Earnings season for the biotech and pharma sector kicks off this week with industry bellwether Johnson & Johnson (JNJ - Free Report) reporting second quarter results tomorrow before the market opens. Swiss pharma giant, Novartis (NVS - Free Report) , which was in the news recently related to a favorable FDA advisory panel recommendation for its CAR-T cell therapy, will also be reporting second quarter results tomorrow.

As of Jul 14, 2017, about 30 S&P 500 members or 9.3% of the index’s total market capitalization have reported results. A look at our Earnings Preview article shows that total earnings for these companies are up 13.8% from the year-ago quarter while revenues are up 6%.

As far as the Medical sector is concerned, revenues are expected to increase 3.7% though earnings are expected to decline 1%. This is in contrast to the first quarter when earnings rose 5.6% on revenue growth of 5.7%.

While overall sentiment towards pharma and biotech stocks has improved significantly in 2017 with investors focusing more on fundamentals than on issues like drug pricing, it would make sense to avoid drug companies that are sell ranked stocks and do not look well-positioned ahead of 2Q earnings. We have zeroed in on 4 stocks that have a Sell rank -- Zacks Rank #4 (Sell) or #5 (Strong Sell) and have a negative Earnings ESP for the second quarter.

Valeant Pharmaceuticals International, Inc. (VRX - Free Report): Canada-based specialty pharma company, Valeant, has been in the headlines mainly due to the drug pricing controversy and its relationship with Philidor. The Zacks Rank #5 stock, which missed earnings expectations in two of the last four quarters and revenue expectations in the first quarter of 2017, has a negative earnings ESP of 9.38% for the second quarter of 2017. The company, which has been working on simplifying its operating model and reducing debt, will be reporting results on Aug 8. Earnings estimates for 2017 are down 0.5% over the last 30 days.

(Click on image to enlarge)

Flexion Therapeutics, Inc. (FLXN - Free Report) : Burlington, MA-based Flexion is a specialty pharmaceutical company focused on the development and commercialization of novel, local therapies for the treatment of patients with musculoskeletal conditions, beginning with osteoarthritis. The Zacks Rank #4 stock, which missed loss estimates in two of the last four quarters, has a negative earnings ESP of 7.5% for the second quarter of 2017. Loss estimates for the June quarter and 2017 are up 1.3% and 0.6%, respectively, over the last 7 days. Flexion is expected to report second quarter results on Aug 2.

(Click on image to enlarge)

Ignyta, Inc. (RXDX - Free Report) : San Diego, CA-based Ignyta is focused on precision medicine in oncology. The Zacks Rank #4 stock, which posted a wider-than-expected loss in two of the last three quarters, has a negative earnings ESP of 13.12% for the second quarter of 2017. Loss estimates for the June quarter and 2017 are up 17.3% and 1.9%, respectively, over the last 30 days. Ignyta is expected to report second quarter results on Aug 8.

(Click on image to enlarge)

Anika Therapeutics, Inc. (ANIK - Free Report) : Bedford, MA-based Anika is a global, integrated orthopedic medicines company. The Zacks Rank #5 stock, which missed first quarter earnings estimates, has a negative earnings ESP of 4.55% for the second quarter of 2017. While earnings estimates for the June quarter are down 10.2% over the last 30 days, full year 2017 estimates are down 5.6% during this period. Anika will be reporting second quarter results on Jul 26. Year-to-date, the company’s shares are down 5.8%, underperforming the Zacks-categorized Medical-Biomedical/Genetics industry which is up almost 9%.

(Click on image to enlarge)