After getting off to a rather rocky start this year, the healthcare space has witnessed massive gains in the recent past. Further, a higher number of approvals by the FDA and the continued influx of funds into the sector has given it a solid boost.
Recent studies have also shown that U.S. healthcare has been a hotbed of money for American as well as foreign venture capitalists. The inflow of funds that the space has witnessed so far in 2018 has surpassed the total funding it received in 2017 by a large margin.
Further, Health Care Select Sector SPDR ETF (XLV) has been the top-performing ETF, gaining 6% in past three months. Under such encouraging conditions, investing in venture capital (VC)-backed healthcare companies seems prudent.
Venture Capital Funding Propels U.S. Healthcare
Per the latest quarterly report by Pitchbook, provider of data related to venture capital and private equity funding, healthcare companies in the United States raised approximately $23.4 billion in venture funding as of Sep 30. The figure also surpassed the $20.5 billion funding that the space received in all of 2017. Further, the funding received by healthcare alone accounts for about 28% of the total venture funding in the United States so far this year.
Pharma and biotech have received the majority of venture capital funding so far this year, accounting for about 62% of the total. About 6,500 deals have closed as of Sep 30 this year, which in on track to surpass 9,300 deals closed in all of 2017.
China Leads Foreign Investment in Biotech Startups
Chinese venture-capital funds have invested a whopping $1.4 billion in U.S. biotech and drug companies in the period between January through March. This surpasses $125.5 million in investments by Chinese VCs for the whole of 2017. Part of such an increase can be attributed to China’s efforts in becoming the leader in healthcare investments across the globe. This apart, foreign investment in U.S. biotech is estimated to rise to $2 billion in 2018.
Brii Biosciences is on among the many U.S. startups that have benefited immensely from Asian money. The company recently raised $260 million from Asian investors. So far in 2018, Asian investors have poured in $4.2 billion into biotech startups in the country.
Leading from the front are China’s 6 Dimensions Capital and Hillhouse Capital Group. These are closely followed by Hong Kong-based Blue Pool Capital, which happens to be an investment arm of China-based Alibaba’s BABA executives.
4 Hot Choices
A steady influx of foreign as well as domestic investments in U.S. healthcare has gone a long way in boosting gains for the space. Further, a burgeoning economy has necessitated diversification by the top players in the industry.
In this context, we have selected four healthcare stocks that are expected to gain from these factors. These five stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Alder Biopharmaceuticals, Inc. ALDR engages in the development and commercialization of therapeutic antibodies used in the treatment of migraine and other serious neurological or inflammatory conditions. The company received $250 million in funding from the venture capital firm Redmile Group, LLC in April 2018.
The company is based out of Bothell, WA and has an expected earnings growth rate 4.49% for the current year. The Zacks Consensus Estimate for the current year has improved 3.7% over the past 60 days.
Xenon Pharmaceuticals Inc. XENE is the owner and operator of a clinical-stage biopharmaceutical company with operations in both Canada and the United States. The company received venture funding during its IPO in September 2018.
This company is based out of Burnaby, Canada. The expected earnings growth rate for the current year is 22.67%. The Zacks Consensus Estimate for the current year has improved 4.3% over the past 60 days.
Spero Therapeutics, Inc. SPRO engages in the development of novel treatments for multi-drug resistant (MDR) bacterial infections. The company received venture funding of $75 million from Osage University Partners in June 2018.
The company is based out of Bothell, WA and has expected earnings growth rate of 4.49% for the current year. The Zacks Consensus Estimate for the current year has improved 3.7% over the past 60 days.
Trevena, Inc. TRVN is a developer of therapies and treatments for serious medical conditions. Polaris Venture Management Co., LLC holds approximately 2.1 million shares worth $2.96 million in the company.
This company is based out of Chesterbrook, PA. The expected earnings growth rate for the current year is 50.14%. The Zacks Consensus Estimate for the current year has improved 10.5% over the past 60 days.
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