The third-quarter earnings season was pretty impressive for the biotech sector as quite a few companies beat on both the top- and the bottom line as well as raised their annual outlook. Bigwigs like Biogen BIIB and Amgen AMGN delivered a comprehensive beat. Celgene, which is slated to be acquired by Bristol-Myers Squibb Company BMY shortly, also fired on all cylinders owing to strong sales growth. Meanwhile, Gilead missed on earnings but beat on sales.
Nevertheless, the quarterly performance of this risk-prone biotech sector was decent as new drug approvals, label expansions of blockbuster drugs and encouraging pipeline updates drove growth for quite a few stocks this reporting cycle.
It has been a roller-coaster ride for the volatile biotech sector so far this year. While 2019 started with a bang announcing the mega merger between Bristol-Myers and Celgene that significantly perked up prices of quite a few stocks, these gains were partially offset gradually, primarily due to the overall weakness in the global market. The recent series of consolidations is expected to continue as well with both big biotech and small biotech stocks, which have a dominant position in the lesser competitive arena of rare diseases and NASH and are well-equipped with path-breaking technology, respectively.
As fears of a global recession persist to spook investors, the inherent peril of the sector gets intensified. In such a scenario, choosing a biotech stock for investment can be tricky. Particularly, smaller biotechs are more hazardous as their product pipelines are several years away from commercialization. In contrast, investing in biotech biggies provides a cushion against volatility in the sector. Moreover, the Zacks Biomedical and Genetics industry is placed within the top 18% of the 253 Zacks-ranked industries.
Here we zero in on the four major biotech companies, prospects of which look good in the long run. While three of these companies have outperformed the sector so far in 2019, we believe all four hold enough room for an upside, backed by a broad and a strong product portfolio. Moreover, most companies have witnessed positive estimate revisions in the past 30 days for 2019 and 2020.
Alexion Pharmaceuticals, Inc.’s ALXN lead drug Soliris (for the treatment of paroxysmal nocturnal hemoglobinuria [PNH] and atypical hemolytic uremic syndrome [aHUS]) maintains momentum on the back of strong volume growth. The drug’s label expansion for the treatment of generalized myasthenia gravis (GMG) in patients and neuromyelitis optica spectrum disorder (NMOSD) bode well. The company reported strong results for the third quarter of 2019 wherein it beat on earnings and sales, and also lifted its annual guidance. Moreover, to combat generic competition for Soliris, once it loses patent protection, Alexion developed a long-acting C5 complement inhibitor Ultomiris for the treatment of adults with PNH, which consolidated its PNH franchise. The initial uptake of the drug has been robust and it recorded sales of $168.7 million in the first nine months of 2019. Meanwhile, Alexion is also working to expand Ultomiris’ label, which should drive further growth.
The company is taking steps to strengthen its PNH portfolio, which should reap returns in the long run. It reached a definitive agreement to acquire the clinical-stage biopharmaceutical company Achillion Pharmaceuticals, Inc. for $930 million to fortify its PNH franchise.
Shares of the company have gained 10.9% in the year so far compared with the industry’s growth of 2.3%. Estimates for 2019 and 2020 have been revised 3.5% and 2.5% upward, respectively. Alexion currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Vertex Pharmaceuticals Incorporated’s VRTX key area of focus is cystic fibrosis (CF) and the company has a market leading portfolio for the same. Vertex beat on earnings but missed on sales in the third quarter. Nevertheless, the consistent approval for Vertex’s CF drugs to treat younger patients is bumping up sales. Symdeko, in a very short time, has become its main CF revenue driver. The rapid approval of its triple combo CF regimen Trikafta was a big boost to Vertex. The regimen is crucial for long-term growth as it has the potential to treat up to 90% of CF patients. Meanwhile, Vertex’s non-CF pipeline is progressing rapidly with data on multiple diseases expected in 2020.
Vertex currently sports a Zacks Rank #1. Shares have rallied 26.7% in the year so far. Estimates for 2019 and 2020 have moved 4.8% and 6.9% north each.
Incyte Corporation INCY primarily focuses on the discovery, development and commercialization of proprietary therapeutics.
Incyte’s lead drug Jakafi (ruxolitinib) is a first-in-class JAK1/JAK2 inhibitor, approved in the United States for the treatment of patients with polycythemia vera (PV), who have had an inadequate response to or are intolerant to hydroxyurea. It is also approved for treating patients with intermediate or high-risk myelofibrosis (MF) including primary MF, post-PV MF, and post-essential thrombocythemia MF. The FDA recently approved Jakafi for the treatment of steroid-refractory acute GVHD in adult and pediatric patients aged 12 years or older. This is the third indication for which the drug has been approved in the United States. The drug’s performance has been stellar in the year so far. Based on the strong performance of Jakafi in the first nine months of 2019, the company upped its revenue guidance for the same. We expect sturdy growth in the coming quarters.
Incyte currently holds a Zacks Rank of 2. Shares have surged 37.6% in the year so far. Estimates for 2019 and 2020 have been increased 5.4% and 0.3%, respectively.
Regeneron Pharmaceuticals REGN is a biopharmaceutical company focused on the discovery, development and commercialization of treatments targeting serious medical conditions. The company’s portfolio boasts marketed drugs like Eylea (for several eye diseases), Dupixent (asthma) and Praluent (heterozygous familial hypercholesterolemia). The company’s third-quarter results were encouraging as it beat on both sales and earnings, driven by the label expansion of Eylea and strong Dupixent sales for moderate-to-severe atopic dermatitis and asthma. The company’s efforts to expand the label of its approved drugs and concurrently develop the pipeline are appreciative. Its immuno-oncology platform including Libtayo and a wide portfolio of bispecific antibodies is progressing well.
Regeneron currently is a Zacks #2 Ranked stock. Estimates for 2019 and 2020 have been up 1.6% and 3.3%, respectively.
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Bristol-Myers Squibb Company (BMY) : Free Stock Analysis Report
Vertex Pharmaceuticals Incorporated (VRTX) : Free Stock Analysis Report
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