Despite challenges like rising competition, pipeline setbacks, slowdown in growth of mature products and a generic competition for certain key drugs, the pharma and biotech industry has strengthened this year except for a small correction recently. A lot of factors were responsible for the recovery of the sector this year. These include ramp up of new product sales, R&D success and innovation, strong clinical study results, regular FDA approvals and a continued solid performance of legacy products.
However, after rallying 15.4% in the first nine months of 2017 (January-September), the Medical-Biotech /Genetics industry has declined 12.3% so far in the fourth quarter (Oct 1 to date). The decline can be attributable to both macro and industry-specific factors.
A major macro-economic factor that resulted in this downside is the uncertainty surrounding the passing of the tax reform, aimed at bringing down the corporate tax to stimulate economic as well as employment growth.
The proposed tax reforms, if approved, will leave more cash in the hands of the biotech companies. The cash can be invested for mergers/acquisitions, relatively fewer this year, compared with the last. It goes without saying that a cloud of ambiguity over the timely sanctioning of the U.S. tax reform has cast a shadow over the fate of the biotech sector.
Meanwhile, the overall third-quarter results of the biotech companies were tepid, thereby leading to the sector’s decline post October. Although most big biotechs surpassed earnings and sales expectations in the quarter, a continued decline in the top line due to competitive and pricing pressure weighed heavily on the stocks. Moreover, some biotechs also lowered their guidance for the year.
However, we believe the biotech space to be back on track once there is more clarity regarding the timing of the tax reform's approval. This is because the fundamentals of the sector remain robust. Hence, it’s needless to add that it is definitely discreet to select stocks from a sector that is intrinsically strong.
Our proprietary methodology makes the above decision fairly simple. We have taken the help of the Zacks Stock Screener to pick the best bets. To shortlist the stocks from the vast biotech space, we have at first tapered down to the stocks with a bullish Zacks Rank #1 (Strong Buy) or 2 (Buy).
We have also taken into consideration a few more criteria to streamline our choice. These include better returns than the industry this year, upward estimate revisions of more than 5% and an average daily volume of more than 20,000. Our research shows that stocks with these positives offer the best upside potential.
Here are four stocks that fulfilled the aforesaid criteria:
XOMA Corporation XOMA is a biotech company active in the field of antibody technologies. It sports a Zacks Rank of 1. Shares of the company have skyrocketed 615.6% year to date, substantially outperforming its industry’s 1.3% increase. Also, the stock has seen the Zacks Consensus Estimate for current-year earnings being revised 67.8% upward and for 2018, 19.5% upward respectively, over the last 30 days.
Sarepta Therapeutics, Inc. SRPT is a commercial-stage biopharmaceutical company, focusing on the discovery and development of RNA-based therapeutics, targeting rare and infectious diseases. It carries a Zacks Rank #2. Shares of the company have surged 102.9% year to date, outperforming the industry. Further, the Zacks Consensus Estimate for 2017, improved 7.9% and for 2018, moved 18.5% up over the last 30 days.
Sangamo Therapeutics, Inc. SGMO is a biopharmaceutical company associated with developing technologies in gene therapy. It carries a Zacks Rank of 2. Shares of the company have soared a massive 431.1% year to date, significantly outperforming the industry. In addition, the stock has seen the Zacks Consensus Estimate for current-year earnings being revised 11% upward and for 2018, 8.8% upward over the last 30 days.
Emergent BioSolutions Inc. EBS is a Zacks #1 Ranked clinical stage biopharmaceutical company. Shares of the company have rallied 33.8% year to date, outperforming the industry it belongs to. Moreover, the Zacks Consensus Estimate for both 2017 and 2018 has been raised 11.6% and 1%, respectively, over the last 30 days.
You can see the complete list of today’s Zacks #1 Rank stocks here.
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