Pharma and biotech stocks have been under pressure for quite a while now mainly due to the drug pricing issue — biotech stocks especially have been under intense pressure given President Donald Trump’s comments regarding the drug industry “getting away with murder”.
At a recent meeting with several pharma leaders, Trump said that “pricing has been astronomical” and emphasized that drug prices must be brought down. Trump had previously spoken about creating new bidding procedures that would help bring down prices with competition being another way to help bring down prices.
Meanwhile, other factors like a changing competitive scenario, increasing biosimilar competition, pipeline setbacks and loss of patent exclusivity for some key drugs have also being weighing on the sector.
However, it is not all bad news for the sector. Strong pipelines, innovative treatments, impressive results, growing demand for drugs especially for rare-to-treat diseases, an aging population and increased health care spending should support growth. M&As should also pick up on President Trump’s proposal to repatriate corporate profits held offshore at a one-time tax rate of 10%.
Moreover, corporate tax reforms, stronger trade agreements to level the playing field with countries around the world, removal of outdated regulations that drive up costs and slow innovation and the drug approval process should also work in favor of the sector.
Meanwhile, a look at the Zacks Earnings Trend report shows that the Medical sector continues to perform well having recorded earnings growth of 3.2% and revenue growth of 5.7% so far.
How to Pick Winners
Anyone interested in biotech and pharma stocks will know that it could be challenging to pick winners in this “high risk – high returns” industry which is constantly growing and changing. Companies which hit the bull’s eye become overnight success stories with shares doubling or even tripling on positive news. However, negative outcomes have an equally strong effect on the shares and failure may very well spell doom for these companies.
In such a scenario, let’s take a look at stocks preferred by analysts who have a deep knowledge and understanding of the industry and its companies.
We have zeroed in on 4 stocks with the help of our Zacks Stock Screener — these stocks have been given a Strong Buy or Buy rating by 80% or more brokers and sport a favorable Zacks Rank #1 (Strong Buy) or #2 (Buy).
Drug Stocks to Buy: Celgene Corporation (CELG)
Summit, NJ-based Celgene Corporation (CELG) is focused on the discovery, development and commercialization of innovative therapies for the treatment of cancer and inflammatory diseases. While blood cancer treatment, Revlimid, is the key contributor to the top-line and continues to deliver impressive growth, Celgene has been diversifying its portfolio with other drugs like Pomalyst and Otezla — both drugs crossed sales of $1 billion in 2016. Otezla (psoriasis, active psoriatic arthritis) has immense potential with sales being driven by demand, an expanded U.S. footprint, growing market share and launch in new markets.
Celgene also has a rich and promising pipeline. In addition to working on expanding the labels of currently marketed products like Revlimid, Pomalyst and Otezla, the company has several late-stage candidates including ozanimod (ulcerative colitis and relapsing multiple sclerosis with regulatory filing expected by year end) and GED-0301 (Crohn’s disease and ulcerative colitis) in the inflammation and immunology therapeutic area and CC-486 (myelodysplastic syndromes and acute myeloid leukemia), enasidenib (acute myeloid leukemia – regulatory application submitted in the U.S. with a decision expected in the second half of 2017) and luspatercept (myelodysplastic syndromes and beta-thalassemia) within hematology. What makes the pipeline more attractive is that quite a few of these candidates have blockbuster potential.
Celgene’s price performance over the past one year shows that although the company has witnessed ups and downs, overall it has outperformed the Zacks categorized Medical-Biomedical/Genetics industry.
Celgene is a Zacks Rank #2 stock with 88.2% Strong Buy or Buy broker rating.
Drug Stocks to Buy: Exelixis, Inc. (EXEL)
South San Francisco, CA-based Exelixis, Inc. (EXEL) is focused on bringing cancer treatments to market. Approved products include Cabometyx (advanced kidney cancer), Cometriq (certain forms of thyroid cancer) and Cotellic (advanced melanoma). Cabometyx is experiencing rapid and broad uptake in the market with label expansion opportunities leaving room for upside. The company has quite a few pipeline catalysts lined up for the coming quarters.
Exelixis, a Zacks Rank #2 stock, has also outperformed the Zacks categorized Medical/Biomedical Genetics industry over the last one year.
The company enjoys 100% Strong Buy or Buy broker rating.
Drug Stocks to Buy: Ligand Pharmaceuticals Inc. (LGND)
San Diego, CA-based Ligand Pharmaceuticals Inc.‘s (LGND) business model is based on developing or acquiring royalty revenue generating assets and coupling them with a lean corporate cost structure. The company is focused on the development and licensing of biopharmaceutical assets. Ligand’s Captisol formulation technology has allowed it to enter into several licensing deals and generate royalties. The company’s partners include big names like Amgen.
Ligand is a Zacks Rank #2 stock with 80% Strong Buy or Buy broker rating. You can see the complete list of today’s Zacks #1 Rank stocks here.
Drug Stocks to Buy: RedHill Biopharma Ltd – ADR (RDHL)
Israel-based RedHill Biopharma Ltd – ADR (RDHL) is focused on the development and commercialization of late clinical-stage, proprietary, orally-administered, small molecule drugs for gastrointestinal and inflammatory diseases and cancer. The company has several important catalysts coming up in 2017. RedHill is also a Zacks Rank #2 stock and enjoys 100% Strong Buy or Buy broker rating.
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