Are These Biotechs Part of Your Portfolio? - Analyst Blog

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The biotech sector holds great promise and is expected to grow at a rapid pace driven by an aging population (major consumers of biotech drugs), launch of new drugs and label expansion of existing drugs.

The industry seems to be living up to its promise and is one of the hottest industries around judging by the strong performance of the NYSE ARCA Biotech Index (^BTK). The index has gained more than 65% in the last 12 months and approximately 20.2% since the start of the year.

The U.S. is a major producer of biotech drugs. We note that bringing biotech drugs  to the market is not a risk-free exercise and involves substantial investment.

Despite the risk involved in the development of biotech drugs, many leading pharma companies across the globe are looking towards biotech companies as they aim to bolster their sagging pipelines and sustain growth. This has given rise to significant merger and acquisition (M&A) and licensing activities. For example, Sanofi ( SNY ) recently expanded its agreement with Alnylam Pharmaceuticals, Inc. ( ALNY ) for the development of rare genetic diseases. Genzyme, Sanofi's subsidiary, has acquired a 12% stake in Alnylam through a $700 million investment.

Moreover, many small biotech companies have gone public of late -- another indication of the good health of the biotech sector.

3 Hot Biotech Stocks

With the earnings season almost over, it might be a good idea to look at a few biotech stocks which have performed well in the final quarter of 2013 and are expected to continue their strong performance in the coming quarters.

Alexion Pharmaceuticals, Inc. ( ALXN ): Headquartered in Cheshire, CT, this Zacks Rank #1 (Strong Buy) company holds immense potential that can enrich your portfolio.

The company exited 2013 on a strong note with both earnings and revenues surpassing expectations. The company's 2014 guidance too is encouraging. The company has been delivering positive earnings surprises since the final quarter of 2010. Earnings estimates for this company have been on the upswing, having gone up by 39 cents and 75 cents for 2014 and 2015 respectively over the last 30 days.

Strong sales of the company's sole marketed product, Soliris, have contributed to the massive 103% price appreciation at Alexion over the last 12 months. Moreover, the company will be benefiting from lower tax rates. The company, with a long-term growth projection of about 29.1%, will be a nice addition to your portfolio.  We recommend that you make this high flying biotech stock a part of your portfolio.

Gilead Sciences, Inc. ( GILD ), headquartered in Foster City, CA, performed very well in the final quarter of 2013 beating the Zacks Consensus Estimate both in terms of revenues as well as earnings. The most promising development at this Zacks Rank #1 company has been the U.S. approval of potential blockbuster hepatitis C virus (HCV) therapy, Sovaldi, in Dec 2013. Sovaldi made a strong debut and recorded U.S. sales of $136.4 million in the fourth quarter of 2013.

The strong launch indicates continued outperformance in 2014. Sovaldi, with its high cure rates, a short treatment period and reduction/elimination of the need for interferon injections, has the potential to change the treatment paradigm in the HCV space.  

This company, with a long-term growth projection of approximately 34%, has seen the Zacks Consensus Estimate go up by 74 cents and $1.35 for 2014 and 2015, respectively over the last 30 days. The company, which looks well-positioned for growth driven by its strong product portfolio led by Sovaldi, has seen its price jump 93.7% over the last 12 months.

Amgen ( AMGN ): This Thousand Oaks, CA-based biotechnology company is our third pick. Amgen, a Zacks Rank #2 (Buy) company, posted strong fourth quarter results with a positive earnings surprise of 10.37%.

Fourth quarter total product revenues increased 11% from the year-ago quarter to $4,799 million with drugs like Neulasta, Epogen, Enbrel, Prolia and Xgeva driving growth. The company, with a long-term growth projection of about 7.8%, has seen the Zacks Consensus Estimate go up by 18 cents and 13 cents for 2014 and 2015, respectively over the last 2 months.

The share price of the world's largest biotechnology company has appreciated 37.9% over the last 12 months driven by strong product sales, positive pipeline developments and prudent acquisitions.

Bottom Line

We believe that the above-mentioned stocks, with their strong fundamentals and healthy growth prospects, will prove to be market winners representing good investment options. With the biotech industry representing solid growth potential, a sneak peek into the biotech space for some possible outperformers backed by a favorable Zacks Rank and positive earnings estimate revisions could be handy for investors.



ALNYLAM PHARMA (ALNY): Free Stock Analysis Report

ALEXION PHARMA (ALXN): Free Stock Analysis Report

AMGEN INC (AMGN): Free Stock Analysis Report

GILEAD SCIENCES (GILD): Free Stock Analysis Report

SANOFI-AVENTIS (SNY): Free Stock Analysis Report

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



This article appears in: Investing , Business , Stocks

Referenced Stocks: ALNY , ALXN , AMGN , GILD , SNY

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