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Forget Gilead, Buy These Small-Cap Biotech Stocks Instead

Zacks Equity Research

Biotech bigwig Gilead Sciences, Inc. GILD had a tough time in 2016. Although the company’s fourth-quarter results beat expectations, the guidance for 2017 was disappointing.

Gilead’s share price movement in the last one year shows that the stock underperformed the Zacks classified Medical-Biomedical and Genetics industry. The stock lost 24.8% in the last one year, compared to the industry’s gain of 3%.

Downsides in Gilead

Gilead’s hepatitis C virus (HCV) franchise continued to witness slowdown in the fourth quarter of 2016 across key markets including the U.S. and Europe, reflecting lower sales of Harvoni and Sovaldi as a result of competitive and pricing pressure. HCV product sales came in weaker than expected, primarily due to fewer new patient starts for Harvoni and lower revenues per patient. Higher discounts and payer mix continue to hurt sales.

Lower patient starts were also observed in the early launch markets in Germany and France, while Spain and Italy continued to experience budgetary constraints. Total HCV treatment starts in the U.S. were an estimated 231,000 in 2016, approximately 25,000 less than 2015. The company expects a further decline in patients starts in 2017.

Harvoni, Sovaldi and Epclusa face competition from Viekira Pak and Viekira XR, Daklinza and Olysio. Competition as well as pricing pressure has intensified further with the launch of Zepatier. Moreover, other companies are also planning to bring new, improved and shorter-duration HCV treatments to market.

Our Picks

While Gilead’s HIV franchise has retained its momentum, the broader decline in HCV franchise will continue to pull down the shares. In such a scenario, we advise investors to forget Gilead, a Zacks Rank #4 (Sell) stock, and invest in some other small cap biotech stocks (market capitalization below $200 million) that carry an impressive Zacks Rank and boast interesting pipelines/products and growth potential.

Based in Lawrenceville, NJ, Celsion Corporation CLSN is an oncology company committed to developing a portfolio of innovative cancer treatments, including directed chemotherapies, immunotherapies and RNA- or DNA-based therapies. This Zacks Rank #2 (Buy) company is currently focused on its lead program-ThermoDox (heat-activated liposomal encapsulation of doxorubicin).

The candidate is currently in phase III development for the treatment of primary liver cancer and in phase II for the treatment of recurrent chest wall breast cancer. Celsion’s pipeline also includes GEN-1, a DNA-based immunotherapy for the localized treatment of ovarian and brain cancers. Immuno-oncology is one of the most lucrative and highly sought after therapeutic areas. Shares of Celsion has outperformed the Zacks categorized Medical/Biomedical Genetics industry in the last one month.

Strongbridge Biopharma plc SBBP focuses on the development and commercialization of therapies for rare diseases. The company’s first commercial drug is Keveyis is approved for the treatment for hyperkalemic, hypokalemic, and related variants of primary periodic paralysis. The drug enjoys orphan drug exclusivity status in the U.S. through Aug 7, 2022.

Alongside the company has a pipeline that includes COR-003 (levoketoconazole), a cortisol synthesis inhibitor currently being studied for the treatment of endogenous Cushing's syndrome, and COR-005, a next-generation somatostatin analog (SSA) being investigated for the treatment of acromegaly, with potential additional applications in Cushing's syndrome and neuroendocrine tumors. Both these candidates have obtained orphan designation from the FDA and the EMA. The stock carries a Zacks Rank #2 and has outperformed the Zacks categorized Medical/Biomedical Genetics industry year to date.

Headquartered in Cleveland, Ohio, Athersys, Inc. ATHX is developing its multistem cell therapy product for disease indications in the neurological, cardiovascular, inflammatory and immune disorders, and certain pulmonary conditions. Additionally, the company has other ongoing clinical trials evaluating this potential regenerative medicine product.

The company currently has advanced six MultiStem programs to clinical trials. The lead clinical program is for ischemic stroke and the company has reached an agreement with the FDA under a Special Protocol Assessment for the design and planned analysis of its phase III trial, MASTERS-2, for ischemic stroke. The company currently carries a Zacks Rank #2.  You can see the complete list of today’s Zacks #1 Rank stocks here.

Synthetic Biologics, Inc. SYN, a late-stage clinical stage company, is focused on developing therapeutics designed to preserve the microbiome to protect and restore the health of patients. The lead candidates poised for phase III development are SYN-010 and SYN-004.

Notably, SYN-010 is designed to reduce the impact of methane-producing organisms in the gut microbiome to treat an underlying cause of irritable bowel syndrome with constipation (IBS-C). The other candidate SYN-004 is designed to protect the gut microbiome from the effects of certain commonly used intravenous (IV) beta-lactam antibiotics for the prevention of C. difficile infection (CDI), antibiotic-associated diarrhea (AAD) and the emergence of antimicrobial resistance (AMR). The company currently carries a Zacks Rank #2.

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