The Zacks Medical-Biomedical and Genetics industry has underperformed the S&P 500 this year so far, declining 17.8% compared with the S&P 500’s decline of 0.9%.
Please note that this industry includes large as well as small biotech companies that are much riskier than drug companies, which make specialty medicines. Pipeline setbacks faced by the companies in this industry have been responsible for the industry’s disappointing performance this year so far.
Though this industry includes big biotechs like Amgen, Biogen, Gilead, Vertex Pharmaceuticals, Regeneron among others, it mostly comprises small biotech companies that have a small portfolio of marketed drugs or even no commercial-stage drugs at all. Some of these clinical stage drugmakers are dependent on just one pipeline candidate. Thus, the success or failure of their key pipeline candidates in clinical studies can significantly drive the stock’s price and also the entire industry’s stock market performance.
Also. a partnership deal with a popular drug maker is a good sign about the potential of small pharma companies, especially when there is an equity investment included in the deal.
These smaller innovative companies, in general, had a rather weak 2018, the principle reason being pivotal study failures involving key pipeline candidates. Other than that, regulatory and pipeline delays are adding to their woes. Also, M&A activity and collaboration deals have relatively dried up lately after a frenzy of announcements earlier in the year.
The larger players like Amgen AMGN, Gilead GILD, Vertex Pharmaceuticals, and Biogen have handily outperformed the industry as the factors driving these large-cap companies are quite different. We believe that strong quarterly results, consistent increases in full-year sales and earnings guidance, new product sales ramp up with rising demand, successful innovation and product line extensions, strong clinical study results, and frequent FDA approvals have helped these big biotech giants to consistently do well this year despite broader macro issues as well as the industry’s own challenges.
Coming back to the smaller biotechs, there are several of them which have seen their share price drop significantly this year. However, these stocks carry a Zacks Rank #1 (Strong Buy) or #2 (Buy), which leads us to believe they have the potential to bounce back in 2019. You can see the complete list of today’s Zacks #1 Rank stocks here.
Importantly, the Zacks Medical-Biomedical and Genetics industry features among the top 24% of the 255 Zacks-ranked industries
We discuss five such stocks here. A chart showing the share price movement of all the five stocks is given below.
Incyte Corporation INCY
Shares of Incyte are down 29% this year so far, primarily due to the failure of the phase III ECHO-301 study, evaluating its key immunotherapy candidate, epacadostat in combination with Merck’s Keytruda in patients with metastatic melanoma. Further, the approval of the 4mg dose of Olumiant, also a JAK inhibitor, is doubtful. Olumiant is marketed in the EU and the United States (only the lower 2 mg dose) for rheumatoid arthritis (RA).
Incyte, however, has a Zacks Rank #2 currently. Incyte boasts a strong oncology portfolio. Its key marketed product, Jakafi, a JAK inhibitor approved for treating polycythemia vera (PV) and myelofibrosis (“MF”), two rare blood cancers, is seeing strong sales performance driven by rising patient demand for both indications.
In order to expand the patient population and increase the commercial potential of the drug, the company is working on expanding its label further. Incyte’s regulatory application seeking a label expansion of Jakafi for the treatment of steroid-refractory acute GVHD, has been accepted for priority review by the FDA. The agency has set a target action date of Feb 24, 2019. An approval will boost sales in 2019.
Meanwhile, Incyte’s pipeline boasts interesting targeted therapies like pemigatinib, itacitinib and capmatinib among others.
Exelixis, Inc. EXEL
Exelixis’ shares are down 30% this year so far. Exelixis’ kidney cancer drug Cabometyx (cabozantinib) was approved in the first-line setting in December last year. However, Bristol-Myers cancer drug combination Opdivo+Yervoy was approved for first-line kidney cancer in April this year. This has increased competitive pressure on Cabometyx and it is being widely speculated that Opdivo+Yervoy may squeeze Exelixis' share of the lucrative first-line kidney cancer space. This has been the key reason behind the stock’s drop this year.
However, Cabometyx continues to perform well amid stiff competition from Sutent, Votrient, Inlyta, among others. A potential approval for Cabometyx for previously-treated advanced hepatocellular carcinoma (HCC), a kind of liver cancer, early in January 2019 should further boost demand and diversify the franchise, given the huge market for liver cancer. Also, Exelixis has initiated the next wave of cabozantinib pivotal trials and expects additional pivotal studies in 2019 including studies evaluating cabozantinib in combination with leading immunotherapies. All these positive factors explain the company’s Zacks Rank of 2.
AVEO Pharmaceuticals, Inc. AVEO
AVEO Pharmaceuticals’ stock is down 28.7% this year so far. The stock crashed after the announcement of the third-quarter results in early November as the company said that its cash position was sufficient to fund operations only till the second quarter of 2019. However, the share price picked up thereafter.
The stock currently carries a Zacks Rank #2. AVEO’s only marketed drug Fotivda was approved in Europe in 2017 for the first-line treatment of advanced renal cell carcinoma (RCC) and has been launched in Germany by partner EUSA Pharma. Fotivda is not yet approved in the United States. In early November, AVEO announced that Fotivda's late-stage study TIVO-3 for third- and fourth-line kidney cancer met its primary endpoint, paving the way for a regulatory filing in the United States next year.
Anika Therapeutics, Inc. ANIK
Anika Therapeutics’ stock is down 42.2% this year so far. The stock was hit by disappointing data announced in June from a late-stage study evaluating Cingal in treating patients with osteoarthritis (OA) in the knee. Cingal is Anika’s third-generation visco supplement approved to treat pain associated with osteoarthritis of the knee in some international countries. Cingal is not approved for use in the United States.
The study, which was being conducted to support registration of Cingal in the United States, failed to demonstrate that using Cingal led to a statistically significant reduction in pain. This raised investor scepticism about the drug’s potential approval in the United States. Meanwhile, a voluntary recall of Hyalofast, Hyalograft-C and Hyalomatrix, in May also hit the stock this year
Nonetheless, the stock carries a Zacks Rank #1. Cingal is doing well, seeing strong demand trends in Europe and Canada. Production and shipments of Hyalofast, Hyalograft-C and Hyalomatrix resumed earlier this month, which should boost revenues in the New Year. Also, management will meet with the FDA in first quarter of 2019 to discuss the path forward for Cingal.
VIVUS, Inc. VVUS
VIVUS’ stock is down 44.7% this year so far due to inconsistent sales of its weight management drug, Qsymia
VIVUS, however, enjoys a Zacks Rank #2. Importantly, VIVUS is focusing on building a cash flow positive portfolio of commercial products. The acquisition of Pancreaze in May boosted sales significantly. VIVUS is also working on boosting Qsymia sales through expanding reimbursement and promotional initiatives.
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Exelixis, Inc. (EXEL) : Free Stock Analysis Report
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