5 Best Biotech Bets Likely To Outperform Estimates In Q4

The Medical-Biomedical and Genetics sector is off to a flying start in 2019. The sector includes large as well as small biotech companies. Merger and acquisition (M&A) activity is gaining momentum with the new tax reform in place, which is obviously a boon to any sector. The Pharma giant Bristol-Myers Squibb Company (BMY - Free Report) announced that it will acquire the biotech Celgene Corporation in a cash and stock transaction with an equity value of approximately $74 billion. This was soon followed by the Eli Lilly and Company’s (LLY - Free Report) announcement to acquire small biotech, Loxo Oncology, Inc. (LOXO - Free Report) for $235.00 per share in cash or approximately $8.0 billion.

The sector has, however, underperformed the S&P 500. The biotech industry has declined 22.9% compared with the S&P 500 decrease of 5.4%, probably because of some pipeline setbacks faced by the industry.

Rising demand for new products, rampant innovation and product line extensions, strong clinical study results plus frequent FDA approvals keep this sector on the growth track. There were quite a few key approvals in 2018 which  include Gilead Sciences’ HIV regimen, Biktarvy; Vertex Pharmaceuticals’ Symdeko (tezacaftor/ivacaftor and ivacaftor) for the treatment of cystic fibrosis (CF); Amgen’s Aimoviq for addressing migraine; Regeneron Pharmaceuticals’ Libtayo and BioMarin’s Palynziq for treating phenylketonuria et al. Such nods should boost the respective companies’ top lines as a few are struggling with sales decline of legacy drugs.

Meanwhile, government scrutiny of high drug prices, pricing and competitive pressure, a slowdown in sales of some of the most high-profile older drugs and major pipeline setbacks act as deterrents to growth.

We believe that pipeline success, cost-cutting, share buybacks, product launches, increased M&A and collaboration activity plus appropriate utilization of cash should favor the drug/biotech sector.

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