Biotech Stocks Bounce Back In Monday Trading: 3 Picks

The healthcare sector has been choppy since the beginning of 2016, continuing the volatile trend from the second half of 2015. Media and political focus on the high prices of drugs have made things difficult for the pharma/biotech sector since the past one year.

Democratic presidential candidate, Hillary Clinton has pledged to find ways to institute reforms to curb rising drug prices and thereby lower prescription drug costs for all Americans. The situation worsened when Mylan (NASDAQ:MYL) N.V. MYL increased the price of its life-saving combination product EpiPen. This month, Clinton, in a statement on her website, announced measures to curb “unjustified” price hikes of lifesaving treatments, especially the ones that have been in the market for long.

Shares of many biotech companies declined this month after Clinton’s latest statement.

However, the picture seems to be improving now with share price of a large number of pharma/biotech companies bouncing back on Monday, Sep 12. Among the larger companies, Eli Lilly and Company (NYSE:LLY) , Sanofi (NYSE:SNY) , Merck, Inc. (NYSE:MRK) and Pfizer, Inc. (NYSE:PFE) rose more than 1%; Biogen Inc. (NASDAQ:BIIB) rose more than 2% while Amgen Inc. (NASDAQ:AMGN) and AstraZeneca PLC (NYSE:AZN) were up more than 3% on Monday.

After a weaker first quarter, the pharma/biotech sector picked up pace in the second quarter with a number of healthcare companies faring better than expected. Bigwigs like Johnson & Johnson (NYSE:JNJ) , Novartis AG (NYSE:NVS) and Abbott Laboratories (NYSE:ABT) were able to beat expectations comfortably. In the biotech space, major players like Biogen topped both earnings and revenues expectations, while Gilead Sciences (NASDAQ:GILD) beat on earnings. Amgen (NASDAQ:AMGN) and AbbVie, Inc. ABBV also managed to surpass both earnings and sales estimates and lifted their outlook.

Healthcare merger and acquisition activity is also gaining strength. In August, Pfizer announced the acquisition of oncology-focused Medivation for approximately $14 billion. This was preceded by the buyout of Anacor in Jun 2016 and Hospira in Sep 2015. In Jun 2016, Shire plc SHPG acquired Baxalta to further strengthen its rare disease portfolio. Aegerion Pharmaceuticals (NASDAQ:AEGR) and QLT Inc. QLTI entered into a definitive merger agreement in Jun 2016 to form a new company, Novelion Therapeutics Inc.

Merger and acquisitions are expected to increase in the back half of the year. Meanwhile, small bolt-on acquisitions, in-licensing activities and collaborations for the development of pipeline candidates are expected to continue.

On the other hand, new product approvals, along with label expansion of existing drugs and regular pipeline updates related to key drugs should keep investors’ attention glued to the pharma/biotech sector.

Given the strong fundamentals, biotech companies with new therapies or interesting pipeline candidates promise bountiful opportunities for investors. These stocks are well positioned in today’s market environment and could see considerable upside riding on the aforementioned trends.

We have narrowed down the list of choices by focusing on stocks with a favorable Zacks Rank of #1 (Strong Buy) or #2 (Buy) and VGM score of ‘A’ of ‘B.

PDL BioPharma, Inc. (NASDAQ:PDLI)

Nevada-based, PDL BioPharma manages a portfolio of patents and royalty assets in the United States and Europe. The company is involved in the humanization of monoclonal antibodies and the discovery of a new generation of targeted treatments for cancer and immunologic diseases. It has a Zacks Rank #2 and a VGM score of ‘B’.

The stock has also witnessed positive estimate revisions in the past 30 days.

Its 2016 earnings estimate rose 20% while that for 2017 is up a massive 200% over the past 30 days.

Vanda Pharmaceuticals, Inc. (NASDAQ:VNDA)

This Washington-based biopharmaceutical company focuses on developing products for central nervous system disorders. Its estimated loss for 2016 narrowed down over the past 30 days while for 2017, estimates switched from a loss of 3 cents to earnings of 16 cents over the same time frame. The company has a VGM score of ‘B’ and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Neogenomics Inc. NEO

This clinical laboratory specializes in cancer genetics diagnostic testing. It has a Zacks Rank #2 and a VGM score of ‘B’.

Bottom Line

Although obstacles remain in the form of biosimilars and currency headwinds, investors would do well to keeps an eye on these fast growing biotech stocks.

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