Things are looking better for the biotech industry in the second half of 2023 after a decent performance in the first half as the world cautiously wades through an uncertain macroeconomic environment.

Next year is likely to bring more cheer for the industry as most market participants think the Fed is already through with its ongoing interest rate hike cycle and the first rate cut may take place in the first half of 2024.

The majority of the biotech players do not generate enough revenues to fund their operations and are dependent on external funds. A company starts generating revenues following a successful FDA approval and launch of any drug.  

Under this circumstance, a low interest rate environment is likely to raise the margins of biotech players as these companies need a huge amount of capital to continue clinical studies before getting an FDA approval.

With the pandemic behind us, biotech companies are looking to bolster their product portfolios and pipeline through collaborations and buyouts. Hence, mergers and acquisitions are back in the spotlight.

Given the continuous need for innovative medical treatments, irrespective of the state of the economy, the biotech industry can be a safe haven despite the inherent volatility and uncertain macroeconomic environment.

An attractive pipeline candidate is the key lure for biotech companies. Cost synergies in research and development (R&D) are added benefits, as quite a few smaller biotech companies are using innovative technologies to develop drugs and treatments. With increasing R&D spend and most companies looking to diversify, new drug approvals are likely to see an acceleration going forward.

Our Top Picks

We have narrowed our search to five biotech stocks with strong potential for 2024. These stocks have seen positiveLEGN, BGNE,  earnings estimate revisions in the last 30 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong BUY) stocks here.

The chart below shows the price performance of our five picks in the past month.

Image Source: Zacks Investment Research

Gilead Sciences Inc. (GILD Quick QuoteGILD - Free Report) maintains momentum as growth in the flagship HIV therapy, Biktarvy, remains strong. GILD’s oncology revenues are driven by its cell therapy franchise and Trodelvy. Solid growth from Yescarta and Tecartus and the label expansion of Trodelvy will further boost GILD’s oncology franchise.

GILD’s efforts to solidify its oncology franchise through internal pipeline development and strategic collaborations have broadened its pipeline. The successful development of differentiated oncology drugs holds the key for GILD.

Gilead Sciences has an expected revenue and earnings growth rate of 1.9% and 10.4%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 0.7% over the last seven days.

Legend Biotech Corp. (LEGN Quick QuoteLEGN - Free Report) is a clinical-stage biopharmaceutical company, and is engaged in the discovery, development, manufacturing, and commercialization of novel cell therapies for oncology and other indications in the United States, China, and internationally.

LEGN’s lead product candidate, LCAR- B38M, is a chimeric antigen receptor for the treatment of multiple myeloma. LEGN also has a portfolio of earlier-stage autologous CAR-T product candidates targeting various cancers, including Non-Hodgkins Lymphoma, acute lymphoblastic leukemia, gastric cancer, esophageal cancer, pancreatic cancer, colorectal cancer, hepatocellular carcinoma, small cell lung cancer, and non-small cell lung cancer.

Legend Biotech has an expected revenue and earnings growth rate of 86.6% and 50.3%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 6.9% over the last seven days.

BeiGene Ltd. (BGNE Quick QuoteBGNE - Free Report) develops and commercializes oncology medicines worldwide. BGNE’s clinical-stage drug candidates include BGB-3111, BGB-283, BGB-290, and BGB-A317. BGNE has collaborations with several large biotech companies.

BeiGene has an expected revenue and earnings growth rate of 21.7% and 15.5%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 2% over the last seven days.

Exact Sciences Corp. (EXAS Quick QuoteEXAS - Free Report) is a molecular diagnostics company focused on the early detection and prevention of some of the deadliest forms of cancer. EXAS has developed an accurate, non-invasive, patient-friendly screening test called Cologuard for the early detection of colorectal cancer and pre-cancer. EXAS is also working on the development of additional tests for other types of cancer, with the goal of becoming a leader in cancer screening and diagnostics.

Exact Sciences has an expected revenue and earnings growth rate of 12.9% and 17.1%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 6.2% over the last 30 days.

Sarepta Therapeutics Inc. (SRPT Quick QuoteSRPT - Free Report) is a commercial-stage biopharmaceutical company focusing on the discovery and development of RNA-based therapeutics targeting rare and infectious diseases. SRPT concentrates on the development of exon-skipping drug candidates targeting DMD, a rare genetic disorder affecting children (primarily males). DMD is the most common type of muscular dystrophy.

SRPT received accelerated approval for its DMD drug, Exondys 51 (eteplirsen), in the United States as a once-weekly intravenous infusion in 2016, specifically targeting patients who have a confirmed mutation of the DMD gene susceptible to exon 51 skipping.

Sarepta Therapeutics has an expected revenue and earnings growth rate of 44.6% and 106.1%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved more than 100% over the last 30 days.