The past 18 months haven't been very pleasant for biotech investors. The SPDR S&P Biotech ETF (XBI 1.11%) has fallen nearly 30% from its all-time highs set back in the summer of 2015. Many individual biotech stocks have performed far worse.
One bright side to all of that selling is that a handful of high-quality biotech stocks are currently trading for attractive prices. With that in mind, here's a look at three biotech stocks that I think are well positioned to outperform in the new year.
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The low-risk play
Biotech giant Celgene (CELG) may be down from its 2015 high, but it has held up much better than its large-cap peers. That's owed to the company's ability to consistently put up great numbers.
Celgene recently provided investors with a sneak peak at its fourth-quarter results that suggest that trend remains intact. Sales grew by 18% thanks to strong numbers from drugs such as Revlimid, Pomalyst/Imnovid, and Otezla. Earnings grew by an even stronger 21% thanks to the company's healthy appetite for buying back stock and its unparalleled ability to raise margins.
The results were encouraging enough for management to reaffirm its 2020 goals of $21 billion in revenue and EPS of at least $13. Those figures represent compound annual growth of 17% and 22%. With shares trading around 16 times forward earnings, Celgene offers investors a lower-risk way to buy into the crazy world of biotech.
More risk, but more upside
Regeneron Pharmaceuticals (REGN 0.37%) is a former biotech darling that has gone through a bit of a rough patch. The company announced two major clinical setbacks in 2016 that caused investors concerns. To add insult to injury, the FDA also issued a surprise rejection for its rheumatoid arthritis drug candidate sarilumab, over manufacturing concerns. If all of that wasn't bad enough, a U.S. district court recently issued an injunction that threatens to inhibit the company from selling its hopeful blockbuster cholesterol-reducer Praluent in the United States.
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Given the slew of negativity, it is easy to understand why shares have been on the decline. Thankfully, shareholders like me have a few reasons to believe that things are looking up in 2017.
First, Regeneron and Sanofi will hear from the FDA in March about their new eczema drug candidate, Dupixent. This drug is believed to hold blockbuster potential, so an approval would go a long way toward rebuilding investor confidence. Second, the FDA has recently cleared Sanofi's facility in France that caused the initial rejection of sarilumab. That means that a resubmission will be on the way soon. Finally, Eylea continues to put up impressive growth numbers in the U.S. and abroad, which bodes well for the company's near-term earnings growth. When added together, these positives make Regeneron's forward P/E of 26 look quite reasonable.
Higher risk, but multi-bagger potential
The final stock on today's list is Acadia Pharmaceuticals (ACAD 1.01%). This company recently converted into a commercial-stage business with the launch of Nuplazid, the first and only FDA-approved treatment for Parkinson's disease psychosis, which affects roughly 400,000 patients in the U.S.
Image source: Acadia Pharmaceuticals.
While it's still too early to tell if Nuplazid will be a hit, the early signs are quite encouraging. Sales blew past analysts' expectations in its first full quarter on the market, which hints that there is a lot of pent-up demand for the drug.
Looking ahead, 2017 promises to be a banner year for the company. Sales are expected to grow by more than 500%, and investors can look forward to data readouts from a handful of studies that are testing Nuplazid as a potential treatment for diseases such as schizophrenia, depression, and Alzheimer's disease. If Nuplazid can ultimately snag a label expansion claim in one of these other disease states, then its peak sales could get big in a hurry.
While Acadia is a high-risk bet since it's still burning through capital, the company looks well positioned to surprise to the upside in 2017. With shares down 37% from their all-time high, it's a fine time to consider getting in.
