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3 Large Biotech Stocks to Buy Despite Higher Interest Rates Coming

With many now expecting interest rates to finally start the move higher as early as next month, it is a fascinating study to see how interest rates affect biotech stocks. A new research report from Merrill Lynch make the case that investors may not need to be concerned about a “risk-off” environment when it comes to biotech stocks, especially large cap leaders.

The Merrill Lynch team looked at large cap biotech leaders and how interest rate increases may play a part in stock performance. The research suggests a distinct lack of negative correlation between higher interest rates and biotech stock performance, especially when it comes to large cap leaders.

We screened the Merrill Lynch biotech universe for large cap biotech stocks that are rated Buy that should do just fine even as rates start to go higher.

Alexion

For some time this stock has been considered by some firms as a potential acquisition target, and in the spring it was the big buyer. Alexion Pharmaceuticals Inc. (NASDAQ: ALXN) bought Synageva Biopharma for a whopping $8.4 billion in cash and stock. That move added products and pipeline to compliment Soliris, the company’s only marketed product. Soliris is prescribed for the treatment of patients with myasthenia gravis, a rare neurological disorder that reportedly affects some 13,600 people in the United States.

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While Soliris sales beat consensus estimates when the company reported earnings, and 2015 revenue guidance was increased, it was below what some on Wall Street expected. The Merrill Lynch analysts feel it may be conservative, and they think the company will beat earnings expectations in the last half of 2015.

The Merrill Lynch price target for the stock is $227. The Thomson/First Call consensus price target is $225.61. The stock closed on Friday at $189.62.

Biogen

Some on Wall Street think this company could really make waves if it were approached in a takeover situation. When Biogen Inc. (NASDAQ: BIIB) reported second-quarter earnings that were far below Wall Street estimates, the stock dropped 22%, mainly because the biotech giant substantially reduced its full-year 2015 outlook. Biogen’s blockbuster drug Tecfidera registered much lower than expected revenue growth, resulting in low full-year guidance.

Merrill Lynch feels that the revised guidance may be very conservative, although the analyst does think that the corporate management team needs to point to specific drivers in the pipeline and current product offerings that can reaccelerate growth. With the Phase 3 trials for Aducanumab presenting a potential huge upside, and continued Tysabri efforts are very important, investors may have a chance to buy the prime biotech leader well off the highs.

The Merrill Lynch price target was dropped to $400 from $466. The consensus price target is $389.93. The stock closed on Friday at $309, down almost 2.5%.

ALSO READ: 4 Large Cap Pharmaceutical Stocks to Buy on Strong Health Care Trends

Regeneron

This remains one of the favorites among portfolio managers. Regeneron Pharmaceuticals Inc. (NASDAQ: REGN) has been a performance monster over the past two years, and most Wall Street firms expect it to stay one. With treatments for everything from macular degeneration to colorectal cancer, the company continues to exploit an extraordinary pipeline.

The analysts are positive on the company’s prospects for solid but perhaps not spectacular Eylea growth, and others on Wall Street cite Alirocumab, which is another new cholesterol drug with big expected upside. Dupilumab sales could peak at $10 billion a year, assuming $6 billion from the AD indication, with the remainder coming from asthma and nasal polyposis, for which the drug is also being tested.

The company reported second-quarter earnings of $2.89 a share excluding one-time items, up 17% from a year earlier and revenue jumped huge to $999 million. Both were well above analysts’ consensus estimates. The Merrill Lynch analysts noted that the initial launch of Praluent may be gradual, but they remain bullish on the ultimate commercial opportunity given very large size of the market.

The Merrill Lynch price target for this biotech monster is $649, and the consensus target set at $615.14. Shares closed on Friday at $579.04.

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While large cap biotech stocks are still more suited for very aggressive growth portfolios, buying these market leaders makes good sense. With history indicating that interest rate increases should have zero impact, investors can feel good initiating or adding to positions.

By Lee Jackson


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