4 Top-Ranked Drug/Biotech Stocks To Buy As Q1 Nears End

We are approaching the end of the first quarter of 2018. Let us assess how the quarter unfolded for the drug/biotech sector.

The year began on a strong note for the drug/biotech sector, particularly on expectations of an increase in M&A activity. Sanofi (SNY - Free Report) and Celgene (CELG - Free Report) have already announced two deals each. Also, Pfizer (PFE - Free Report) is aggressively on the lookout for a buyer for its Consumer Healthcare unit after British firms Glaxo (GSK - Free Report) and Reckitt Benckiser Group pulled out of discussions.

After a solid run in the first two months of the first quarter, the drug/biotech sectors struggled in March, probably on broader market pressure and a few negative updates on the pipeline and regulatory front.

The large-cap pharma industry has declined 4.6% this year so far while the biotech industry has declined 5.7% in the same time frame. Both have underperformed the 2.9% fall for the S&P 500 in the same time frame.

However, please note that in the first two months of the year, both the sectors recorded gains and so did the S&P 500. However, all three declined in the month of March.

What Put Breaks on the Momentum?

AbbVie’s Rova-T fell short of expectations in a key lung cancer study. Dermira’s acne candidate, olumacostat glasaretil, surprisingly failed to meet the primary endpoint in two studies. Celgene was issued a refusal to file letter by the FDA for Ozanimod (multiple sclerosis) NDA and Biogen and partner AbbVie announced the voluntary decision to withdraw multiple sclerosis drug, Zinbryta from worldwide markets due to risk of liver injury. Orexigen Therapeutics meanwhile filed for bankruptcy. Solid Biosciences’ mid-stage study on lead duchenne muscular dystrophy candidate SGT-001 was put on clinical hold and Protagonist Therapeutics announced discontinuation of a mid-stage study on its key ulcerative colitis treatment.

Is a Recovery in the Cards?

It is widely expected that the biotech/drug sector will rebound as the year progresses. We believe that new product sales ramp up with rising demand, successful innovation and product line expansion, strong clinical study results, more frequent FDA approvals, continued strong performance of key products, growing demand for drugs especially for rare-to-treat diseases, an aging population and increased health care spending are some of the factors that should keep the sector on track. A faster drug approval process and the proposed removal of outdated regulations that drive up costs and slow down innovation should also provide benefits.

With the outlook optimistic for the rest of the year, here we highlight four stocks that may prove to be good buys. All these stocks carry a Zacks Rank #1 (Strong Buy) or #2 (Buy) and have seen their share price and earnings estimates rise this year. 

Glaxo

After underperforming the broader industry in 2017, Glaxo’s shares have picked up this year. Glaxo’s stock has risen 7.3% this year so far. Meanwhile, estimates for 2018 and 2019 rose 5% and 4.8%, respectively in the past 60 days.

This Zacks Rank #2 (Buy) stock is expected to record sales growth of 4% this year and 2.5% next year

Adverum Biotechnologies (ADVM - Free Report)

Adverum Biotechnologies carries a Zacks Rank #2 (Buy). Loss estimates for the company narrowed 24.3% for 2018 and 26.2% for 2019 over the last 60 days. Sales growth this year for this biotech stock is expected to be 8.2%. Adverum shares have returned 83.5% this year so far.

Ligand Pharmaceuticals (LGND - Free Report)

This #2 Ranked stock has risen 23.3% this year while earnings estimates for 2018 and 2019 rose 11.1% and 12%, respectively, over the past 60 days. This company is expected to record sales growth of around 25% this year and 18% next year.

H. Lundbeck A/S (HLUYY - Free Report)

On a year-to-date basis, Lundbeck shares have gained 13.1%. Meanwhile, earnings estimates for 2018 increased 8.5% over the past 60 days for this #2 Ranked stock.

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