It’s been a pretty rough year for the biotech sector with the Nasdaq Biotechnology index tumbling 18.7% over the last 12 months and 12.3% year-to-date (YTD). Factors like a changing competitive scenario and more importantly, the drug pricing issue, have been weighing on the sector.

The drug pricing issue has heated up in recent times given the price hikes taken by Mylan (MYL - Analyst Report) for its life-saving combination product EpiPen. Democratic Presidential candidate Hillary Clinton recently announced a health care plan that will address the excessive price hikes of treatments that have been around for years and also reaffirmed her earlier broader plan, announced last September, with the aim to lower drug prices for all Americans.

However, the sector’s fundamentals remain strong - strong pipelines, innovative treatments, impressive results, growing demand for drugs especially for rare-to-treat diseases, an aging population and increased health care spending should support growth. With Pfizer (PFE - Analyst Report) recently announcing its intention to acquire cancer-focused biopharma company Medivation for approximately $14 billion, expectations are high that mergers and acquisitions (M&As) will pick up pace while licensing deals will continue.

Picking Winners Could Be a Challenge

Anyone interested in biotech stocks will know that it could be challenging to pick winners in this “high risk - high returns” industry which is constantly growing and changing. Companies which hit the bull’s eye become overnight success stories with shares even doubling or tripling on positive news. However, negative outcomes have an equally strong effect on the shares and failure may very well spell doom for these companies.

In such a scenario, let’s take a look at stocks preferred by analysts who have a deep knowledge and understanding of the industry and its companies. We have zeroed in on 5 stocks, these stocks have been given a Strong Buy or Buy rating by 80% or more brokers and sport a favorable Zacks Rank #1 (Strong Buy) or #2 (Buy).

Ligand Pharmaceuticals Incorporated (LGND - Analyst Report) : San Diego, CA-based Ligand is a biotech company whose business model is based on developing or acquiring royalty revenue generating assets and coupling them with a lean corporate cost structure. The company is focused on the development and licensing of biopharmaceutical assets. Ligand’s Captisol formulation technology has allowed it to enter into several licensing deals and generate royalties. The company’s partners include big names like Novartis and Amgen. One of Ligand’s partners, Retrophin, recently reported positive mid-stage data on a treatment being developed for a rare kidney disorder that often leads to end-stage renal disease. 

Ligand is a Zacks Rank #1 stock with 80% Strong Buy or Buy broker rating.

Price and Consensus

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AVEO Pharmaceuticals, Inc. (AVEO - Analyst Report) : Cambridge, MA-based AVEO is focused on bringing targeted treatments for cancer and other areas of unmet medical need to market. The company’s lead pipeline candidate, tivozanib, is being evaluated for the treatment of renal cell cancer and other types of cancer.

This Zacks Rank #2 stock enjoys 100% Strong Buy or Buy broker rating.

Price and Consensus

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Fate Therapeutics, Inc. (FATE - Snapshot Report) : San Diego, CA-based Fate is focused on the development of programmed cellular immunotherapies for cancer and immune disorders. The company recently announced a partnership with Memorial Sloan Kettering Cancer Center for the development of off-the-shelf T-cell product candidates using engineered pluripotent cell lines.

Fate is also a Zacks Rank #2 stock with 100% Strong Buy or Buy broker rating.

Price and Consensus

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ImmunoCellular Therapeutics, Ltd. (IMUC - Snapshot Report) : ImmunoCellular is a Los Angeles-based clinical-stage company focused on developing immune-based therapies for the treatment of brain and other types of cancer. The company’s lead pipeline candidate, ICT-107, is in a late-stage study - ICT-107 is a patient-specific, dendritic cell-based immunotherapy targeting multiple tumor-associated antigens on glioblastoma stem cells.

ImmunoCellular is a Zacks Rank #2 stock with 100% Strong Buy or Buy broker rating.

Price and Consensus

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Argos Therapeutics, Inc. (ARGS - Snapshot Report) : Durham, NC-based Argos is an immuno-oncology company focused on the development and commercialization of individualized immunotherapies for the treatment of cancer-based on the Arcelis technology platform. Lead pipeline candidate, AGS-003, is in a late-stage study for the treatment of metastatic renal cell carcinoma.

Argos is also a Zacks Rank #2 stock with 100% Strong Buy or Buy broker rating.

Price and Consensus

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