3 Stocks to Buy on New Drug Approvals by FDA
The FDA has approved many a drugs since the beginning of this year, some of which are for life-threatening diseases such as cancer, diabetes and genetic disorders. These approvals have helped the stocks of many biotechnology and healthcare companies skyrocket to new highs.
In fact, ever since the pandemic set in, several companies such as Gilead Science and Novavax have rushed to formulate a treatment for the novel coronavirus. Let’s take a look at how the FDA’s approval of a drug impacts a company’s stock price performance and then consider a few stocks whose drugs were approved by it earlier this year.
Here’s Why a Drug Approval is Crucial
To understand how a drug approval by the FDA may impact a company, let’s consider two factors. First, the drug that has been approved is meant for the treatment of a certain disease or condition, and hence it is likely to meet strong demand.
Usually, if the medication is meant for a life-threatening disease such as cancer and diabetes or conditions related to heart and lungs, the demand is even higher. Second, this drug, when commercialized, adds to the company’s current revenue stream, thus boosting its profit margin.
More Drugs Approved in May by the FDA
According to RTT News, about 13 new drugs were approved by the FDA in May this year, which is significantly higher than the eight novel drugs approved by the regulatory body in May 2019. In addition, several drugs by prominent drug makers are also lined up to be approved this month.
This year has been rather crucial for drug approvals, considering that coronavirus has grappled the United States and abroad. The number of cases in the country continues to rise, along with the death toll, with no imminent cure in sight.
In fact, according to Dr. Anthony Fauci, the country’s leading infectious disease expert, a vaccine for the COVID-19 virus could take anything from 12-18 months to emerge. Earlier this week, he also said that infectious disease specialists are witnessing “more and more” complications with coronavirus in young people.
Fauci, who is the director of the National Institute of Allergy and Infectious Diseases, said that he had never seen a single virus with such a broad range of symptoms. A major reason behind this sudden outbreak of the infections in people below 35 is not following social distancing measures. Vice President Mike Pence also warned young people on Jun 22, particularly in Texas and Florida.
The number of coronavirus cases in the country has spiked sharply after the economy reopened across all 50 states since April-end. In addition, the anti-racist protests throughout the country following the death of George Floyd by a police officer also triggered new cases, since it involved marches by people in close proximity of each other.
3 Stocks to Buy
We have chosen three stocks of companies whose developed drugs were approved by the FDA last month. All of these stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
On May 8, the FDA approved Eli Lilly and Company’s LLY Retevmo, for the treatment of adults with metastatic rearranged during transfection (RET) fusion-positive non-small cell lung cancer. The company has priced Retevmo at $20,600 for a 30-day supply.
Eli Lilly has expected earnings growth of 12.9% for the current year. Shares of the company, which belongs to the Zacks Large Cap Pharmaceuticals industry, have gained 29.6% over the past three months compared to the industry’s growth of 23.1% during the same period. The Zacks Consensus Estimate for the company’s current-year earnings has moved 0.1% north in the past 60 days. The company carries a Zacks Rank #1.
The FDA approved Oriahnn on May 29, a drug developed by AbbVie Inc. ABBV in partnership with Neurocrine Biosciences, Inc. NBIX. The drug is aimed to manage heavy menstrual bleeding which is linked with uterine fibroids in premenopausal women. Oriahnn is anticipated to be available in the United States by June-end.
AbbVie has expected earnings growth of 17.9% for the current year. Shares of the company, which belongs to the Zacks Large Cap Pharmaceuticals industry, have gained 44.2% over the past three months compared to the industry’s growth of 23.2% during the same period. The Zacks Consensus Estimate for the company’s current-year earnings has moved 8.3% north in the past 60 days. The company carries a Zacks Rank #2.
On May 5, the FDA approved Elyxyb, developed by Dr. Reddy's Laboratories Limited RDY for treating migraine with or without aura, especially in adults. The company is currently working with its partners to commercialize the medication.
Dr. Reddy's Laboratories has expected earnings growth of 14.7% for the next year. Shares of the company, which belongs to the Zacks Medical - Generic Drugs industry, have gained 42.3% over the past three months compared to the industry’s growth of 38.6% during the same period. The Zacks Consensus Estimate for the company’s current-year earnings has moved 1.1% north in the past 60 days. The company carries a Zacks Rank #2.
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