After struggling for the first five months in 2018, the biotech industry started to recover since the end of May. The industry, which was down 8.9% in first five months, rose 1.8% in June compared with an increase of 0.7% registered by the broader S&P 500.
The outperformance by the biotech industry can be partly attributed to the negative macro factors such as trade wars and rising oil prices, which have diverted investors to defensive sectors like pharma. Moreover, excess cash on the balance sheets of large cap pharma companies due to lower tax rates and low-tax cash repatriation window has led to an increase in M&A activity this year. The biotech sector has already seen a few billion-dollar acquisitions so far this year.
Moreover, the biotech industry consists of many small firms, which are focused on developing innovative or rare disease treatments and addressing new markets. These companies can charge a higher price, which gives them an advantage over large-cap pharma companies which are facing drug pricing pressure and higher competition from generics. Although the new drug policy announced in May gives some leeway to large companies about pricing, these might face backlash from the public for any significant hike in prices.
The FDA has approved 17 new drugs so far this year, which is likely to boost total sales of the industry going forward. Several clinical data readouts and regulatory decisions are slated to be announced in the second half of 2018. Positive results will also boost stocks from the sector.
The pharma sector has historically performed better in the second half of the year, which suggests that a recovery may be in store for the biotech industry. The industry has declined 6.4% year to date.
4 Star Biotechs in June
We have listed four companies from the biotech industry, which have risen in June and have the potential to rise further in the second half.
We chose these companies from a universe of 281 stocks based on a favorable Zacks Rank, price rise and upward estimate revisions in the last four weeks. The companies have either a Zacks Rank #1 (Strong Buy) or 2 (Buy) and have risen more than 5% in the past month. You can see the complete list of today’s Zacks #1 Rank stocks here.
The following stocks met the criteria.
Athenex, Inc. (ATNX - Free Report) is a clinical stage biopharmaceutical company focused on the development of treatment for cancer.
The company currently carries a Zacks Rank #2 and its loss estimates have narrowed 3.6% to $1.36 per share for 2018 in the last 30 days. Moreover, the stock has rallied 17.9% in the past month.
Fibrocell Science Inc (FCSC - Free Report) is a biopharmaceutical company focused on the development of gene therapy for treating rare and serious skin and connective tissue diseases with high unmet medical needs.
The company currently carries a Zacks Rank #2 and its loss estimates have narrowed 23.8% to $1.83 per share for 2018 in the last 30 days. Moreover, the stock has rallied 8.7% in the past month.
uniQure N.V. (QURE - Free Report) is a biopharmaceutical company focused on developing gene therapy for treating genetic or acquired diseases. The company’s Glybera is indicated for treating lipoprotein lipase deficiency, an orphan metabolic disease.
The company currently carries a Zacks Rank #2 and loss estimates have narrowed 2.9% to $2.56 per share for 2018 in the last 30 days. Moreover, the stock has rallied 6.4% in the past month.
Rhythm Pharmaceuticals, Inc. (RYTM - Free Report) is a clinical stage biopharmaceutical company focused on the development of treatment for rare genetic deficiencies, which result in life-threatening metabolic disorders. The company offered common stock to raise $150 million in June to fund its research & development activities.
The company currently carries a Zacks Rank #2 and its loss estimates have narrowed 9.8% to $1.66 per share for 2018 in the last 30 days. Moreover, the stock has rallied 5.7% in the past month.
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