Eeny, Meeny, Miny, Moe: JPMorgan Downgrades 4 Biotechs In Portfolio Rebalancing

JPMorgan is generally bullish on biotech and in most cases sees opportunity for longer-term upside, but its ratings strategy dictates the sidelining of lower conviction stocks. Here's a look at biotech companies JPMorgan turned bearish on Monday. 

The Rating

Analyst Jessica Fye downgraded Mersana Therapeutics Inc MRSN to Neutral and Novavax, Inc. NVAX to Underweight.

Anupam Rama downgraded Ophthotech Corp OPHT and Otonomy Inc OTIC to Underweight.

The Thesis

The downgraded stocks have “compelling yet early-stage pipelines," according to JPMorgan. 

“Indeed, the combination of continued innovation, a constructive FDA, ready access to capital markets, and potential (yet unpredictable) momentum on M&A tailwind presents a compelling setup for the sector as a whole,” the analysts said in a Monday note.

Not all of the stocks have coming catalysts.

Fye said she considers Mersana’s platform attractive but does not expect any stock-driving activity in 2018. JPMorgan lowered its price target for Mersana from $23 to $19 on anticipated delay in XMT-1522 dose escalation to 2019.

Novavax suffers a “precarious” financial position with net debt as management advances its earlier-stage flu programs, the analyst said. Fye sees risk that the company’s next catalyzing candidate NanoFlu may need an efficacy trial for approval, and she sees share recovery as being dependent on positive Phase 3 data for RSV maternal immunization expected in 2019.

Ophthotech is not expected to release clinical data until the end of 2018, but “it will take definitive proof-of-concept data to ascribe credit to the Zimura franchise overall,” Rama said. The analyst forecast underperformance relative to the rest of JPMorgan’s coverage universe.

Otonomy was downgraded on a lack of 2018 value drivers as the company initiates a third Phase 3 trial for Otividex and works on early-stage candidates with 2019 data.

Price Action

At the time of publication Monday, Otonomy was down 10.4 9 percent; Novavax was down 3 percent; Ophthotech was down 1.9 percent; and Mersana fell 3.5 percent. 

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