Billionaire investor, Bill Ackman, has finally decided to pull out his investment in Canada-based drugmaker Valeant Pharmaceuticals International, Inc. (VRX - Free Report) . Hedge fund Pershing Square made the announcement earlier this week and said that while Ackman and Steve Fraidin will remain on the Valeant board until the upcoming annual meeting, they will not seek re-election.

Valeant’s shares were down 10.1% on the abrupt exit of the activist investor who had been a pretty vocal supporter of Valeant and was working on stabilizing and rebuilding the beleaguered company. Valeant is one of the worst hit companies by the drug pricing issue with the company coming under the scanner for its policy of acquiring companies and selling their drugs at higher prices. Valeant’s relationship with Philidor was also questioned.

Ackman and Fraidin had joined the Valeant board in Mar 2016 and had taken several measures to help turn around the company like the replacement of senior management including the CEO, refreshing the board of directors, receiving appropriate amendments and waivers under applicable credit agreements, divesting non-core assets to improve the balance sheet, paying down debt, refinancing debt and ensuring the timely filing of SEC reports. However, despite these efforts, Valeant’s shares have been on a consistent downward spiral ever since the company found itself in the midst of the drug pricing controversy with the company losing 94.6% of its value so far.

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Meanwhile, Pershing Square is estimated to have taken a loss of almost $3 billion due to its investment in Valeant. According to the hedge fund’s 2015 annual report, the investment in Valeant was made at an average price of $196 per share. A look at Pershing Square's interim report for the first half of 2016 shows that a majority of the fund’s negative performance during this period was attributed to its investment in Valeant.

Our Stock Picks

Pershing Square’s decision to sell the Valeant investment will allow the hedge fund to focus on other portfolio companies and pursue new investment opportunities. Here is a look at 5 drug stocks which sport a favorable Zacks Rank - #1 (Strong Buy) or #2 (Buy) and could find a place in Ackman’s investment plans.

Neos Therapeutics, Inc. (NEOS - Free Report) : Neos, a Texas-based pharmaceutical company, is focused on developing, manufacturing and selling extended-release (XR) products using its proprietary modified-release drug delivery and orally disintegrating tablet (ODT) technology platforms. Adzenys XR-ODT, the first approved product using the company’s XR-ODT technology platform, is approved for the treatment of attention deficit hyperactive disorder (ADHD) in patients 6 years and above.

Neos has some catalysts coming up this year with the FDA expected to respond on the approval status of two ADHD drugs in the second half of 2017. While a response regarding Cotempla XR-ODT is expected by Jun 19, 2017, one for NT-0201 is expected by Sep 15, 2017. Neos’ shares are up 19.7% year-to-date (YTD), outperforming the Zacks categorized Medical-Drugs industry which is up 6.4% so far in 2017.

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Concert Pharmaceuticals, Inc. (CNCE - Free Report) : Lexington, MA-based Concert is a clinical stage company with a broad pipeline of drugs targeting pulmonary diseases, including cystic fibrosis (CF), autoimmune and inflammatory diseases and central nervous systems (CNS) disorders. The company was in the news recently for its asset purchase agreement with Vertex for CFTR potentiator CTP-656. The deal is worth up to $250 million. Concert’s shares are up 66.9% YTD.

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Loxo Oncology, Inc. (LOXO - Free Report) : Stamford, CT-based Loxo is focused on developing medicines for patients with genetically defined cancers. Top-line data on lead pipeline candidate, larotrectinib (a selective TRK inhibitor), is scheduled to read out in the second half of the year with the company expecting to seek FDA approval in late 2017/early 2018. Loxo is progressing with the rest of the pipeline as well which includes candidates like LOXO-292 (a highly selective RET inhibitor) and LOXO-195 (the company’s next-generation TRK inhibitor). Loxo, which has enough funds to support operations to mid-2019, is up 33.2% YTD.

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NeuroDerm Ltd. (NDRM - Free Report) : Israel-based NeuroDerm is a clinical stage pharmaceutical company developing drug-device combinations for central nervous system (CNS) disorders. The company has three candidates in its pipeline, all in different stages of development, addressing almost every Parkinson’s disease patient from the moderate to the very severe stage of the disease.

NeuroDerm recently reported positive preliminary data on one of its pipeline candidates - ND0612H, a high dose continuous, subcutaneously delivered levodopa/carbidopa (LD/CD) liquid formulation for patients with advanced Parkinson's disease. Shares shot up on this development with the company gaining 23.9% so far in 2017.

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BioCryst Pharmaceuticals, Inc. (BCRX - Free Report) : North Carolina-based BioCryst designs, optimizes and develops novel small molecule drugs that block key enzymes involved in the pathogenesis of diseases. The company is focused on the treatment of rare diseases with significant unmet medical needs. The company recently reported positive results from an interim analysis of a study being conducted on BCX7353 for the treatment of hereditary angioedema (HAE). BioCryst is up 32.1% YTD.

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