Biotech has been a “stock-pickers market” — and it may have just what it takes to remain one in 2023, according to Citi. “Biotech is currently a stock-pickers market, with focus on companies with near-term catalysts, active debates, and strong fundamentals that could continue to drive outperformance in various recession scenarios,” Citi said in a December note. But performance within the sector will vary with the economy’s. Under a bad recession scenario, Citi prefers names with large cash balances and which have already commercialized drugs, or which are on the verge of drug approvals. Some names that meet those criteria include Apellis Pharmaceuticals , Acadia Pharmaceuticals and Amylyx Pharmaceuticals , Citi said. The reverse would be the case in the event of a mild recession, as investors would be more willing to explore names with cheap valuations, according to Citi. It said, however, that even in such a scenario, “more mature pipelines with good cash balances would not fall out of favor.” “In an intermediate base case landing scenario, we presume there may be some rotation to the safer names with longer cash runways, though we would still expect biotech investors to find the low market cap names with short cash runways as interesting high-risk opportunities,” Citi added. Top picks for 2023 Citi named some top picks for the year ahead. 1. Beam Therapeutics The bank said its work in sickle cell disease has potential to produce a superior product. Its pre-clinical pipeline could also “drive long-term value across a number of large market opportunities.” “[Its] strong cash position makes BEAM attractive even in a hard-landing scenario,” Citi said. It gave the stock a target price of $62, or nearly 69% upside. 2. Apellis Pharmaceuticals Citi said Apellis needs to capture only a “modest” market share to achieve about $2 billion in peak sales, based on the bank’s model. It gave the stock a target price of $86, or about 73% upside. 3. Karuna Therapeutics Karuna has many opportunities to expand its late-stage work on schizophrenia, which could drive $4 billion in peak sales if successful, Citi said. “Further, in a hard landing/recession scenario, interest from long-only investors and generalists could persist as derisked names with near-term revenue opportunities are favored,” the bank said. It gave the stock a target price of $279, or 45% upside.