After a sell-off in March, the biotech sector has bounced back.
The rebound was due to strong earnings reports, product approvals,
and acquisitions and licensing deals, which have helped the sector
emerge from the sell-off as we gradually progress towards the
second half of 2014.
On an overall basis, the
NYSE ARCA Biotech Index
NASDAQ Biotechnology Index
) have gained approximately 18.5% and 13.2%, respectively in the
first half of 2014.
Earnings have taken center stage over the last two weeks as most of
the bigwigs reported strong results for the second quarter.
) reported better-than-expected second quarter results propelled by
its blockbuster hepatitis C virus (HCV) drug Sovaldi, despite
concerns regarding its high price. In fact, these concerns had led
to the March sell-off in the biotech sector. Nevertheless, Sovaldi
continues to outperform.
) also surpassed expectations fueled by a significant contribution
from its oral multiple sclerosis (MS) drug, Tecfidera. Moreover,
the company upped its 2014 guidance yet again.
) restructuring plan received a positive response. Amgen plans to
cut its workforce by 12% - 15%, mostly in the U.S. starting later
this year and continuing through 2015. The restructuring initiative
should make the company leaner and more cost-efficient.
) were the laggards, both missing expectations.
Apart from strong earnings, acquisition deals and regulatory
updates on pipeline candidates have also brought some biotech
stocks in focus.
) finally managed to lure Ireland-based
) into an acquisition agreement - the acquisition will not just
lead to a lower tax rate, it will also provide a much-needed boost
to AbbVie's portfolio.
Some important products also got approved this quarter including
Gilead's Zydelig (cancer),
) Dalvance (acute bacterial skin and skin structure infections
caused by susceptible gram-positive bacteria), and
) Afrezza (insulin human) among others. Most recently, the FDA
The Medicines Company's
) antibiotic Orbactiv.
Although the second quarter earnings season is almost over, it is
still not too late to join the biotech bandwagon. There are still a
bunch of companies left to report results. We help you 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 favorable price movements.
How to Pick?
Given the large 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
favorable Zacks Rank - Zacks Rank #1 (Strong Buy), #2 (Buy) or #3
(Hold) - and a positive Zacks
(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 surprise is as high as 70%.
Below are three biotech stocks we believe are best positioned to
stand out this earnings season.
Ultragenyx Pharmaceutical Inc.
) is a Zacks Rank #3 stock with an Earnings ESP of +9.76%. The
Zacks Consensus Estimate for the second quarter is a loss of 41
Based in Novato, CA, Ultragenyx Pharmaceutical, a clinical stage
company, primarily focuses on the identification, acquisition,
development, and commercialization of treatments targeting rare and
ultra-rare diseases. The company's key focus area is serious and
debilitating metabolic genetic diseases. Ultragenyx's pipeline
includes biologics and small-molecule substrate replacement
We expect the company to report a narrower loss this season.
Ultragenyx is expected to report second quarter earnings on Aug 11.
Netherlands based Prosensa Holding N.V.
) also looks attractive with a Zacks Rank #3 and an Earnings ESP of
+5.56%. Prosensa is engaged in the discovery and development of
RNA-modulating therapeutics mainly for the treatment of genetic
disorders. Its primary focus is on rare neuromuscular and
neurodegenerative disorders such as Duchenne muscular dystrophy
(DMD), myotonic dystrophy and Huntington's disease.
The Zacks Consensus Estimate for the second quarter is a loss of 36
cents. Prosensa has delivered positive surprises in two of the last
four quarters with an average beat of 598.2%.
Prosensa is scheduled to report its second quarter results on Aug
Another stock to watch out for is
). The recent outbreak of the Ebola virus has put the stock in the
limelight. We would advise investors to cautiously watch Tekmira
which currently carries a Zacks Rank #3 and an Earnings ESP of
Tekmira is scheduled to report second quarter results on Aug 13.
Tekmira saw a ray of hope recently with the FDA converting its full
clinical hold on the company's Investigational New Drug Application
(IND) for phase I candidate, TKM-Ebola to a partial clinical hold.
The partial clinical hold on the candidate will enable the
potential use of TKM-Ebola in individuals infected with the Ebola
virus. We expect further updates on the same concurrent with the
second quarter results.
Most companies in the sector have reported better-than-expected
second quarter results. We were also impressed by the positive
guidance provided by the companies. However, challenges in the form
of increasing competition and pricing pressure continue to loom
large. The companies are nevertheless looking for better strategies
to emerge as winners. 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 from this
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