Cut

• Regeneron Pharmaceuticals Inc REGN.
• Biogen Inc BIIB.

Upgrades And Downgrades

• Vertex's stock was upgraded from Neutral to Buy with a price target boosted from $174 to $180.
• Esperion Therapeutics Inc ESPR's stock was upgraded from Neutral to Buy with a price target boosted from $60 to $76.
• Celgene Corporation CELG's stock was downgraded from Buy to Neutral with a $120 price target.
• Ironwood Pharmaceuticals, Inc. IRWD was downgraded from Buy to Underperform with a price target lowered from $20 to $15.

Related Links:

4 Biotech Stocks Ready To Crush The Market In 2018

3 Stocks In Focus As Biotech M&A Hopes For 2018 Rise