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4 Biotech Stocks to Watch in the New Year

Zacks

The biotech industry was on a comeback trail in 2017 after facing a number of challenges in 2016, including pricing pressure, rising competition, pipeline setbacks, slowdown in growth of mature products and generic competition for certain key drugs.

Frequent FDA approvals, new product sales ramp up, R&D success and innovation, strong clinical study results and continued strength in some legacy products changed the scenario for the better in 2017.

In fact, the NASDAQ Biotechnology Index gained 21.1% in 2017, which was in sharp contrast to a decline of 22% in 2016. Moreover, the Medical – Biomed/Genetics industry has increased 3% this year so far.

Notably, the Medical – Biomed/Genetics sub-industry carries a Zacks Industry Rank of #111, which places it at the top 42% of the 250 plus Zacks industries. Our back-testing shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than two to one.


The positive factors are expected to continue contributing to the sector’s growth this year. In December, the tax overhaul was signed into law, which slashes corporate tax rates from 35% to 21%. This will boost profit margins of large drug/biotech companies, which will have more cash in hand. This, in turn, could be used for striking strategic deals this year, which were relatively fewer in 2017.

Biotech companies are continuously working on bringing innovative new treatments to market, and there could be significant catalysts in the coming quarters in the form of important product approvals as well as major data read-outs.

Here we discuss four companies with a favorable Zacks Rank that are likely to continue on the growth path in 2018 as well.

XOMA Corporation XOMA: XOMA currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. XOMA’s loss estimates have narrowed 65.9% for 2018 in the last 60 days. Share price of the company surged 584.8% in 2017.

The company’s shares started to gain momentum from August 2017 when it out-licensed the global commercial rights to gevokizumab, a novel anti-IL-1 beta allosteric monoclonal antibody, to Novartis NVS. XOMA also granted Novartis a license to its intellectual property covering the use of IL-1 beta targeting antibodies for the treatment of cardiovascular disease. These deals eliminate almost half of XOMA's outstanding debt and more than double its cash position.

The company also announced other licensing agreements, which included three additional licensing deals for its phage display libraries for antibody discovery. In December 2017, the company reported that it had out-licensed XOMA 358, an experimental drug for the treatment of hypoglycemia to small drug maker, Rezolute.

These deals expand the company’s portfolio of partner-funded programs that have the potential to generate substantial milestone and royalty payments.

Exelixis, Inc. EXEL: Exelixis carries a Zacks Rank #1. Exelixis’ earnings per share estimates have moved up 4.3% for 2018 in the last 60 days. The company delivered a positive earnings surprise in each of the last four quarters, with an average beat of 572.92%. Share price of the company has surged 112.7% in 2017.

Exelixis received a boost with the earlier-than-expected FDA approval of Cabometyx in December 2017 for the first-line treatment of advanced renal cell carcinoma (“RCC”) patients. Cabometyx was previously approved for use in advanced RCC patients who have received anti-angiogenic therapy. Approval for the first-line indication will expand the patient population significantly and drive sales.

Emergent BioSolutions Inc. EBS: Emergent is a Zacks #1 Ranked clinical stage biopharmaceutical company. Shares of the company rallied 43.5% in 2017, outperforming the industry it belongs to. Moreover, the Zacks Consensus Estimate for 2018 has moved up 10.8% in the last 60 days.

Emergent has also been actively pursuing deals and acquisitions to drive growth. In October, the company completed the buyout of Sanofi's ACAM2000 (Smallpox Vaccine), the only smallpox vaccine approved by the FDA. The company plans to assume responsibility of supplying the product in the United States.

During the same month, the company completed another contract with GlaxoSmithKline plc. GSK to acquire raxibacumab, a fully human monoclonal antibody approved by the FDA for the treatment and prophylaxis of inhalational anthrax. These deals and takeovers expand the company’s portfolio of revenue-generating products and are in sync with the company’s strategy to meet customers’ requirements.

The Medicines Company MDCO: The company carries a Zacks Rank #2. The company’sloss per share estimates narrowed 9.2% for 2018 in the last 60 days.

The company closed the year 2017 with the announcement of divesting its infectious disease business unit to Melinta Therapeutics, Inc. MLNT for $270 million in upfront consideration and several other benefits. The divesture will allow the company to focus its efforts and resources on inclisiran, which is in phase III and is being developed for the treatment of hypercholesterolemia. According to the company, it has the potential to be a blockbuster product.

The company also got a boost with the accelerated approval of Vabomere in August 2017 for the treatment of adult patients with complicated urinary tract infections, including pyelonephritis. Successful commercialization of Vabomere is expected to boost the company’s top line, considering the lucrative market that it targets.

Based on the above factors, we remain optimistic about the strong performance of the above-mentioned companies in 2018.

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