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5 Biotech Stocks Set to Trump Estimates This Earnings Season

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The fourth-quarter earnings season has crossed the half way mark, and the results so far reflect a positive trend, with an above average proportion of companies beating both top- and bottom-line expectations. Per the latest Earnings Trend, total earnings for the medical sector are up 16.9% from the same period last year on 8.5% higher revenues so far.

The biotech stocks had a fairly good run in 2017 despite the prevalence of headwinds like rising competition, pipeline setbacks, slowdown in growth of mature products and generic competition for certain key drugs. While some of these issues still persist, most companies seem to have combatted the pressure courtesy of new drug approvals and upbeat performance of many blockbuster drugs.  

We note that the slowdown in mature products compelled prominent biotechs to acquire smaller ones with promising pipelines. Gilead Sciences (GILD) acquired Kite Pharma and subsequently obtained FDA approval of Yescarta (axicabtagene ciloleucel), the latter’s chimeric CAR-T therapy candidate. Celgene recently announced plans to acquire Juno Therapeutics for $87 per share in cash, or a total of approximately $9 billion, net of cash and marketable securities acquired.

Picking the Prospective Winners for the Season

There are a number of biotech companies which are likely to trump fourth-quarter estimates. However, with a wide range of biotech firms thronging the investment space, it is by no means an easy task for investors to arrive at stocks that have the potential to deliver better-than-expected earnings.

With the help of the Zacks Stock Screener, we have zeroed in on five biotech stocks that carry a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and have a positive Earnings ESP. Earnings ESP is a very valuable tool for investors looking for stocks that are most likely to beat earnings estimates. Moreover, adding a Zacks Rank of #1, 2 or 3 has delivered a positive surprise 70% of the time. While you can see the complete list of today’s Zacks #1 Rank stocks here, you can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

Bet on These 5 Stocks for Higher Returns

San Francisco, CA-based Exelixis, Inc. (EXEL - Free Report) is a biopharmaceutical company focused on developing and commercializing small-molecule therapies for the treatment of cancer. Exelixis' lead drug Cabometyx continues to gain traction. The recent FDA approval of Cabometyx for the treatment previously untreated advanced RCC should further boost demand. The drug performed impressively against widely used Sutent. We expect Cabometyx will pose a challenge to Sutent’s market share for first line RCC in 2018.  Exelixis’ track record is outstanding. The company has surpassed expectations in the trailing four quarters, with an average of 543.6%. The company which is scheduled to report results on Feb 26, currently carries a Zacks Rank #2 and an Earnings ESP of +21.98%.

Dublin, Ireland-based Alkermes plc (ALKS - Free Report) has a diversified product portfolio and a promising pipeline of candidates targeting major central nervous system disorders including schizophrenia, depression, addiction and multiple sclerosis. The company generates revenues from its proprietary products Vivitrol and Aristada, and the five partnered products — Risperdal Consta, Invega Sustenna/Xeplion, Invega Trinza/Trevicta, Ampyra/Fampyra and Bydureon. We expect these products to continue contributing to the company’s top-line growth in the coming quarters. Moreover, the pipeline progress has been encouraging too. The company recently submitted a NDA to the FDA for its pipeline candidate, ALKS 5461 for the adjunctive treatment of major depressive disorder.  The company has a decent track record with an average positive surprise of 75.0%. Alkermes currently carries a Zacks Rank #2 and an Earnings ESP of +34.12%.

Anthera Pharmaceuticals, Inc. , a biopharmaceutical company, is focused on developing drugs to treat serious and life-threatening diseases such as exocrine pancreatic insufficiency and B-cell associated renal diseases. The company currently has two compounds in development, Sollpura and blisibimod.  The company licensed Sollpura from Eli Lilly & Co in July 2014.  Sollpura is a novel non-porcine investigational Pancreatic Enzyme Replacement Therapy for the treatment of Exocrine Pancreatic Insufficiency (“EPI”), often seen in patients with cystic fibrosis and other conditions.  Blisibimod was licensed from Amgen and targets B-cell activating factor, or BAFF, which has been shown to be elevated in a variety of B-cell mediated autoimmune diseases, including Immunoglobulin A nephropathy. After having suffered a setback, the company recently reported encouraging data from a phase III study, RESULT, on Sollpura for the treatment of EPI. With a decent track record, the company currently carries a Zacks Rank #2 and an Earnings ESP of +20.47%.

Based in New Haven, CT, Alexion Pharmaceuticals’ 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 and atypical hemolytic uremic syndrome. The label expansion of the drug along with geographic expansion will further boost sales. Among new products, while Strensiq is gaining momentum, the company redefined its strategy for Kanuma which earlier lagged expectations. Alexion’s track record is excellent as it has consistently topped estimates in the last four quarters, with an average positive earnings surprise of 11.91%. The company currently carries a Zacks Rank #3 and an Earnings ESP of +8.92%. Alexion is scheduled to report results on Feb 8.

Wilmington, DE-based Incyte Corporation’s (INCY - Free Report) Jakafi is a first-in-class JAK1/JAK2 inhibitor, approved in the United State for the treatment of patients with polycythemia vera (“PV”), who have had an inadequate response to or are intolerant to hydroxyurea. It is also approved for the treatment of patients with intermediate or high-risk myelofibrosis (“MF”), including primary MF, post-PV MF, and post-essential thrombocythemia MF.  Jakafi sales are being driven by patient demand. Inclusig also continues to perform well and exceeded expectations.  The label expansion of Jakafi for graft-versus-host disease will further boost sales. The company has an encouraging track record with an average positive surprise of 42.9%. Incyte currently carries a Zacks Rank 3 and an Earnings ESP of +5.57%. The company is scheduled to release results on Feb 15.

Bottom Line  

Challenges in the form of competitive and pricing pressure will remain. However, a number of companies in the healthcare space have fared well. Picking some outperformers from the space, backed by a solid Zacks Rank and a positive Earnings ESP, could lead investors to gain this earnings season.

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