The 2014 Q2 earnings season has been impressive for the Medical
sector with 16.1% year-over-year earnings growth on 12.5% increase
in revenues. Also, among the 94% sector participants reported so
far, 78.7% delivered positive earnings surprises. Favorable
industry trends in pharma and biotech primarily contributed to this
Impressive Growth Trends in Pharma and Biotech
Pharmaceutical companies have been affected by genericization
over the past few years. However, the worst of patent cliff is over
and several companies are now on the recovery path.
Johnson & Johnson (
) was the first major company from the drug manufacturing industry
to post impressive second-quarter earnings. Other major drug
manufacturers such as Pfizer Inc. (
) and Merck & Co. Inc. (
) also reported upbeat results.
Earnings growth in biotechnology firms such as Gilead Sciences
) and Amgen Inc. (
) became a yardstick for other stocks in the same segment.
The NYSE ARCA Pharmaceutical Index is up almost 20.1% in the
last year. So far in 2014, the index increased10%. As of Aug 11,
2014, the Standard & Poor's biotechnology index soared 13.6%
since January, compared to the S&P 500's gain of 5.1%.
Pharma and bio-tech space witnessed a slew of IPOs in the last
few quarters. Fifty three pharmaceutical and biotech firms launched
IPOs this year. The segment also witnessed a flurry of new deals in
therecent months. All these boosted investors' sentiment and thus
pushed the stock prices up.
New Drugs & Increased Spending Boost Growth
Development of new drugs and an increase in healthcare spending
also fueled growth of pharma and bio-tech stocks.
Throughout the first half of 2014, several important products
gained approval by the Food and Drug Administration (FDA). Shares
of Achillion Pharmaceuticals, Inc. (
) had skyrocketed (gained 83.3%) after the FDA lifted the clinical
hold on Achillion's lead drug sovaprevir. Merck was also immensely
benefitted after the U.S. health regulator approved the drug,
A number of new drugs are also in the pipeline. Many companies
have already announced FDA acceptance for filing of New Drug
Amid all these, the Ebola outbreak is also making headlines.
This has brought biotech companies such as Tekmira Pharmaceuticals
) into the spotlight for their experimental Ebola disease
Meanwhile, Americans are currently in a better position to meet
medical costs thanks to the rebound in the U.S. economy. This
recovery has propelled healthcare spending. According to
PricewaterhouseCoopers's (PwC) Health Research Institute,
healthcare spending is expected to rise 6.8% in 2015, up from 6.5%
increase forecasted for this year.
The Affordable Care Act (ACA), or "Obamacare," also pushed
healthcare spending upward. An aging population also significantly
contributed to healthcare spending. Most of the baby boomers are
expected to turn 65 and older between 2012 and 2030. Further, U.S.
Census Bureau stated the nation's 65-and-older population is
anticipated to reach 83.7 million in 2050.
Banking on these encouraging factors along with ever increasing
demand in emerging markets, drug manufacturing and biotech
companies are poised to grow in the coming quarters.
3 Medical Stocks to Buy Now
Gilead Sciences Inc.
is a biopharmaceutical company that develops and commercializes
medicines for treatment of life threatening diseases. Gilead
Sciences posted second-quarter earnings per share of $2.32,
surpassing the Zacks Consensus Estimate of $1.61. Moreover, the
Zacks Consensus Estimate for the company's current year earnings
increased 18.4% to $7.26 per share in the 30 days ago.
Last Friday, Gilead won a dispute with Roche related to rights
of its hepatitis C drug, Sovaldi. Shares of the Gilead rose sharply
and touched a new high of $99.49. It's good news for Gilead since
IMS Health revealed that prescriptions for Sovaldi amount to more
than all other Hepatitis C treatments combined.
This Zacks Rank #1 (Strong Buy) stock has an attractive PEG
ratio of 0.46. In the last three months, the stock gained
) operates as a multi-specialty health care company. Allergan
reported second quarter 2014 earnings of $1.51 per share, above the
Zacks Consensus Estimate of $1.44. Earnings also climbed 23.8% from
the year-ago quarter.
The company expects third quarter earnings in the range of
$1.44-$1.47 per share. The Zacks Consensus Estimate currently
stands at $1.44. The company also expects 2014 earnings to increase
$5.74-$5.80 per share, well above the Zacks Consensus Estimate of
$5.70 per share.
Expected earnings growth rate for this Zacks Rank #1 (Strong
Buy) stock is 21.4% for this year, much above the industry growth
rate of 0.5%.
Supernus Pharmaceuticals, Inc.
) is a specialty pharmaceutical company which focuses on the
development and commercialization of products for the treatment of
central nervous system diseases in the U.S.
Supernus posted second-quarter 2014 earnings per share of 6
cents, which compared favorably with the Zacks Consensus Estimate
of a loss of 18 cents and the year-ago loss of 57 cents. Revenues
were $29.7 million, up 10.5% from the year-ago quarter. Revenues
were well above the Zacks Consensus Estimate of $19 million.
Supernus has raised its annual revenue guidance to $105 million
(previous guidance: $75 million − $85 million).
Expected earnings growth rate for this Zacks Rank #2 (Buy) stock
is 100.7% for 2014, significantly higher than the industry growth
rate of 24.3%.
These stocks with strong fundamentals and growth prospects are
poised to gain in the near future. While it is expected that most
of the stocks in the pharma and bio-tech space will gain, those
with a favorable Zacks Rank may ensure outperformance.
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