3 Biotech Stocks Start Healthy In '18: Will The Rally Last?

In 2018, the biotech industry is expected to witness a continuation of last year’s favorable trends. Last year, the industry benefited from a number of FDA approvals, new product sales ramp up, R&D success and innovation, strong clinical study results and continued strength in some legacy products. There were some first-time approvals for innovative/game-changing treatment options.

Noteworthy among them was the approval of Novartis’ (NYSE:NVS) Kymriah, the first cell-based gene therapy known as CAR-T therapy, which is an innovative treatment option for cancer. This was followed by another CAR-T approval, that of Kite Pharma’s Yescarta. Spark Therapeutics’s Luxturna, the first gene therapy to treat a rare, inherited form of childhood blindness, was also approved last year.

The NASDAQ Biotechnology Index gained 17.8% in 2017. Moreover, the Medical - Biomed/Genetics industry increased 2.8% in the same time frame.

Though pricing pressure, rising competition, pipeline setbacks, slowdown in growth of mature products and generic competition for certain key drugs are some of the headwinds, the above-mentioned factors should continue contributing to the sector’s growth in 2018.

In December, the tax overhaul was signed into law, slashing corporate tax rates from 35% to 21% which can boost profits of large drug/biotech companies. Meanwhile, the change in tax code will also allow companies to bring back huge cash held overseas at a one-time tax rate of 10%.

Also, the tax cuts are expected to prevent inversions, which were rampant in the drug industry. These changes should definitely leave more cash in the hands of drug/biotech companies. The cash can be invested for mergers/acquisitions, which have been few in 2017.

With this bullish outlook for the sector, we look at three biotech stocks that have seen their share price rise more than 5% this year so far and look well positioned for the rest of 2018. All the three stocks have witnessed upward estimate revisions and have a favorable Zacks Rank - Zacks Rank #1 (Strong Buy) or #2 (Buy).

Alkermes plc (NASDAQ:ALKS) : Alkermes is focused on the development and marketing of treatments for central nervous system ("CNS") diseases. Year 2018 is expected to be a transformative year for Alkermes’ development pipeline.

Key events lined up for the year include FDA’s review of ALKS 546’s new drug application (NDA) for the treatment of major depressive disorder, the phase III data readout for ALKS 3831 in schizophrenia, the NDA filing for ALKS 8700 in the first half of 2018, which is being evaluated for the treatment of multiple sclerosis. The company could also gain FDA approval for new initiation product of Aristada (Aripiprazole Lauroxil NanoCrystal Dispersion ) for the treatment of schizophrenia by Jun 30.

Alkermes, a Zacks Rank #2 stock, has seen its shares gain 7.3% year to date compared with the 2.4% rally of the industry it belongs to. You can see the complete list of today’s Zacks #1 Rank stocks here. The company has seen the Zacks Consensus Estimate for 2018 earnings being revised 50% upward over the last 30 days.

Vertex Pharmaceuticals Inc. (NASDAQ:VRTX) : Vertexsports a Zacks Rank #1. Its earnings per share estimates for 2018 have moved up 2.8% in the last 30 days. The company delivered a positive earnings surprise in each of the last four quarters, with an average beat of 32.67%. Share price of the company has increased 5.4% year to date.

Year 2017 was a tremendous year for Vertex with positive data read-outs and regulatory approvals leading to an increase in eligible patient population for its two cystic fibrosis (CF) products - Kalydeco & Orkambi. The trend continues in 2018 with Orkambi getting EU approval for pediatric use.

With a consistent expansion in patient population, Vertex’s CF product revenues increased through 2017. The company is optimistic that the positive trend in CF sales will continue in 2018 on additional reimbursement approvals for Orkambi in ex-U.S. markets and approval to launch tezacaftor (VX-661)/ivacaftor combination medicine.

Vertex’s CF pipeline is also quite strong with a broad portfolio of next-generation CF correctors. Vertex also made decent clinical progress across multiple CF studies in 2017 and has meaningful pipeline catalysts. Investor focus is on triple combination CF regimens, which are crucial for long-term growth as these have the potential to treat up to 90% of CF patients. Vertex plans to initiatepivotal phase III studies on up to two of the four triple combination regimens in the first half of 2018.

Agenus Inc. (NASDAQ:AGEN) : Agenuscarries a Zacks Rank #2. Loss estimates for the company narrowed by 0.7% for 2018 in the last 30 days. Share price of the company has increased 18.7% year to date.

Agenus has formed collaborations with Merck (NYSE:MRK) and Incyte to discover and develop multiple checkpoint antibodies.

In October 2017, the FDA granted marketing authorization to GlaxoSmithKline's (NYSE:GSK) herpes zoster vaccine, Shingrix, which contains Agenus' proprietary immune adjuvant QS-21 Stimulon. This is good news for Agenus as Shingrix has a blockbuster potential and an increase in its sales will impact the business of Agenus positively

Earlier this month, the company announced a $230 million non-dilutive royalty financing transaction with HealthCare Royalty Partners (HCR) which will significantly boost its cash position. Agenus will use part of these proceeds to redeem its royalty bond from Oberland and to fund its pivotal pipeline programs. The company also announced new leadership appointments to enhance its team and advance ongoing pivotal programs with CTLA-4 and PD-1 which will support its planned BLA filings in the second half of 2019 and in 2020.

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