Pharma and biotech stocks made an impressive comeback in 2017 with the Nasdaq Biotechnology Index and the NYSE ARCA Pharmaceutical Index gaining 18.7% and 11.8%, respectively. Investors appear to be more comfortable about the drug pricing scenario which was a major overhang in 2016.
Moreover, a significantly higher number of drugs gained approval in 2017 including path-breaking gene cell therapy treatments for cancer like Novartis’ (NYSE:NVS) Kymriah and Gilead Sciences, Inc.’s (NASDAQ:GILD) Yescarta. Tax reforms are also expected to work in the sector’s favor with mergers and acquisitions (M&As) expected to pick up in the coming quarters.
Immuno-oncology remains a key focus area with Gilead acquiring Kite last year for $11.9 billion and Celgene Corporation (NASDAQ:CELG) currently rumored to be interested in acquiring Juno Therapeutics Inc (NASDAQ:JUNO).
New product sales ramp up, R&D success and innovation, continued strong performance from key products, growing demand for drugs especially for rare-to-treat diseases, an aging population and increased health care spending are some of the factors that should keep the momentum in 2018.
That said, headwinds remain in the form of drug pricing scrutiny, pricing pressure, increasing competition, the growing presence of biosimilars, generic competition, a slowdown in the growth of legacy products, concerns regarding Amazon’s interest in entering the healthcare arena and major pipeline setbacks.
How to Pick Winners
Anyone interested in biotech and pharma stocks will know that it could be challenging to pick winners in this “high risk – high returns” industry which is constantly growing and changing. Companies which hit the bull’s eye become overnight success stories with shares doubling or even tripling on positive news. However, negative outcomes have an equally strong effect on the shares and failure may very well spell doom for these companies.
In such a scenario, let’s take a look at stocks preferred by analysts who have a deep knowledge and understanding of the industry and its companies. We have zeroed in on three stocks with the help of our Zacks Stock Screener – these stocks have been given a Strong Buy or Buy rating by 80% or more brokers and sport a favorable Zacks Rank #1 (Strong Buy) or #2 (Buy).
Top-Ranked Drug Stocks That Are Broker Favorites: Vertex Pharmaceuticals Incorporated (VRTX)
Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is a key player in the cystic fibrosis (“CF”) market with two products, Orkambi and Kalydeco, in its CF portfolio. About 31,000 patients are eligible for treatment under the company’s current CF portfolio with the number expected to grow to 44,000 in 2018 on the back of EU reimbursement for Orkambi, label expansion for the drug and the potential approval of the tezacaftor/ivacaftor combination, expected in the United States by February 28, 2018 and the EU in the second half of the year.
Vertex expects CF revenues in the range of $2.1 – $2.15 billion in 2017. The company has a strong earnings track record having surpassed expectations in each of the last four quarters with an average surprise of 32.7%.
Going forward, Vertex expects to start pivotal development of up to two triple regimens in its CF pipeline in the first half of the year. The company is also working on expanding its pipeline beyond CF into diseases like sickle cell disease & beta thalassemia, adrenoleukodystrophy, alpha-1 antitrypsin deficiency and polycystic kidney disease.
Vertex is a Zacks Rank #1 stock with 90.5% Strong Buy or Buy broker rating. Vertex has gained 90.2% over the last one year, substantially outperforming the 1.9% rally of the industry it belongs to.
Top-Ranked Drug Stocks That Are Broker Favorites: Collegium Pharmaceutical Inc (COLL)
Specialty pharma company Collegium Pharmaceutical Inc (NASDAQ:COLL) is a Zacks Rank #2 stock with 100% Strong Buy or Buy broker rating. The company is focused on developing a portfolio of products that incorporate its proprietary DETERx technology platform for the treatment of chronic pain and other diseases. The company’s first product, Xtampza, is an abuse-deterrent, extended-release, oral formulation of oxycodone.
Moreover, Collegium acquired license rights to commercialize the Nucynta franchise in the United States. The deal, which closed last week, is expected to be immediately accretive and should accelerate the company’s path to profitability.
Over the last one year, Collegium’s shares are up 42% compared to the 9.8% gain recorded by the industry it belongs to.
Top-Ranked Drug Stocks That Are Broker Favorites: Syndax Pharmaceuticals Inc (SNDX)
Clinical stage biopharma company Syndax Pharmaceuticals Inc (NASDAQ:SNDX) is focused on the development of cancer therapies. Lead pipeline candidate, entinostat, which was granted Breakthrough Therapy designation, is currently in late-stage development as a combination treatment for HR+, HER2- advanced breast cancer.
The candidate is being evaluated in combination with other treatments including Keytruda for different kinds of cancer. Syndax’s second pipeline candidate, SNDX-6352, is in early-stage development with the potential to be evaluated for a variety of cancers.
Syndax is a Zacks Rank #2 stock with 100% Strong Buy or Buy broker rating. The company’s shares are up 19.9% over the last one year.
Zacks Top 10 Stocks for 2018
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2018?
Last year’s 2017 Zacks Top 10 Stocks portfolio produced double-digit winners, including FMC Corp. and VMware which racked up stellar gains of +67.9% and +61%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
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