Analyst talks Biotech sector, offers three picks for 2021

The biotechnology exchange-traded fund SPDR S&P Biotech ETF (NYSE: XBI) is up around 50% in 2020 and Jefferies’ managing director Michael Yee says the valuations are not only justified but sustainable in 2021.

‘Exciting stories’ for 2021

While looking at the Biotech sector, it is important to separate the small group of COVID-19 vaccine makers from the overall biotech innovation thesis, Yee said Tuesday on CNBC’s “Closing Bell.” The market is certainly “on board” with the notion that many biotech companies are poised to innovate, grow, and disrupt legacy healthcare and pharmaceutical companies in 2021.

The index is composed of 200 companies that offer investors “exciting stories” for 2021, he said. Some of the notable names in the index that rank as Yee’s top biotech picks include:

Olema Pharmaceuticals Inc (NASDAQ: OLMA)

Morphic Holding Inc (NASDAQ: MORF).

Schrodinger Inc (NASDAQ: SDGR)

“For biotechnology investors, certainly for people taking at least a 12 or 24-month view, that many of these small and midcap biotechnology companies have massive innovation playing out,” the analyst said. 

Moderna call: Sell the news call

Yee downgraded COVID-19 vaccine maker Moderna Inc (NASDAQ: MRNA) on Dec. 15 when the stock was around $150 per share. The analyst’s thesis proved to be correct with shares trading at around $115 Wednesday morning.

Yee said the downgrade was due in part to the stock’s massive run-up in 2020 from below $20 per share to as high as $178.50. Moderna released very impressive results from its vaccine trial although the company was up against “massive expectations,” he said. Meanwhile, a handful of vaccine competitors will release their own trial results in the coming weeks.

While the COVID-19 vaccine storyline will dominate headlines in the coming months, Moderna does have a few programs where it can leverage its MRNA technology to hopefully create new vaccines to prevent other diseases.

“We are positive on this — let’s get through the next quarter or two,” he said.

Next up: AstraZeneca

Yee doesn’t cover AstraZeneca plc (LON: AZN) but the rival vaccine maker is the latest of its kind to dominate headlines heading into 2021. The company’s vaccine was approved Wednesday in the United Kingdom and it is on track to release Phase 3 results from a U.S. trial in January. Within a few months, the vaccine should start to be distributed across the world although it won’t be as effective as Moderna’s vaccine, but certainly “good enough,” the analyst said.