Biotech stocks have had a rough year with the sector remaining under pressure for a major part of 2016 mainly due to political rhetoric regarding the high prices of drugs. Although the sector responded favorably to the election of Donald Trump, a lot of uncertainty prevails especially after President-elect Trump made a statement earlier this month regarding drug pricing (Read more: Should Biotech Investors Worry About Donald Trump?).

Medical - Biomedical and Genetics Industry 5YR % Return

Medical - Biomedical and Genetics Industry 5YR % Return

However, this uncertainty should not keep investors away from the sector. While biotech stocks will face a lot of volatility in the coming months given the lack of details regarding Trump’s plans for the sector, the key fundamentals remain unchanged.

In fact, here is a look at two biotech stocks -- Regeneron Pharmaceuticals, Inc. (REGN Quick QuoteREGN - Free Report) and Vertex Pharmaceuticals Incorporated (VRTX Quick QuoteVRTX - Free Report) -- that had a rough run in 2016 but could well be poised for a turnaround in 2017. With both being Zacks Rank #2 (Buy) stocks, which one is a better choice for investors? Here is a look at a few factors that may help in making a choice.

Recent Earnings Performance

Regeneron’s third quarter results were mixed with revenues falling short of expectations though the company delivered an earnings beat. Flagship product, eye treatment Eylea, continues to be the key financial driver. Meanwhile, though PCSK9 inhibitor, Praluent, is yet to show a significant ramp up in sales with scrips continuing to be impacted by reimbursement hurdles for physician offices and patients, positive cardiovascular outcomes data on the treatment would help boost sales significantly.

Vertex’s third quarter results, however, were disappointing with the company missing on both earnings and revenue estimates. Orkambi sales in the U.S. declined sequentially reflecting a slowdown in refills during the summer months of July and August. With Orkambi reaching peak penetration in the U.S., patients continued to initiate treatment at a slower rate. Orkambi is also facing a slower-than-expected launch in Germany.

Guidance

Regeneron tightened its U.S. net product sales guidance range for Eylea to 23% - 25% growth over 2015 (old guidance: 20% - 25% growth). Eylea growth should be driven by factors like demographics, an aging population and a higher number of patients with diabetic eye disease. Moreover, the competitive scenario for Eylea has improved with the recent failure of Ophthotech Corporation’s anti-PDGF therapy Fovista for wet age-related macular degeneration (AMD).

Vertex maintained its 2016 revenue guidance for Orkambi and Kalydeco. While Orkambi revenues are expected in the range of $950 - $990 million, Kalydeco revenues are expected in the range of $685 - $705 million. Vertex had lowered its Orkambi outlook in September from $1.0 billion - $1.1 billion mainly due to the slower-than-expected launch in Germany and slower-than-expected refills in July and August. However, Orkambi sales should pick up in 2017 with pricing and reimbursement approvals in ex-U.S. countries.

Pipeline Catalysts

For any pharma or biotech company, the pipeline is of utmost importance and plays an important role in investment decisions. So, it always makes sense to take a look at a company’s pipeline and upcoming catalysts.

Regeneron has been working on its pipeline and has several candidates in development including label expansion efforts for Eylea. A key catalyst for the company would be the FDA approval of Dupixent, currently under priority review for atopic dermatitis with a response expected on Mar 29, 2017. Dupixent, which has blockbuster potential, is being investigated for other indications as well including asthma, nasal polyps, and eosinophilic esophagitis. A confirmatory phase III study for the asthma indication is ongoing and positive results would allow the company to file for FDA approval towards the end of 2017. Plans are on to start late-stage studies in nasal polyps and pediatric asthma in early 2017.

Regeneron is also looking to grow its ophthalmology segment and is evaluating Eylea in combination with other treatments. Another major catalyst would be positive cardiovascular outcomes data on Praluent as this would help boost sales significantly. Regeneron and partner Sanofi (SNY Quick QuoteSNY - Free Report) are currently seeking approval for a once-monthly dosing formulation of Praluent with a response in the U.S. expected by Jan 24, 2017. Regeneron is also working on expanding and advancing its immune-oncology pipeline.

Vertex is working on strengthening its position in the cystic fibrosis (CF) market. The company has quite a few key pipeline events lined up for 2017. Data from two late-stage studies evaluating a combination of tezacaftor and Kalydeco should be out in the first half of 2017. Positive results from the phase III program would allow the company to file for approval in the second half of 2017.

Vertex is also looking to evaluate its next-generation correctors VX-440 and VX-152 in triple combination regimens with tezacaftor and Kalydeco in CF patients while additional next-generation correctors will be moved into clinical development. The triple combination regimens represent huge upside potential.

Price and Valuation Perspective

A look at Regeneron’s year-to-date (YTD) price performance shows that the company has underperformed the Zacks categorized Medical - Biomedical and Genetics industry -- Regeneron is down 30.2% YTD compared to the industry decline of 25.3%. Regeneron is one of the companies that had been under pressure due to the pre-election political rhetoric on rising drug prices. The company’s shares declined in February on disappointing fourth quarter results and guidance. Shares bounced back on first quarter results and a raised outlook for Eylea though the stock remained under pressure until the run up to the Presidential election. Shares shot up 13.8% immediately after election results were announced.

Vertex has also underperformed the Zacks categorized Medical - Biomedical and Genetics industry YTD with the company declining 40.7%. The company has been under pressure due to the drug pricing controversy as well as the performance of Orkambi. The company missed earnings expectations in two of the three quarters of 2016. Shares shot up almost 12% immediately after election results were announced.

Based on current levels, Regeneron is trading at a price sales (P/S) multiple of 8.60 while Vertex’s P/S multiple of 11.23 is much higher.

Bottom Line

Right now, Regeneron looks like the better pick -- although the company has had its share of setbacks, Regeneron could well rebound in 2017 on the back of key product approvals including for candidates with blockbuster potential. The failure of Fovista, a potential competitor for Eylea, has also removed a major overhang on the shares. Moreover, Regeneron has a VGM style score of “B” compared to Vertex’s VGM style score of “C”. Our research shows that stocks with VGM Scores of ‘A’ or ‘B’ when combined with a Zacks Rank #1 or 2 make solid investment choices. As mentioned earlier, Regeneron is a Zacks Rank #2 stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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