On Thursday, Piper Sandler expressed a positive outlook on the biopharmaceutical sector for the year 2025, highlighting the potential for significant upside despite prevailing macroeconomic headwinds.
"Indeed, while biotech has seen its share of outperformers this year, numerous valuation indicators for smidcaps indicate that broader valuations remain near all-time lows. At the same time, M&A ” always a factor in this space ” has been robust, and we expect this to remain the case well into 2025," analysts at the firm said.
The firm underscored the performance of argenx (NASDAQ:ARGX), which has seen its stock value increase by approximately 63% in 2024. The optimism for argenx is supported by the strong commercial momentum of its product Vyvgart, especially after the drug's successful launch for treating chronic inflammatory demyelinating polyneuropathy (CIDP), with over 300 patients starting therapy in its first quarter on the market. The approval of a pre-filled syringe format expected in April is likely to further bolster the drug's use in earlier-line patients. Additionally, argenx's growth in generalized myasthenia gravis (gMG) and potential pipeline developments are viewed as key drivers for the stock's continued performance.
Neurocrine (NASDAQ:NBIX) Biosciences (NASDAQ:NBIX) is also among Piper Sandler's top picks, with its favorable risk/reward profile attributed to the expansion of Ingrezza's market reach and the recent FDA approval of Crenessity. The company's valuation, based on enterprise value to estimated 2025 earnings before interest, taxes, depreciation, and amortization (EV/2025E EBITDA), is approximately 14 times, which analysts believe reflects potential growth and optionality in its late-stage pipeline.
The biopharma sector, according to Piper Sandler, is poised for a stock picker's market, with the firm highlighting a selection of companies they believe could be potential M&A targets or have strong fundamental drivers independent of macro factors. The list includes large-cap names such as argenx and Neurocrine Biosciences, as well as an array of mid- and small-cap companies.
The firm's focus on companies with fundamental drivers, such as argenx's CIDP and gMG treatments, as well as Neurocrine Biosciences' Ingrezza for tardive dyskinesia and Crenessity for congenital adrenal hyperplasia, suggests a strategy that looks beyond short-term economic challenges to identify long-term value in the biopharma industry.
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