3 Biotech Stocks for Earnings Beats this Season
Even a quarter back, tax inversion deals were quite a rage among most of the U.S. based biotech firms. However, these tax dodging strategies have fallen apart ever since the U.S. Department of Treasury issued a notice related to tax inversion deals. We have seen AbbVie Inc.
(ABBV - Free Report
) calling off its planned acquisition of Shire
following the notice. Also, Auxilium Pharma
chose Endo International’s
(ENDP - Free Report
) acquisition offer over its QLT Inc.
) merger deal on the same ground.
Meanwhile, licencing agreements and partnership deals continue to be a common strategy for several biotech companies like MannKind Corp.
. In a smart move, MannKind chose Sanofi
(SNY - Free Report
) as its partner for its only approved product Afrezza. Sanofi is not only a suitable partner for Afrezza given its global reach and experience in the diabetes market, the Sanofi deal will also provide ample funds to MannKind.
Tax inversion deals aside, acquisitions will remain a part of the biotech story with large pharma companies pursuing their biotech counterparts. We have seen InterMune getting acquired by Roche
(RHHBY - Free Report
) in an $8.3 billion deal with the main attraction being InterMune’s Esbriet. Esbriet was initially approved in the EU for the treatment of idiopathic pulmonary fibrosis (IPF) and InterMune emerged as an attractive takeover candidate with the company delivering impressive data on the drug in the U.S.
However, pipeline setbacks also remain a part of the risk involved in investing in biotech stocks. We saw Sunesis Pharmaceuticals
(SNSS - Free Report
) tumbling 78% after its phase III study on Qinprezo and cytarabine failed to achieve the primary endpoint.
Despite the challenges, many biotech stocks are exploring their own ways to emerge as winners. Thus, it would be a good idea to zero in on a handful of biotech stocks that are poised to beat earnings estimates this quarter. An earnings beat should help these stocks gain investor confidence and show price improvement.
How to Pick?
Given a large number of industry participants, pinpointing stocks that have the potential to beat estimates could appear to be a daunting task. But our proprietary methodology makes it fairly simple. One way to narrow down the list of choices this earnings season is by looking at stocks that have the combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) – and a positive Zacks Earnings ESP
Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising in their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.
Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Below are three biotech stocks we believe are best positioned to stand out as we round off the third quarter earnings season.
(XOMA - Free Report
) , based in California, is a Zacks Rank #3 (Hold) stock with an Earnings ESP of +11.11%. The Zacks Consensus Estimate for the third quarter 2014 is a loss of 18 cents. The company has registered positive earnings surprises in two of the last four quarters.
The company is expected to post a narrower-than-expected loss in the third quarter as it did in the second. Although operating expenses are expected to go up during the quarter, the company’s higher licensing and collaborative revenues will help it to narrow the loss.
XOMA is set to report its third quarter results after market close on Nov 6.
Another stock to look out this earnings season is Medivation, Inc.
, sporting a Zacks Rank #1 (Strong Buy). This San Francisco-based company focuses on the development of novel treatments for serious diseases with limited treatment options. The company has an Earnings ESP of +7.34%.
Medivation delivered positive earnings surprises in three of the last four quarters. The company posted earnings of 60 cents per share in the second quarter, easily beating the Zacks Consensus Estimate of 28 cents. Medivation is expected to continue its solid performance in the third quarter as well. This will largely be fuelled by its sole marketed product, Xtandi, which should continue its impressive run on label expansions especially given the approval for use in chemo-naïve patients.
Medivation is set to report its third-quarter earnings after market close on Nov 6.
A Zacks Rank #2 stock, Dendreon Corp.
, can also be a good choice for investors this season. This Seattle, WA based biotech company primarily focuses on oncology treatments. The company has an Earnings ESP of +38.89%.
Dendreon delivered positive earnings surprises in two of the last four quarters with an average beat of 33.31%. The company is expected to post a narrower loss during the third quarter like it did in the second quarter. Dendreon’s revenues are expected to rise in the third quarter on the back of its lead product, Provenge, which is expected to continue to grow.
Dendreon is expected to report its third quarter results on Nov 11.
While several companies have successfully developed and commercialized their key pipeline candidates, many are still awaiting regulatory decisions. Meanwhile, catalysts in the biotech sector remain in the form of licencing agreements, partnership deals and restructuring initiatives. This sneak peek at the space for some outperformers, backed by a solid Zacks Rank and a positive Zacks Earnings ESP, could be a great idea for investors to gain from this earnings season.