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Biotech stocks notched up impressive gains in the fourth quarter but have had a reality check in January as investors grow more cautious about how pricing policies may play out in Washington ahead of the November U.S. presidential election. Last week, firming Democratic presidential candidate Bernie Sanders fired off a tweet lambasting BioMarin Pharmaceutical Inc. (BMRN) for planning to price its new hemophilia gene therapy between $2 million and $3 million as well as highlighting big pharma’s large annual profits.
However, mergers and acquisitions in the space, coupled with groundbreaking innovation and commercial execution, should continue to support leading biotech stocks. “While we get the sense that biotech investors are cautious into 2020 with the election and broader macro concerns, we believe that macro issues are unlikely to have material fundamental impact,” Credit Suisse Group analyst Evan Seigerman wrote in a December client note, per Barron’s.
Below, we take a closer look at three biotech stocks that are well positioned for further growth in 2020 and outline several trading strategies.
Regeneron Pharmaceuticals, Inc. (REGN)
Regeneron Pharmaceuticals, Inc. (REGN) discovers, develops, and commercializes medications that treat eye disease, cardiovascular disease, and cancer. Credit Suisse upgraded the company’s stock to “outperform” from “neutral” last month. The investment bank believes that the drug marker’s execution of its eye disease therapy Eylea and progress on its oncology platform will drive “outsized outperformance” relative to peers in 2020. As of Jan. 27, 2020, Regeneron stock has a market capitalization of $37.91 billion and has added almost 13% over the past three months. However, since the start of the year, the share price has slumped 8.04%.
Since bottoming out at the beginning of the fourth quarter, the biotech’s shares have trended steadily higher. A sharp retracement over the past two weeks provides a “first pullback” trading opportunity at a crucial zone of support between $320 and $330. Those who buy at this level should place a stop-loss order about 10 points below the entry price and target a move up to horizontal line resistance at $400.
Incyte Corporation (INCY)
Delaware-based Incyte Corporation (INCY) focuses on the discovery and development of small-molecule drugs that treat rare blood cancers and graft versus host disease. The $16.53 billion biotech firm has a variety of oncology and autoimmune therapies in its pipeline, including Janus kinase inhibitor itacitinib. Analysts have a 12-month price target on the stock at $91.27, representing 19% of upside from Friday’s $76.74 close. Incyte shares are trading 12.12% lower year to date (YTD) as of Jan. 27, 2020.
The stock has struggled to gain traction so far in 2020 after disappointing investors with lackluster fourth quarter earnings. Still, active traders may decide to enter near $73, where the share price should find key support from prominent swing lows that formed in April and September. Chances of an upside reversal also increase in this area, given the relative strength index’s (RSI) oversold reading. Aim to book profits near overhead resistance at $89 while managing risk with a stop order under the September low at $72.
Nektar Therapeutics (NKTR)
With a market value of $3.72 billion, Nektar Therapeutics (NKTR) develops drugs for cancer, autoimmune disease, and chronic pain. The San Francisco-based company has a diverse portfolio of investigational medicines in clinical development, along with strategic alliances to develop treatments for illnesses such as breast cancer, bladder cancer, and melanoma. Earlier this month, Nektar announced that it plans to initiate new registrational studies to evaluate its drug bempeg in combination with Bristol-Myers Squibb Company’s (BMY) inhibitor Opdivo for the treatment of melanoma and bladder cancer. As of Jan. 27, 2020, Nektar Therapeutics shares have risen nearly 30% over the past three months, but the stock is trading down 2.11% YTD.
After initially spiking above the 200-day simple moving average (SMA) as news broke about the expanded collaboration with Bristol-Myers, Nektar shares have retreated to the $21 level – an area where the stock encounters dual support from a four-month trendline and rising 50-day SMA. Those who take a trade should consider setting stops below $20 and exiting with a profit on tests of the 2020 high at $28.60.
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