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Biotech stocks, which have been showing signs of recovery this year, slipped last week following the release of the Budget Blueprint for 2018, Amgen’s (AMGN - Free Report) data on its PCSK9 inhibitor, Repatha, and a couple of analyst downgrades for Biogen (BIIB - Free Report) .

Budget Calls for Higher Fees

Even though President Donald Trump has often said that he is in favor of a faster drug approval process and the speeding up of new innovation, his budget calls for higher fees for regulatory reviews. According to the Budget Blueprint, FDA medical product user fees are expected to cross $2 billion next year, double the 2017 annualized continuing resolution (CR) level of about $1 billion.

The budget also proposes a reduction of $5.8 billion in the National Institutes of Health’s (NIH) spending.

Amgen Slips on Data

Meanwhile, Amgen, one of the biggest names in the biotech sector, presented highly awaited data on its PCSK9 inhibitor, Repatha. Even though the data was positive, Amgen’s shares were down as some of the data was not as good as had been expected (Read more: Amgen: Repatha Outcomes Data Disappoint, Shares Drop.

Biogen Hit by Analyst Downgrades

Biogen, known for its presence in the multiple sclerosis (MS) market, suffered a blow with a couple of analysts downgrading their rating on the stock. The company’s shares were down 5.5% last week. A key concern is regarding the performance of the company’s new product launch, spinal muscular atrophy treatment, Spinraza. Increasing competition in the MS space as well as a lack of near term catalysts will weigh on the stock. Year-to-date, Biogen has underperformed the Zacks-categorized Medical-Biomedical/Genetics industry with shares declining 3.1% compared to the industry gain of 8.1%.

Although the NASDAQ Biotechnology Index declined 1.9% last week, there are several factors that should drive the biotech sector. First and foremost, this is an industry that will continue to witness demand for its products given an aging population and the increasing prevalence of a wide variety of diseases. Strong pipelines, innovative treatments, impressive results, and increased health care spending should support growth. Trump's pro-business stand is also expected to benefit the sector. A faster drug approval process and the proposed removal of outdated regulations that drive up costs and slow down innovation should also work in favor of this sector.

Medical - Biomedical and Genetics Industry 5YR % Return

How to Pick Winners

Anyone interested in biotech 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 even doubling or 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. Drug pricing also remains a headline risk. The growing presence of biosimilars, a slowdown in growth of legacy products and high profile pipeline setbacks are also challenges for the sector.

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 3 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). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Blueprint Medicines Corporation (BPMC - Free Report) : Cambridge, MA-based Blueprint is focused on the discovery and development of targeted kinase medicines for patients with genomically defined diseases. The company is advancing four programs in clinical development for subsets of patients with gastrointestinal stromal tumors, hepatocellular carcinoma, systemic mastocytosis, non-small cell lung cancer, medullary thyroid cancer and other advanced solid tumors. Blueprint has collaborations with companies like Roche and Alexion and has enough funds to run its operations into at least late 2018. Blueprint is a Zacks Rank #2 stock with 100% Strong Buy or Buy broker rating.

Cellectis S.A. (CLLS - Free Report) : Cellectis is a biopharmaceutical company focused on developing adoptive immunotherapies for cancer. The company is developing immunotherapies based on gene edited CAR T-cells (UCART) internally as well as through strategic alliances with Pfizer and Servier. The Zacks Rank #1 stock enjoys 100% Strong Buy or Buy broker rating.

Mateon Therapeutics, Inc. (MATN - Free Report) : South San Francisco, CA-based Mateon is working on utilizing the full potential of vascular targeted therapy (VTT) in oncology. VTT includes vascular disrupting agents (VDAs) and anti-angiogenic agents (AAs) with both approaches representing distinct yet complementary mechanisms of action. Mateon also has 100% Strong Buy or Buy broker rating and is a Zacks Rank #2 stock.

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