The U.S. biotech sector got off to a strong start in 2018, but ran into rough weather shortly thereafter. However, the industry recovered and has sprung back to life in the recent past. A higher number of approvals by the FDA and the continued influx of funds into the sector has given it a solid boost.
Further, label expansion of existing high-profile drugs, pipeline progress, growing demand for drugs - especially for rare-to-treat diseases - an aging population and increasing healthcare spending are some of the factors that have positively impacted performance. Under such encouraging circumstances, betting on biotech stocks seems prudent.
Foreign Investment is Oxygen for U.S. Biotech
Silicon Valley and Cambridge, MA have primarily been the front-runners in providing the largest growth of innovation in the biotechnology sector in the United States. This also reflects on the fact that majority of foreign as well as domestic investors in the space target these areas. This has not only resulted in innovation but has also created newer jobs in the field and generated handsome dividends for investors.
Although North American investors account for about 99% of the funding in Silicon Valley and Cambridge, foreign funds, particularly from China, have risen steadily. Chinese venture-capital funds have invested a whopping $1.4 billion in U.S. biotech and drug companies in the period between January through March.
This surpasses the $125.5 million in investments by Chinese VCs for the whole of 2017. Part of such an increase can be attributed to China's efforts in becoming the leader in healthcare investments across the globe.
This apart, foreign investment in U.S. biotech is estimated to rise to $2 billion in 2018. Such a humungous influx of funds is expected to catalyze further the process of drug innovation. It goes without saying that foreign investments breathe life into small and mid-scale biotech companies in America.
Biotech IPOs in the Pipeline
A burgeoning economy and steady influx of funds make conditions ripe for diversification and further strengthening of the capital base. Owing to such reasons, a larger than ever number of biotech companies have been going public this year. Further, investors have been consistently investing more in newer startups.
As of Sep 7, about 38 biotech companies from the United States have listed their shares on stock exchanges. This has also resulted in such companies jointly raising about $3.9 billion from IPOs alone. This also marks the highest amount raised by biotech companies on market debut since 2000.
Companies like Translate Bio Inc. TBIO and Neon Therapeutics Inc. NTGN made their debut on stock exchanges in 2018. Translate Bio is using messenger RNA to create drugs that would be used to combat diseases like cystic fibrosis. On the other hand, Neon Therapeutics has been breaking ground in cancer immunotherapy treatments.
Talking about upcoming IPOs, companies such as Gritstone Oncology Inc and Urovant Sciences Ltd., are slated to go public in the weeks ahead.
Biotech Indexes and ETFs on a Tear
Biotech ETFs and indexes have had a bullish run in the markets in the year-to-date period. iShares Nasdaq Biotechnology ETF (IBB), SPDR S&P Biotech ETF (XBI), ProShares Ultra Nasdaq Biotechnology (BIB) and NASDAQ Biotechnology Index (NBI) have all rallied 7.5%, 10.2%, 10.4% and 7.5%, respectively. The chart below depicts the daily close of NASDAQ Biotechnology Index in the past 18 years.
4 Hot Choices
A steady influx of foreign as well as domestic investments in U.S. biotech has gone a long way in boosting gains for the space. Further, a burgeoning economy has necessitated diversification by the top players in the industry.
In this context, we have selected four biotech stocks that are expected to gain from these factors. These five stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Illumina, Inc. ILMN is a life sciences company that provides tools and integrated systems for analysis of genetic variation and function.
The company is based out of San Diego, CA and sports a Zacks Rank #1. The expected earnings growth rate for the current year is 27.59%. The Zacks Consensus Estimate for the current year has improved 11.9% over the past 60 days.
Celgene CorporationCELG is a biopharmaceutical company which engages in discovery, development, and commercialization of therapies for the treatment of cancer and inflammatory diseases.
The company is based out of Summit, NJ and carries a Zacks Rank #2. The expected earnings growth rate for the current year is 17.79%. The Zacks Consensus Estimate for the current year has improved 2.6% over the past 60 days.
Athersys, Inc.ATHX operates as a biotechnology company. It focuses on research and development of regenerative medicine.
This Zacks Rank #2 company is based out of Cleveland, OH. The expected earnings growth rate for the current year is 27.59%. The Zacks Consensus Estimate for the current year has improved 12.5% over the past 60 days.
Achillion Pharmaceuticals, Inc.ACHN engages in discovering, developing and commercializing small molecule drug therapies for immune system disorders.
This Zacks Rank #2 company is based out of New Haven, CT. The expected earnings growth rate for the current year is 15.59%. The Zacks Consensus Estimate for the current year has improved 7.1% over the past 60 days.
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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 Nasdaq, Inc.