Leading biotech names moved higher Friday after Citi upped Regeneron Pharmaceuticals, Inc. (REGN) to a "Buy" rating, saying that its eczema drug, Dupixent, has significant growth potential. Analyst Mohit Bansal argues that the market has placed too much emphasis on weakness in the biotech giant's eye treatment, Eylea, while not paying enough attention to the success of Dupixent. 

Eylea is "gradually becoming a smaller part of the story," he outlined in a research note to clients, per The Fly. The "recent weakness in the name is overlooking the pace of Dupixent's growth and expansion potential," Bansal added.

Key Takeaways

  • Citi analyst Mohit Bansal upgraded Regeneron shares Friday, saying that he sees significant growth potential in the company's eczema drug, Dupixent.
  • Regeneron's price broke above the top trendline of a loosely constructed falling wedge that may see the stock test resistance at $568.
  • Incyte Corporation (INCY) shares climbed above a six-month downtrend line that could move the price toward a triple top pattern at $110.

In the third quarter, Dupixent sales topped $1.07 billion, up $633.1 million from a year earlier. Last fall, the drug received a Breakthrough Therapy Designation from the Food and Drug Administration (FDA) to treat eosinophilic esophagitis in patients aged over 12. Moreover, analysts expect Regeneron to seek regulatory approval in the first quarter for Dupixent to treat asthma in children.

Although Citi trimmed its 12-month price target on Regeneron shares to $575 from $635, it still represents a healthy 15% premium to last week's close of $498.73. As of Jan. 11, 2021, Regeneron stock has a market capitalization of $53.22 billion and has risen 3.23% since the start of the year.

The shares broke above the top trendline of a loosely constructed falling wedge Friday – a pattern that often indicates an upside reversal. Furthermore, the relative strength index (RSI) gives a reading of 50, providing the price with ample room to test higher prices before consolidating. Those who buy at these levels should consider setting a profit target near $568, where the stock may encounter resistance from a key horizontal line and the 200-day simple moving average (SMA). Protect trading capital with a stop-loss order placed beneath the Jan. 6 low at $467.

Chart depicting the share price of egeneron Pharmaceuticals, Inc. (REGN)
TradingView.com

A stop-loss order is an order placed with a broker to buy or sell a security when it reaches a certain price. Stop-loss orders are designed to limit an investor's loss on a position in a security.

Incyte Corporation (INCY)

The $20.55 billion Delaware-based biopharmaceutical company rallied in sympathy after the Regeneron upgrade late last week, adding to positive investor sentiment after it announced a global development collaboration agreement with clinical-stage biotech firm Cellenkos, Inc. Under the partnership, Incyte will fund trials that evaluate the combination of its flagship drug Jakafi with Cellenkos' cord blood-derived experimental product CK0804. Importantly, the arrangement provides the company with an exclusive option to develop and commercialize CK0804. Incyte stock has added nearly 8% in 2021 while gaining 15.9% over the past month as of Jan. 11, 2021.

After trading sideways since the start of November, the share price climbed above a six-month downtrend line Thursday, with gains accelerating through the 200-day SMA Friday. Traders who intend to play the bullish momentum should look for a move up to $110, where price may run into overhead resistance near last year's triple top. A stop-loss order placed just beneath the downtrend line at $87 offers a risk/reward ratio of over 1:2, assuming a fill a last week's $93.83 closing price (risk per share of $6.83 vs. reward per share of $16.17).

Chart depicting the share price of Incyte Corporation (INCY)
TradingView.com

The risk/reward ratio marks the prospective reward investors can earn for every dollar they risk on an investment. Many investors use risk/reward ratios to compare the expected returns of an investment with the amount of risk they must undertake to earn these returns.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.