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3 Overlooked Drug Stocks to Watch Out for in 2017

Arpita Dutt

2016 was a rough year for the medical sector especially biotech stocks with the NASDAQ Biotechnology index declining 19.1% during the year while the NYSE ARCA Pharmaceutical Index was down 9.7%. The pharma/biotech sector faced several headwinds last year including slow product launches, fewer drug approvals, pipeline setbacks and increasing competition including the presence of biosimilars. And of course, there was the political rhetoric about drug pricing that weighed on the sector for almost the whole of 2016. Although there is not much clarity right now about the steps that will be taken to address the drug pricing issue, it is clear that drug pricing will remain in focus in 2017 as well.

On the other hand, strong pipelines, innovative treatments, impressive results, growing demand for drugs especially for rare-to-treat diseases, an aging population and increased health care spending should support growth in this sector. Moreover, President-elect Donald Trump’s pro-business stand is also expected to benefit the sector. Major biotech and pharma companies should gain from Trump’s proposed tax plan and proposal to repatriate corporate profits held offshore at a one-time tax rate of 10%. This could lead to a surge in mergers and acquisitions (M&A).

As we start the New Year, here is a look at 3 drug stocks that have not been in the news much but have been witnessing upward estimate revisions and sport a strong Zacks Rank -- #1 (Strong Buy) or #2 (Buy).

Sucampo Pharmaceuticals, Inc. SCMP: Rockville, MD-based Sucampo’s key areas of focus include gastroenterology, ophthalmology, and oncology-related disorders. Amitiza continues to perform well and the resolution of the patent litigation with Dr. Reddy's Laboratories Limited RDY regarding a generic version of Amitiza has removed an overhang. Amitiza sales should be driven by key formulary wins as well as a highly targeted direct-to-consumer (DTC) TV campaign in select key markets and performance in Japan. The company’s preliminary guidance for 2017 surpassed expectations and earnings estimates for 2017 are up 10% over the past 4 weeks. Sucampo also beat expectations in each of the first three quarters of 2016. Sucampo, a Zacks Rank #1 stock, boasts of a VGM score of “A” -- our research shows that stocks with a VGM Score of “A” or “B” when combined with a Zacks Rank #1 or 2 offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.

BioMarin Pharmaceutical Inc. BMRN: San Rafael, CA-based BioMarin is focused on the development and commercialization of drugs for serious diseases and medical conditions. The biotech company is well known for its treatments for rare diseases and has five commercialized products in its portfolio. BioMarin has an interesting pipeline as well which addresses diseases like hemophilia, achondroplasia, CLN2 (a late-infantile form of Batten disease) and phenylketonuria (PKU).

This Zacks Rank #2 stock may not have been making too many headlines over the past few weeks but the company’s rare disease portfolio makes it an attractive acquisition target. EPS estimates for 2017 are up 13.8% over the past 4 weeks. BioMarin’s earnings track record is also strong with the company surpassing expectations in each of the first three quarters of 2016. A look at BioMarin’s performance last year shows that the company outperformed the Zacks categorized Medical – Biomedical/Genetics industry with the company declining 21% compared to the industry decline of 24.7%.

Repligen Corporation RGEN: Waltham, MA-based Repligen is focused on the development, manufacture and commercialization of products used to manufacture biologic drugs. The company sells its bioprocessing products to life sciences companies, biopharmaceutical development companies and contract manufacturing organizations across the world. Earnings estimates for Repligen, a Zacks Rank #2 stock, are up 2.5% for 2017. The TangenX Technology acquisition is expected to be earnings accretive in 2017. Repligen’s performance in 2016 was better than that of the industry with the company gaining 9.7% during the year.

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