Things are looking better for the biotech industry in 2024 after a decent performance in 2023. The world is cautiously wading through an uncertain macroeconomic environment. This year is likely to bring more cheer for the industry as the Fed has given clear indication of multiple interest rate cuts.
The majority of the biotech players do not generate enough revenues to fund their operations and are dependent on external funds. A company starts generating revenues following a successful FDA approval and the launch of a drug.
Under this circumstance, a low interest rate environment is likely to raise the margins of biotech players as these companies need a huge amount of capital to continue clinical studies before getting an FDA approval.
At present, the CME FedWatch shows a 74.6% probability that the central bank will reduce the benchmark lending rate by 25 basis points from the existing range of 5.25-5.5% in its June FOMC meeting. The interest rate derivative tool also shows at least two more rate cuts of 25 basis points before the end of this year.
With the pandemic behind us, biotech companies are looking to bolster their product portfolios and pipeline through collaborations and buyouts. Hence, mergers and acquisitions are back in the spotlight. Given the continuous need for innovative medical treatments, the biotech industry can be a safe haven despite the inherent volatility and uncertain macroeconomic environment.
An attractive pipeline candidate is the key lure for biotech companies. Cost synergies in research and development (R&D) are added benefits, as quite a few smaller biotech companies are using innovative technologies to develop drugs and treatments. With increasing R&D spend and most companies looking to diversify, new drug approvals are likely to see an acceleration going forward.
The Zacks-defined Biomedical and Genetics Industry is currently ranked in the top 31% of industries. Specifically, it is ranked #78 among 252 industries. Because it is ranked in the top half of the Zacks-ranked industries, we expect it to outperform the market over the next three to six months. The industry has risen 2.4% year to date.
Our Top Picks
We have narrowed our search to five biotech stocks with strong potential for 2024. These stocks have seen positive earnings estimate revisions in the past 60 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our five picks in the past month.
Zacks Investment Research
Image Source: Zacks Investment Research
Legend Biotech Corp. LEGN is a clinical-stage biopharmaceutical company. LEGN is engaged in the discovery, development, manufacturing, and commercialization of novel cell therapies for oncology and other indications in the United States, China, and internationally.
LEGN’s lead product candidate, LCAR- B38M, is a chimeric antigen receptor for the treatment of multiple myeloma. LEGN also has a portfolio of earlier-stage autologous CAR-T product candidates targeting various cancers, including Non-Hodgkins Lymphoma, acute lymphoblastic leukemia, gastric cancer, esophageal cancer, pancreatic cancer, colorectal cancer, hepatocellular carcinoma, small cell lung cancer and non-small cell lung cancer.
Legend Biotech has an expected revenue and earnings growth rate of 96.9% and 40.3%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.2% over the past 60 days.
Exact Sciences Corp. EXAS is a molecular diagnostics company focused on the early detection and prevention of some of the deadliest forms of cancer. EXAS has developed an accurate, non-invasive, patient-friendly screening test called Cologuard for the early detection of colorectal cancer and pre-cancer. EXAS is also working on the development of additional tests for other types of cancer, with the goal of becoming a leader in cancer screening and diagnostics.
Exact Sciences has an expected revenue and earnings growth rate of 13.3% and 23.9%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 25.2% over the past 30 days.
Exelixis Inc.’s EXEL lead drug Cabometyx maintained its status as the leading tyrosine kinase inhibitor in 2023 for the treatment of renal cell carcinoma, driven by its use in combination with Opdivo in the first-line setting. The drug also maintained its growth in the indication of hepatocellular carcinoma.
EXEL is evaluating Cabometyx for additional indications and the successful development of the same will boost sales. EXEL’s pipeline progress has been impressive as well, as it looks to expand its oncology portfolio beyond Cabometyx.
Exelixis has an expected revenue and earnings growth rate of 4.3% and 62.2%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.4% over the past 30 days.
Ascendis Pharma A/S ASND is a biopharmaceutical company. ASND’s product pipeline consists of TransCon Human Growth Hormone, TransCon Treprostinil, TransCon Insulin, TransCon Peptide and TransCon Ranibizumab, which are in different clinical stages, for the treatment of hormone deficiency, endocrinology, central nervous system disorders, infectious diseases and diabetes. ASND’s technology includes TransCon which develops prodrug therapies.
Ascendis Pharma has an expected revenue and earnings growth rate of 55.4% and 47.3%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 21.7% over the past 30 days.
MorphoSys AG MOR is a biopharmaceutical company. MOR develops treatments for cancer, inflammations and autoimmune diseases. MOR’s proprietary portfolio consists of MOR208, MOR202, MOR103, MOR106 and MOR107. MOR’s partnered programs lighthouse project includes Tremfya(R) and Gantenerumab.
MorphoSys has an expected revenue and earnings growth rate of 4.1% and 16.4%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 11.7% over the past 60 days.
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