One tweet (on Sep 21, 2015) from the Democratic Presidential candidate Hillary Clinton on "price gouging" cut short the phenomenal run of health care stocks, particularly biotechs, leading to a major sell-off in the biotech sector. However, the fundamentals of the biotech sector should prevail over this short-term ambiguity, leading to an increase in revenues.
With most of the biotech companies reporting third-quarter 2015 results, it became clear that the sector has not been affected to a large extent. Several companies like Gilead Sciences Inc. GILD, Amgen Inc. AMGN, Biogen Inc. BIIB, Celgene Corporation, Vertex Pharmaceuticals Inc. and Baxalta Inc. among others delivered better-than-expected earnings with companies like Amgen and Biogen even raising their guidance for 2015.
In addition to this, encouraging news continued to flow in regarding product approvals, label expansion for existing drugs and pipeline updates and helped to lift the spirit of the investors. Late last month, Amgen’s Imlygic (melanoma – first oncolytic viral therapy in the U.S.) and Alexion Pharmaceuticals, Inc.’s Strensiq (hypophosphatasia) gained FDA approval and Celgene’s Vidaza and Regeneron Pharmaceuticals Inc./Bayer AG’s Eylea labels were expanded in the EU.
It got more exciting when pharmacy benefit manager, Express Scripts Holding Company ESRX, announced that it will list both Amgen and Sanofi/Regeneron’s PCSK9 inhibitors, Repatha and Praluent, respectively, on its National Preferred Formulary that covers about 25 million Americans.
Meanwhile, mergers and acquisitions and licensing agreements continued to be the highlight of the sector. While deals in the oncology space show no signs of slowing down, acquisitions too attracted attention. Earlier this week, Shire plc SHPG announced that it will be acquiring Burlington, MA-based biotech company, Dyax Corp. (focused on hereditary angioedema treatments [HAE]), for about $5.9 billion plus a non-tradable contingent value right worth $4.00 in cash representing an additional $646 million. With this acquisition, Shire is looking to strengthen its position in the HAE market.
Against this background, we have come up with not only “some stocks” but “value stocks” for your portfolio. These are discussed below.
The Right Picks
Selecting the right biotech stocks that also promise value may seem to be a daunting task. Here is how to make it easy. We have selected stocks with a Zacks Rank #1 (Strong Buy) or #2 (Buy), that sport promising value metrics (Value Score = ‘A’ or ‘B’) as determined by our new style score system.
The Value Style Score condenses all valuation metrics into one actionable score, helping to separate the wheat from the chaff. It identifies stocks that are most likely to outperform based on their valuation measures. Our research shows that stocks with a Style Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 or #2 offer the best of both worlds.
Here are the three stocks that met the criteria:
Foster City, CA-based Gilead Sciences Inc. known for its revolutionary blockbuster hepatitis C virus (HCV) drugs, Sovaldi and Harvoni, continues to progress with its HCV portfolio. There is no holding back this company when it comes to its HCV franchise.
Having successfully commercialized Sovaldi and Harvoni, Gilead is now seeking FDA approval for a once-daily fixed-dose combination of Sovaldi and velpatasvir for the treatment of chronic genotype 1-6 HCV infection. The latest submission is the company’s third in three years for a new HCV treatment. If approved, it would be the first all-oral, pan-genotypic single-tablet regimen for chronic HCV infection.
Meanwhile, the company gained approval for another HIV treatment, Genvoya, making it the first TAF-based regimen to receive FDA approval. Keep your eyes on this stock which is working on bringing best-in-class drugs that address unmet medical needs.
• Value Score: ‘A’
• Zacks Rank #2
United Therapeutics Corporation UTHR: This Silver Spring, MD-based company delivered better-than-expected third-quarter 2015 results with earnings and revenues surpassing expectations by a wide margin. The company generates revenues mainly from five products: Remodulin, Tyvaso, Adcirca, Orenitram and Unituxin.
Out of these, four target the lucrative pulmonary arterial hypertension market, while Unituxin is approved for the treatment of pediatric patients with high-risk neuroblastoma. The company was in the news recently when it announced its intention to sell a rare pediatric disease priority review voucher to AbbVie Inc. for $350 million, the highest amount to be received from the sale of a priority review voucher.
• Value Score: ‘A’
• Zacks Rank #2
Anika Therapeutics Inc. ANIK: The company is focused on developing, manufacturing, and commercializing therapeutic products for tissue protection, healing, and repair based on hyaluronic acid (a naturally occurring, biocompatible polymer found throughout the body). This Bedford, MA-based company’s products target areas like orthobiologics, dermal, surgical, ophthalmic and veterinary. The company, which markets over 20 products, mainly in Europe, reported strong third-quarter 2015 results with a positive earnings surprise of 61.76%.
• Value Score: ‘B’
• Zacks Rank #1
Road Ahead
With the third-quarter earnings season in its final stages, the focus continues to remain on events, panels and discussions, including updates on clinical trials, drug launches, partnerships and big-time announcements. In this scenario, don’t miss the above mentioned biotech stocks that offer value to your portfolio.
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