3 Biotech Beats this Earnings Season - Earnings ESP

By Zacks Equity Research,

Shutterstock photo

3 Biotech Beats for this Earnings Season

The biotech industry had experienced an incredibly good run over the last couple of years and was off to a strong start this year as well. However, things changed from Mar 20, when a letter was issued to Gilead (GILD) by the U.S. lawmakers questioning Gilead's pricing of its recently approved hepatitis C virus (HCV) treatment, Sovaldi. Gilead's price was considered to be too expensive and came under heavy criticism.

The news not only brought down Gilead's stock price, it also impacted other companies like Celgene (CELG), Biogen (BIIB), Alexion (ALXN), Amgen (AMGN) and Regeneron (REGN) on concerns that these companies too would find their new treatments coming under the same pricing scrutiny. The NYSE ARCA Biotech Index (^BTK) and NASDAQ Biotechnology Index (^NBI) have declined more than 10% each since then.

But things have been looking up for the biotech industry since last week with a few biotech companies reporting encouraging first quarter results. Shares of companies like Gilead, Celgene and Alexion were up on first quarter earnings. The NYSE ARCA Biotech Index and NASDAQ Biotechnology Index also gained 4.1% and 2.6%, respectively, since Apr 25.

Gilead was a clear winner with Sovaldi bringing in sales of $2.3 billion in its first full quarter on the market, beating all expectations. The sales figure of the drug over-shadowed pricing concerns thanks to its strong efficacy profile.

Apart from strong earnings, acquisition deals and regulatory updates on pipeline candidates have also boosted the share prices of some biotech stocks in the last few days. While Hyperion (HPTX) benefitted from its announcement of an acquisition deal which will expand its orphan drug portfolio, Sarepta (SRPT) soared after it announced that it will file for accelerated approval of eteplirsen by year end.

Although it may be a while before there is a sustained improvement in the biotech sector, it would be a good idea to zero in on a handful of biotech stocks that are poised to beat earnings estimates this quarter. An earnings beat should help these stocks gain investor confidence and show price improvement.

How to Pick?

Given the huge number of industry participants, pinpointing stocks that have the potential to beat estimates could appear to be a daunting task, but our proprietary methodology makes it fairly simple. One way to narrow down the list of choices this earnings season is by looking at stocks that have the combination of a favourable Zacks Rank - Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) - and a positive Zacks Earnings ESP (Expected Surprise Prediction).

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising in their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.

Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

Below are three biotech stocks we believe are best positioned to stand out this earnings season.

Acorda Therapeutics, Inc. ( ACOR ) is a Zacks Rank #2 stock with an Earnings ESP of +225.00%. The Zacks Consensus Estimate for the first quarter stands at 4 cents. In the past 30 days, estimates (on an average) have inched up by 3 cents.

Acorda, an Ardsley, NY based commercial-stage biopharmaceutical company is focused on the development and commercialization of novel treatments that improve neurological function in people suffering from multiple sclerosis (MS), spinal cord injury (SCI) and other nervous system disorders.

Although Acorda did not deliver positive earnings surprises in three of the last four quarters, it looks poised to beat expectations this season. The company is expected to surpass expectations this quarter on the back of strong Ampyra sales. The drug is approved for the improvement of walking in multiple sclerosis patients.

Acorda is expected to report its first quarter earnings on May 6 before the opening bell.

California based Hyperion Therapeutics, Inc. ( HPTX ) is another Zacks Rank #2 stock with an Earnings ESP of +200.00%. Hyperion focuses on the development and commercialization of novel therapeutics for the treatment of orphan diseases and hepatology disorders.

The Zacks Consensus Estimate for the first quarter stands at a loss of a penny. Hyperion has delivered positive earnings surprises in the three of the last four quarters with an average beat of 127.99% and is expected to beat expectations in the first quarter as well. The company is expected to beat on the back of sales from Ravicti and Buphenyl, both for the treatment of urea cycle disorders.

Hyperion is expected to report its first quarter results on May 6.

Another stock to look out this earnings season is Medivation, Inc. ( MDVN ), carrying a Zacks Rank #3. The San Francisco-based company focuses on the development of novel small molecule drugs for the treatment of serious diseases for which there are limited treatment options. The company has a positive Earnings ESP of 1,033.33%.

Medivation delivered positive earnings surprises in each of the last four quarters with an average beat of 60.46%. The company swung back to earnings last quarter and is expected to keep the earnings streak alive this quarter as well. The company's sole marketed product, Xtandi is expected to continue with its impressive performance in the first quarter.

Medivation is set to report its first quarter earnings after market close on May 8.

Bottom Line

Despite the recent sell-off in the biotech sector, fundamentals remain strong. Strong pipelines, innovative treatments and impressive results should help the sector rally. A sneak peek at the space for some outperformers, backed by a solid Zacks Rank and a positive Zacks Earnings ESP, could be a great idea for investors to gain this earnings season.

ACORDA THERAPT (ACOR): Free Stock Analysis Report

HYPERION THERAP (HPTX): Free Stock Analysis Report

MEDIVATION INC (MDVN): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Earnings
Referenced Stocks: GILD , CELG , BIIB , ALXN , AMGN

More from Zacks.com




Follow on:

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by BankRate.com