Though the drug sector was off to a strong start in 2018, it has struggled thereafter probably on U.S. market instability and a few negative updates on the pipeline and regulatory front. Also, a slowdown in sales of some of the most high-profile older drugs, courtesy of payers and competitive pressure from both branded and generic drugs, is a concern for the sector. Moreover, concerns about pressure on drug prices continue to cloud shares of pharma and biotech companies.
Drug pricing has been in the spotlight once again this month when President Donald Trump announced plans to lower prescription drug costs. He laid out his vision of increasing competition, lowering consumers’ out-of-pocket costs for drugs, creating incentives to lower list prices, cutting down regulatory burdens and asking the FDA to make it compulsory for drug companies to display prices in their TV advertisements.
The biotech industry has declined 9.9% this year so far, underperforming the 0.5% rise for the S&P 500 in the same time frame.
Nonetheless, any ace investor will know that the drug/biotech sector has been one of the best-performing industries in the U.S. stock market. It is widely expected that the biotech/drug sector will rebound as the year progresses. We believe that new product sales ramp up with rising demand, successful innovation and product line expansion, strong clinical study results, frequent FDA approvals, 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 keep the sector on track. A faster drug approval process and the proposed removal of outdated regulations that drive up costs and slow down innovation should also provide benefits.
Importantly, mergers and acquisitions (M&A) activity is ramping up with the tax reform in place. The new tax law, which cuts corporate tax rate from 35% to 21% and encourages companies to bring back huge cash held overseas at a one-time tax rate of 10%, is spurring merger activity this year.
The biggest M&A deal announced this year is Takeda’s proposed acquisition of Shire for $62 billion. The deal is expected to close in the first half of 2019. Sanofi (SNY - Free Report) and Celgene (CELG - Free Report) have already snapped up two companies each. Impax Laboratories and Amneal merged in May to form a new company, Amneal Pharmaceuticals, Inc. (AMRX). Needless to say, biggies like Pfizer, Merck, J&J, Lilly among others have consistently announced co-development deals and small biotech acquisitions this year.
With the outlook optimistic for the rest of the year, here we have highlighted five stocks that may prove to be good buys. All these stocks carry a Zacks Rank #1 (Strong Buy) or #2 (Buy) and have seen their share price and earnings estimates rise this year so far. You can see the complete list of today’s Zacks #1 Rank stocks here.
CRISPR Therapeutics AG (CRSP - Free Report)
On a year-to-date basis, shares of CRISPR Therapeutics have gained 213.4%. Meanwhile, loss estimates of this Swiss gene editing company narrowed 7.8% for 2018 and 9% for 2019 over the past 30 days. CRISPR Therapeutics sports a Zacks Rank #1.
BioMarin Pharmaceuticals Inc. (BMRN - Free Report)
BioMarin’s earnings estimates rose 47.7% for 2018 and 20.9% for 2019 in the past 60 days. Shares of this California-based biotech, which makes rare disease drugs, have risen 1.6% this year so far.
This Zacks Rank #2 stock is expected to record sales growth of 13.4% this year and 15.1% next year
Athersys, Inc. (ATHX - Free Report)
Athersys carries a Zacks Rank #2. Loss estimates for this Cleveland, OH-based company narrowed 29.4% for 2018 and 19.6% for 2019 in the last 30 days. Sales growth this year for this biotech stock is expected to be 426.4%. Athersys’ shares have returned 35.9% this year so far.
Aeglea BioTherapeutics, Inc. (AGLE - Free Report)
Loss estimates for this #2 Ranked stock narrowed 13.5% for 2018 and 7.5% for 2019 in the last 30 days. Sales growth of this Texas-based biotech is expected to be 15.3% this year. Aeglea’s shares have returned 88.9% this year so far.
Ligand Pharmaceuticals (LGND - Free Report)
This #2 Ranked stock’s earnings per share estimates increased 11.8% for 2018 and 8% for 2019 in the last 60 days. This California-based company’s shares have rallied 39.8% year to date. This company is expected to record sales growth of 37.7% this year and 14.3% next year.
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