Pharma and biotech stocks have bounced back this year. The SPDR S&P Biotech (ETF)(NYSEARCA:XBI) has gained 34% in 2017, for example, and the iShares NASDAQ Biotechnology Index (ETF)(NASDAQ:IBB) has gained 19%.
There are several reasons for this improved performance for biotech stocks. Investors are now more comfortable with the drug pricing scenario and are willing to look at the fundamentals of the sector. Although the drug pricing issue will remain a headwind, expectations are that steps taken by the Trump administration to drive down drug prices will not be as draconian as previously expected.
Deregulation and increased competition among biotech stocks seem to be some of the ways that will be used to control drug prices. FDA Commissioner Scott Gottlieb recently said that the agency is working on a plan to lower healthcare costs by speeding up the development of next-generation treatments, especially for rare diseases or targeted cancer therapies. The FDA is also working on clearing up a backlog of orphan drug applications from biotech stocks. In 2017, the FDA has approved 23 new drugs surpassing last year’s total of 22.
Other factors like ramp up in new product sales, R&D success and innovation, strong results, a higher number of FDA approvals and continued strong performance from legacy products should contribute to a sustained recovery in the sector.
Tax reforms and cash repatriation would boost performance for biotech stocks as well.
Given this scenario and with healthcare sector earnings round the corner, it would make sense to look at some pharma and biotech stocks that are expected to report a positive earnings surprise in the quarter.
Investing in such stocks could prove beneficial for investors as an earnings beat usually leads to significant share price appreciation.
5 Drug and Biotech Stocks to Watch
Celgene Corporation (NASDAQ:CELG): Summit, NJ-based Celgene is focused on developing treatments for cancer and inflammatory diseases. Blood cancer drug, Revlimid, should continue to perform well with the newly diagnosed myeloma launch driving global increases in demand and duration. Pomalyst/Imnovid (multiple myeloma) is also benefiting from increasing use of triplets and duration gains. Otezla, which experienced some softness in sales in Q1, should bounce back with additional commercial lives gaining access to the drug. Celgene is also diversifying its portfolio and has a deep and promising pipeline. The company has some important pipeline events this year which could act as positive catalysts. Celgene also has some important regulatory events lined up this year — the FDA is expected to respond on the approval status of Idhifa (acute myeloid leukemia) by Aug 30, 2017. Meanwhile, the company expects to file for approval of experimental multiple sclerosis treatment, ozanimod, by year end.
Celgene, a Zacks Rank #3 stock, will be reporting Q2 results on Jul 27. The company, which has surpassed earnings expectations in three of the last 4 quarters, is expected to post a positive earnings surprise of 1.86% in Q2. Celgene’s shares are up 15.4% YTD, surpassing the Zacks-categorized Medical-Biomedical/Genetics industry which is up 7.9%.