The biotech industry has witnessed a turnaround since May after a brief struggle in early 2018. The industry has risen 11.4% since April end compared with an increase of 9.9% registered by the broader S&P 500. The industry had declined 5% in the first three months of 2018.
The recovery has been aided by impressive second-quarter performance of several companies in the space. Among the biotech bigwigs, Gilead GILD, Celgene CELG, Vertex VRTX, Biogen BIIB and Amgen beat earnings and revenue estimates.
New drug approvals, label expansion of prominent drugs and huge demand led to strong first-half performance by drug/biotech companies. The FDA has been approving new drugs on an accelerated speed, with 37 novel drugs receiving approval year to date.
Investors are flocking to the biotech/pharma sector, which is defensive in nature, amid unfavorable macro factors. Smaller companies from the drug/biotech space may be acquired by their large-cap counterparts who have huge cash in-hand and are looking to boost their pipeline with rare disease drugs.
Investors are also attracted to the biotech sector due to growing demand for drugs, especially for rare-to-treat diseases and increased health care spending. Potential positive data readouts from scheduled clinical studies and regulatory approvals should also push the industry higher in the future quarters.
Banking on the positive trends, it might be the perfect time to cash in on the bountiful prospects. Here, we have picked three biotech stocks, which have witnessed positive estimate revisions in the past month and also carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Earnings estimate revisions have the greatest impact on stock prices. Stocks with rising estimates have significantly outperformed the S&P 500 index year after year. Hence, investors can safely bet on stocks that have been seeing an upward movement in earnings estimates. All the three companies mentioned here have also seen a steady rally in their share price in the past three months.
Ligand Pharmaceuticals Incorporated LGND
Ligand carries a Zacks Rank #1. The Zacks Consensus Estimate for 2018 earnings has risen 12.2% for 2018 and 2.7% for 2019 in the past 30 days. The company surpassed earnings and revenue estimates in second-quarter 2018. Additionally, shares of the company have rallied 32.3% in the past three months.
Mesoblast Limited MESO
Mesoblast carries a Zacks Rank #2. The company has witnessed positive estimate revision of 1% and 2.4% for 2018 and 2019, respectively. Mesoblast beat earnings estimates in the quarter ending June (fiscal fourth quarter) by 8.33%. Shares of the company have rallied 38.4% in the past three months.
Trevena. Inc. TRVN
Trevena carries a Zacks Rank #2. The Zacks Consensus Estimate for loss has narrowed 7.6% in the past 30 days for 2018 and 1.3% for 2019. The company met estimates for earnings in the last quarter. Shares of the company have gained 56.2% in the past three months.
Outlook
We expect the favorable trend in the sector to continue in the rest of the year as the companies carry on their investments in developing pipeline, building global business and driving new product growth.
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