In the last couple of months, the biotech sector saw a major sell-off triggered by pricing concerns. Democratic Presidential candidate Hillary Clinton’s "price gouging" tweet had set the ball rolling. However, this was not the first time that pricing concerns surfaced in the biotech sector. High prices of biotech drugs have been a topic of debate, off and on, for some time now.
Right now, market sentiment seems to be improving driven by strong earnings, upgraded guidance, product approvals and encouraging pipeline updates. The sector witnessed a strong rebound with stocks posting solid gains last week. Although some companies continued to slide, most biotech companies traded in the green. The NASDAQ Biotechnology Index and NYSE ARCA BIOTECH INDEX were up 6.6% and 6.8%, respectively, last week.
Better-than-expected earnings from companies like Gilead Sciences Inc. GILD, Alexion Pharmaceuticals ALXN and Amgen AMGN were instrumental in changing the sentiment. Several biotech majors including Biogen BIIB, Amgen and Alexion upped their guidance for 2015. Vertex Pharmaceuticals Inc. VRTX also performed well and raised its view for Kalydeco, one of the key revenue drivers.
Meanwhile, positive news continued to flow into the sector in terms of product approvals, label expansion for existing drugs and pipeline updates. Last week, Amgen’s Imlygic was cleared by the FDA for the local treatment of unresectable cutaneous, subcutaneous and nodal lesions in patients with melanoma recurrent after initial surgery. Apart from that, Celgene Corp.’s CELG Vidaza and Regeneron Pharmaceuticals Inc./Bayer’s REGN/BAYRY Eylea labels were expanded in the EU.
On the back of the trend reversal, the sector offers some good investment opportunities. In this context, we have identified five favorably placed stocks that responded to this positive trend and registered strong gains in the last five trading sessions. These stocks carry a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) and have gained more than 10% last week.
5 Stocks Over 10% Gains Last Week
Our first pick is of course Vertex, which focuses on discovering, developing and commercializing therapies for serious diseases including cystic fibrosis. Apart from strong results released on Oct 28, the company raised its sales outlook for Kalydeco, its lead product. The company posted a positive earnings surprise of 33.3% in the third quarter.
This Boston, MA-based company carries a Zacks Rank #3. The company has seen its price increase 10.6% over the last week.
Second on our list is Anika Therapeutics Inc. ANIK. The Bedford, MA-based company is focused on developing and commercializing drugs for products for tissue protection, healing, and repair based on hyaluronic acid. The company markets over 20 products, primarily in Europe. Anika reported impressive third-quarter results with a positive earnings surprise of 61.76%.
This Zacks Rank #1 stock has witnessed a price gain of 10.3% since Oct 27.
Cytokinetics, Inc. CYTK has also earned the spotlight with a share gain of 49.9% over the last week. Cytokinetics carries a Zacks Rank #3. Headquartered in South San Francisco, CA, the company focuses on discovering, developing and commercializing first-in-class muscle activators as potential treatments for debilitating diseases in which muscle performance is compromised and/or declining.
The company’s lead candidate tirasemtiv for amyotrophic lateral sclerosis enjoys orphan drug designation and fast track status in the U.S. The company reported a narrower-than-expected loss on Oct 29 with a positive surprise of 20.69%.
Another company that investors should watch out for is Avalanche Biotechnologies, Inc. AAVL. Although this Zacks Rank #3 stock is yet to release third-quarter 2015 results, the stock has gained 20.8% over last week. Avalanche, based in Menlo Park, CA, is a development-stage biopharmaceutical company with a focus on gene therapies targeting prevalent ophthalmic diseases with a significant unmet need like wet age-related macular degeneration as well as rare genetic ophthalmic diseases.
Xenoport, Inc. XNPT with a Zacks Rank #2 and stock price appreciation of 18.7% since last Tuesday is also looking attractive. The Santa Clara, CA-based company is focused on developing and commercializing therapies for neurological and other disorders.
Bottom Line
If you are looking for a biotech pick that has the potential to move in the right direction, definitely keep an eye on the aforementioned stocks. All of these stocks may not be well known names but with correct timing combined with good fundamentals, these are well positioned to deliver in the near term.
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