The drug and biotech industry has done relatively well this year, particularly picking up steam in the past three months
The chart below shows that the
Medical-Biomedical and Genetics (Bio-Med), Large Cap Pharmaceuticals and the Medical-Drugs have risen 11.9%, 10.3% and 8.5%, respectively while the S&P Zacks S&P 500 composite has gone up 26.1%.
A strong third-quarter earnings season, bullish outlook for the rest of 2019 and 2020 and a flurry of M&A deal announcements this year were the primary reasons for the industry’s strong performance. Demand-driven growth in sales of new products, success of key pipeline candidates in clinical studies, product line extensions of blockbuster drugs in important therapeutic areas, successful innovation resulting in new drug approvals, and continued strong performance of key products are some other factors boosting this industry’s growth.
There has been a flurry of M&A deal announcements this year in the biotech/drug industry. Apart from the two mega-merger announcements of Bristol-Myers-Celgene and AbbVie-Allergan, smaller biotech research firms, investigating new therapies or interesting pipeline candidates, garnered attention of bigger players this year. Oncology and gene therapy have mainly been the focus areas of M&A activities.
Headwinds for the industry include government scrutiny of high drug prices, pricing and competitive pressure, slowdown in sales of some of the most high-profile older drugs and most importantly major pipeline setbacks. Nonetheless, we believe that pipeline success, cost-cutting measures, regulatory approvals for new drugs and line extension, product launches, ramped up M&A and collaboration activities and appropriate utilization of cash should keep the sector afloat in 2020.
Though it would be prudent to add a few stocks from this growing sector to your portfolio, you need to watch out for a few stocks, which, despite performing well this year, may lose momentum next year. In this article, we discuss four stocks whose prices shot up this year but these might not prove to be good buys for 2020. These stocks carry a Zacks Rank #4 (Sell) or #5 (Strong Sell) and have seen their earnings estimates for 2020 decline in the past 60 days.
Immunomedics, Inc. IMMU
Immunomedics stock is up 41.3% this year so far, outperforming the Bio-Med industry’s increase of 8.5% as it made significant progress against important manufacturing and clinical milestones, related to its most advanced candidate, sacituzumab govitecan.
Sacituzumab govitecan is presently under review with the FDA for metastatic triple-negative breast cancer (“mTNBC”) in the third-line setting. Though the company received a complete response letter ("CRL") from the FDA for its biologics license application (“BLA”) in January 2019, the CRL did not require any new study to be conducted. In December 2019, the company resubmitted the BLA to the FDA. Meanwhile, sacituzumab govitecan is being evaluated in several label expansion studies including earlier-line settings for breast cancer as well as other cancer indications.
However, the stock currently carries a Zacks Rank #4 and its estimates for 2020 have widened from a loss of $1.41 per share to $1.59 in the past 60 days. Rising competitive pressure in the breast cancer market is a concern. In September, sacituzumab govitecan showed a response rate in a bladder cancer study, which was lower than that of a competitor's candidate. The data was presented at the European Society for Medical Oncology meeting in Barcelona
ANI Pharmaceuticals, Inc. ANIP
ANI Pharmaceuticals’ shares are up 42.1% this year so far, also outperforming the Bio-Med industry, driven by decent sales and profits in a challenging U.S. generics drug market.
However, competitive pressure hit sales of some of its generic drugs in the third quarter, leading management to lower its 2019 sales and earnings outlook on expectations of intensified pressure on base generics business. This explains the company’s Zacks Rank of 5 and negative estimate revision of 7.9% for 2020 over the past 60 days.
Mirati Therapeutics, Inc. MRTX
Mirati Therapeutics’ stock has risen 165.1% this year, outperforming the Bio-Med industry, mainly on positive data on its KRAS G12C inhibitor, MRTX849, which showed that treatment with the candidate can result in clinical responses at well-tolerated doses. Earlier this year, Amgen presented initial results from a study on its KRAS inhibitor, AMG 510, which were impressive and pushed up Mirati’s stock in the process.
Mirati's lead drug candidate, sitravatinib, is being evaluated in a registration-enabling phase III study in combination with a checkpoint inhibitor in non-small cell lung cancer (NSCLC). It is also developing novel inhibitors of KRAS mutations including MRTX849.
However, loss estimates of this #4 Ranked stock have widened from $5.67 per share to $5.99 per share for 2020 in the past 60 days.
PTC Therapeutics, Inc. ( PTCT Quick Quote PTCT - Free Report)
Shares of PTC Therapeutics were up 39.9% this year, outperforming the 11.9% increase for the Medical-Drugs industry.
PTC markets two drugs for treating Duchenne muscular dystrophy (DMD): Translarna and Emflaza. It will launch Tegsedi (inotersen) in Brazil in 2020. Meanwhile, it is evaluating several drug candidates across rare diseases and oncology and exploring line extensions of its marketed drug products. PTC’ new drug application (NDA) for lead candidate risdiplam (RG7916) for the treatment of spinal muscular atrophy (SMA) was granted priority review by the FDA last month. PTC is looking for approval for a broader SMA patient population, including type 1, type 2 and type 3 SMA patients.
However, the stock has a Zacks Rank of 4 and has seen its loss estimates for 2020 widen from $1.43 per share to $1.47 per share in the past 60 days. This is due to investor concerns over rising costs to support new launches and its vast pipeline.
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