Review of Top Biotech Stocks for May 2018

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To ask the question, “What are the top biotech stocks?” is to get trapped in a maze of definitions: small cap versus large cap, upcoming catalysts, trending, or a byzantine series of technical evaluations. Rather than to attempt an overall view, here are a variety of biotech stocks that are worth a look this month for different reasons.

Small-Cap Biotechs with May Catalysts

These small biotech companies have U.S. Food and Drug Administration (FDA) decisions expected this month, which can be make-or-break for the companies.

#1. Achaogen. Headquartered in South San Francisco, Achaogen focuses on developing antibiotics for multi-drug resistant, gram-negative infections. The FDA is expected to make a decision on May 2. Advisory committees have recommended approval, and some analysts project sales of $500 million annual at its peak.

#2. Akcea Therapeutics. Based in Cambridge, Massachusetts, Akcea is developing drugs for serious rare diseases such as lipid storage disorders and hereditary transthyretin (TTR) amyloidosis. The FDA advisory committee is scheduled for May 10 on whether to recommend the company’s volanesorsen for familial chylomicronemia syndrome (FCS), an inherited triglyceride disorder. If approved, it would be the first treatment for it. The drug has some serious safety issues in about a third of patients evaluated, so it’s hard to predict what the decision will be. It’s possible they’ll decide, without any alternatives, to approve it, or they may request more data.

#3. Portola Pharmaceuticals. Located in South San Francisco, Portola is developing drugs for hematologic cancers. Its lead assets are BevyxXa (betrixaban) and andexanet alfa. BevyxXa was launched in January as the first drug in its class for long-term prevention of blood clots. The other, AndexXa reverses the effects of BevyxXa. It was rejected in 2016 by the FDA, which requested more information. A report on that is expected on or before May 4.

Two Expected to Climb

Schaeffer’s Investment Research looks at two biotech stocks that have been battered a bit, but are expected to climb.

#4. Regeneron Pharmaceuticals. Schaeffer’s notes that the stock has struggled since June, when it hit a peak of $543.55, and as of May 1 was slightly under $300 per share. Schaeffer’s writes that, “Regeneron is expected to report its own quarterly earnings before the open on Thursday, May 3. It’s worth nothing that Regeneron shares surged 6.7 percent the day after their report roughly one year ago, and jumped 4.7 percent after the May 2016 earnings release.” It’s also worth pointing out that today, Regeneron and its development partner Sanofi announced that they had cut an exclusive deal with pharmacy benefits manager Express Scripts to offer their cholesterol drug Praluent at a discount price. The kicker is that Express Scripts will not cover their competitor, Amgen’s Repatha in exchange for the lower price.

#5. McKesson. McKesson is a U.S.-based healthcare distribution company, which handles pharmaceuticals, health information technology, medical supplies and care management tools. Stocks were up almost 12 percent in April, its best month in the last year. Schaeffer’s says, “McKesson shares are now trading back above their 200-day moving average, as well as a 50 percent Fibonacci retracement of their rally from late October to late January. After a five-day win streak, though, the stock is taking a breather, down 0.4 percent to trade at $157.57. However, the $162 area—a 38.2 percent retracement of that rally—has acted as a speed bump in the past. Another 8.14 percent rally from current levels would put McKesson stock around $170.40—territory not charted since January, when the security was flirting with annual highs.”

PowerFactors System.

Writing for Seeking Alpha, Andres Cardenal outlines the best biotech stocks based on the PowerFactors System, which takes into account a number of quantitative metrics. He writes, “The system basically ranks companies in a particular universe according to a combination of three quantitative attributes: financial quality, valuation, and momentum.”

He then listed the top 25 of the 50 the system churned out. The top five are:

#6. AbbVie. Last week, AbbVie reported its first-quarter earnings, citing worldwide net revenues of $7.934 billion for the quarter, up 21.4 percent year-over-year on a GAAP basis.

#7. Gilead Sciences. On May 1, Gilead announced it was teaming up with Verily Life Sciences, a Google/Alphabet company to focus on rheumatoid arthritis, inflammatory bowel disease and lupus-related diseases using Verily’s Immunoscape platform. The Immunoscape platform is a high-level data engine that can collect and analyze disparate datasets.

#8. Celgene. On April 24, Celgene released additional data for its Phase III trial of ozanimod in relapsing multiple sclerosis. The data reinforced its potential as a new therapeutic option for relapsing MS.

#9. Biogen. The dominant player in MS, Biogen has branched out into further neurological diseases. On April 20, it expanded its strategic collaboration pact with Ionis Pharmaceuticals for an additional 10 years, to develop novel antisense drug candidates for a range of neurological disorders.

#10. Shire. Currently, Shire is evaluating a takeover bid by Japanese drugmaker Takeda Pharmaceutical . Takeda has made several offers, culminating—at least so far—in a bid worth about $64 billion on April 24. The deal deadline was also extended to May 8. As of May 1, the founder of Shire, Harry Stratford, indicated he thought it was a “fair price,” but many investors are skeptical because Takeda is a smaller company than Shire, and feel it will have a dilutive value on the stock.

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