It has been a disappointing year for the biotech industry. The NASDAQ Biotechnology Index (^NBI has lost 5% so far in 2018. While the year started on a choppy note, things were steady in the middle of the year. However, the industry lost momentum in the last two months.

The performance of biotech bigwigs has been affected by slowdown in growth of key drugs. Competitive pressure also affected sales. Nevertheless, new drug approvals boosted investor sentiment. Key approvals so far this year include that of Gilead Sciences’ (GILD Quick QuoteGILD - Free Report) HIV regimen, Biktarvy; Vertex Pharmaceuticals’ Symdeko (tezacaftor/ivacaftor and ivacaftor) for the treatment of cystic fibrosis (CF); Amgen’s Aimoviq for the treatment of migraine; Regeneron Pharmaceuticals’ Libtayo and BioMarin’s Palynziq for the treatment of phenylketonuria, among others. The approval of these drugs should boost their respective companies’ top line as a few of them are struggling with decline in sales of legacy drugs.

Meanwhile, mergers and acquisitions (M&A) picked up pace in the sector as a slowdown in mature products forced companies to eye lucrative acquisitions to bolster their pipeline. Additionally, the increase in M&A activity was propelled by the implementation of the new tax law, which has slashed corporate tax rate from 35% to 21%.

In addition, in-licensing deals are on the rise with the bigwigs collaborating with smaller and mid-sized players that boast promising mid-to-late stage pipeline candidates or interesting technology.  Celgene acquired Juno Therapeutics to gain traction in the promising CAR-T space. In February 2018, the company acquired Impact Biomedicines and added a late-stage candidate, fedratinib, a highly selective JAK2 kinase inhibitor, to its pipeline. Alexion acquired Sweden-based Wilson Therapeutics and added a late-stage candidate, WTX101, to its pipeline, which is currently in phase III for the treatment of Wilson disease, a rare genetic disorder.

What Lies Ahead?

The Medical - Biomed/Genetics sub-industry carries a Zacks Industry Rank of #66, which places it in the top 26% of the 256 plus Zacks industries. Although issues like drug pricing and threat of biosimilars loom large on the healthcare sector, we expect the sector to recover. New drug approvals, label expansion of existing high-profile drugs, pipeline progress, growing demand for drugs, especially for rare-to-treat diseases, an aging population and increased health care spending are some of the factors that should positively impact performance.

Our Choices

Here we list some biotech stocks backed by a Zacks Rank #1 (Strong Buy) or #2 (Buy), which have fared better than the industry in 2018 so far and are poised for a good run in 2019.

Headquartered in Foster City, CA, Gilead Sciences is a leading company in the biotech industry with a wide and diverse portfolio of drugs for the treatment of human immunodeficiency virus (HIV), liver diseases such as chronic hepatitis C virus (HCV) infection and chronic hepatitis B virus (HBV) infection, cardiovascular, hematology/oncology and inflammation/respiratory diseases. While the once leading portfolio of blockbuster HCV drugs is facing competitive pressure, Gilead’s HIV franchise maintains momentum, driven by the continued uptake of Genvoya and Odefsey, and the rapid adoption of Biktarvy. The FDA approval of Biktarvy has further widened the company’s portfolio. Biktarvy has also been approved in Europe. The launch of Yescarta is progressing well in the United States and the approval in Europe should boost sales. Meanwhile, Gilead intends to foray into the nonalcoholic steatohepatitis (NASH) and inflammation markets with late-stage candidates, selonsertib and filgotinib, respectively. A tentative approval will diversify Gilead’s portfolio. The company has also made strategic collaborations to boost its pipeline.

Gilead Sciences currently carries a Zacks Rank #1.  You can see the complete list of today’s Zacks #1 Rank stocks here.

Its shares have declined 2.7% in the year so far, outperforming the industry’s 18.4% decline.  Estimates for 2019 have increased 20 cents in the past 60 days.

Based in New Haven, CT, Alexion Pharmaceuticals focuses on the development and commercialization of life-transforming drugs, for the treatment of patients with ultra-rare disorders. Alexion’s key growth driver, Soliris, is approved for the treatment of two severe and ultra-rare disorders resulting from chronic uncontrolled activation of the complement component of the immune system – paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS). Soliris continues to perform well. FDA approval for the generalized myasthenia gravis indication has boosted sales significantly, leading to an increase in annual guidance. Strensiq and Kanuma are doing well and are expected to boost revenues. Meanwhile, Alexion has been quite active on the acquisition front as the company is looking to diversify its portfolio and reduce dependence on Soliris. Alexion recently acquired Wilson Therapeutics Syntimmune.

Alexion currently carries a Zacks Rank #1. Its shares have lost 3.4% so far in 2018. Estimates for 2019 have increased 3 cents in the past 60 days.

Tarrytown, NY-based Regeneron Pharmaceuticals, Inc. (REGN Quick QuoteREGN - Free Report) is a biopharmaceutical company focused on the discovery, development and commercialization of treatments targeting serious medical conditions. The company’s portfolio boasts of marketed drugs like Eylea (for several eye diseases), Dupixent (moderate-to-severe atopic dermatitis), Praluent (heterozygous familial hypercholesterolemia) among others. The company’s key growth driver, Eylea continues to drive sales and label expansion into additional indications has further boosted growth. The uptake of Dupixent has been strong too and the company is working to expand Dupixent’s label further in several other indications. This should diversify the company’s revenue base and reduce dependence on Eylea. 

In September 2018, the FDA approved its immuno-oncology therapy, Libtayo for the treatment of patients with metastatic or locally advanced CSCC who are not candidates for curative surgery or curative radiation. Approval of new drugs should further boost the top line.

Regeneron currently carries a Zacks Rank #2. Its shares have lost 0.8% in the year so far. Estimates for 2019 have increased 43 cents in the past 60 days.

Based in Cambridge, MA, Biogen Inc. (BIIB Quick QuoteBIIB - Free Report) is one of the world’s leading biotechnology companies focusing on developing innovative therapies for treating serious neurological and neurodegenerative diseases, including its core growth areas of multiple sclerosis (MS) and neuroimmunology, Alzheimer’s disease (AD) and dementia, movement disorders and neuromuscular disorders, including spinal muscular atrophy (SMA) and amyotrophic lateral sclerosis (ALS).

Biogen has a strong position in the MS market with a wide range of products including Avonex, Tysabri, Tecfidera and Plegridy.  The company is also looking to diversify beyond MS to other areas like Alzheimer’s, Parkinson's and stroke among others. Spinraza (nusinersen) also consolidated its position in the neurological disease market with the drug being the first and only treatment to be approved in the United States for SMA. The company also has a robust pipeline and approval of new drugs will boost growth.

Biogen currently carries a Zacks Rank #2. Shares have lost 0.6% so far in 2018. Estimates for 2019 are up  50 cents in the past 60 days. 

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