Medical-Biomedical and Genetics industry is up 8.6% this year so far compared with the S&P 500’s increase of 26.1%.
The industry includes large as well as small biotech companies, which are much riskier investment bets than drug companies that make specialty medicines. Though this industry includes big biotechs like Amgen, Biogen, Gilead, Vertex Pharmaceuticals and Regeneron among others, it mostly comprises small biotech companies that have a small portfolio of marketed drugs or even no commercial-stage drugs at all. Some of these clinical stage drugmakers are dependent on just one pipeline candidate. Thus, the success or failure of their key pipeline candidates in clinical studies can significantly drive the stock’s price and also the entire industry’s stock market performance.
A partnership deal with a popular drug maker is a good sign about the potential of small pharma companies, especially when there is an equity investment included in the deal.
These smaller innovative companies, in general, had a better year than 2018, the primary reason being pivotal study successes involving key pipeline candidates. Other than that, frequent FDA approvals to innovative pipeline candidates gave a boost to the sector. Most importantly, there have been numerous M&A activity and collaboration deals, which pushed up stock prices. Smaller biotech research firms investigating new therapies or interesting pipeline candidates have garnered attention of bigger players this year. Oncology and gene therapy have mainly been the focus areas for M&A activities.
The larger players like Amgen, Vertex Pharmaceuticals, Alexion, and Incyte also handily outperformed the industry as the factors driving these large-cap companies are quite different. We believe that strong quarterly results, consistent increases in full-year sales and earnings guidance, new product sales ramp up with rising demand, successful innovation and product line extensions, strong clinical study results, and frequent FDA approvals have helped these big biotech giants to consistently do well this year despite broader macro headwinds as well as the industry’s own challenges.
The biotech sector is expected to continue to do well in 2020 as well. We believe that pipeline success, important advances in clinical studies, product launches, and ramped up M&A and collaboration activities should keep the sector afloat, going forward in an aggressively competitive market.
Importantly, the Zacks Medical-Biomedical and Genetics industry features among the top 22% of the 255 Zacks-ranked industries.
Coming back to the smaller biotechs, though most stocks are up, there are several of them which have seen their share price drop this year. However, these stocks carry a Zacks Rank #1 (Strong Buy) or #2 (Buy), and have seen positive estimate revisions in the past 60 days, which leads us to believe that these have the potential to bounce back in 2020. You can see
. the complete list of today’s Zacks #1 Rank stocks here
We discuss five such stocks here. A chart showing the share price movement of all the five stocks is given below.
Alkermes ( ALKS Quick Quote ALKS - Free Report)
Shares of Alkermes are down 30.4% this year so far, mainly due to FDA rejection of its new drug application (“NDA”) for ALKS 5461 early in the year due to lack of evidence supporting efficacy of the oral medication. The NDA sought approval of ALKS 5461 for adjunctive treatment of major depressive disorder (“MDD”).
Nonetheless, the company recovered after the initial jolt. Sales of Alkermes’ proprietary products, Vivitrol and Aristada, are strong while the upcoming launch of Vumerity (FDA approval in November 2019) will provide a profitable new source of royalty revenues from partner Biogen. Alkermes is also progressing well with its pipeline and submitted ALKS 3831 NDA for both schizophrenia and bipolar I disorder last month with a potential approval expected next year. Alkermes also announced a restructuring plan to reduce costs, better cost structure and to focus on growth opportunities.
The stock currently carries a Zacks Rank #1 and its estimates for 2020 have improved from a loss of 11 cents to earnings 59 cents in the past 60 days.
Innoviva, Inc. INVA
Innoviva’s shares are down 19.4% this year so far mainly due to decline in royalty revenues from partner Glaxo on its Relvar/Breo Ellipta products. Glaxo is seeing lower sales of Relvar/Breo Ellipta products due to increased pricing discounts in the ICS/LABA sector following the launch of generic versions of Glaxo’s blockbuster medicine, Advair
However, sales of Glaxo’s newest Ellipta product, Trelegy Ellipta, is rising, benefiting from share gains after an expanded U.S. label. Innoviva’s royalties on Trelegy Ellipta may increase in 2020, making up lower royalties on Relvar/Breo. The company has a Zacks Rank of 1 and has seen positive estimate revision of 25% for 2020 over the past 60 days.
Retrophin, Inc. RTRX
This small San Diego, CA based biotech’s stock is down 35.7% year to date mainly due to the failure of a late-stage study on its lead pipeline candidate, fosmetpantotenate in patients with pantothenate kinase-associated neurodegeneration (PKAN),a rare genetic neurological disorder, in August. The study failed to meet its primary or secondary endpoints and Retrophin discontinued future development of the fosmetpantotenate program.
Nonetheless, Retrophin is progressing well on development of its other pipeline candidate, sparsentan. Enrolment continues in two pivotal studies to support potential registration of sparsentan in focal segmental glomerulosclerosis (FSGS) andIgA nephropathy (IgAN), respectively. Meanwhile, the commercial launch for Thiola EC tablets (tiopronin) is underway following FDA-approval for the treatment of cystinuria in June.
The stock carries a Zacks Rank #2. Loss estimates for 2020 have narrowed from $3.58 per share to $2.47 per share for 2020 in the past 60 days.
Autolus Therapeutics plc AUTL
Autolus Therapeutics’ stock is down 58.9% this year so far mainly on investor concerns about its cash burn
Autolus Therapeutics, a London-based small cancer biotech, however, has a Zacks Rank #2. Its loss estimates for 2020 have narrowed from $3.97 per share to $3.28 per share for 2020 in the past 60 days.
Autolus plans to initiate a pivotal study on its CD19 targeting CAR-T cell therapy, AUTO1 in adult patients with acute lymphoblastic leukemia (ALL) with first patient dosing scheduled for the first half of 2020. Autolus presented strong efficacy and safety data on AUTO1 at ASH this year. It also has AUTO3, a dual CD19 and CD22 targeting CAR-T cell therapy, in development for the treatment of diffuse large B cell lymphoma, in its pipeline.
Atara Biotherapeutics, Inc. ATRA
Shares of this California based biotech, which makes treatments for patients with cancer, autoimmune, and viral diseases, has declined 55.8% this year so far. Slower-than-expected enrolment progress in phase III studies of its lead pipeline candidate, tabelecleucel (tab-cel), and resultant postponement of regulatory filing on the candidate (to 2020 from the second half of 2019) mainly pushed shares down in the first half of the year.
However, Atara Biotherapeutics has a Zacks Rank #2. Its loss estimates for 2020 have narrowed from $5.39 per share to $4.76 per share for 2020 in the past 60 days.
It is progressing well on its innovative off-the-shelf, allogeneic T-cell immunotherapy pipeline programs, specifically tab-cel, ATA188, ATA2271/ATA3271 and ATA3219. Investor optimism around the success of the ongoing phase III trials with tab-cel in Epstein-Barr virus-associated post-transplant lymphoproliferative disease (EBV+ PTLD) is high. The company is on track to file a biologics license application for tab-cel in EBV+ PTLD in the second half of 2020.
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