3 Top-Ranked Biotech Stocks on the Rebound - Analyst Blog

The biotech sector has been in the limelight over the past few weeks following a sharp sell-off. The sector, which has had an incredibly good run over the last two years, tumbled in the latter part of March with the trigger being a letter issued to Gilead GILD by lawmakers.

This letter basically questioned Gilead's pricing of its newly approved hepatitis C virus (HCV) treatment, Sovaldi, and immediately led to concerns that lawmakers will force biotech companies to cut prices of their drugs which in turn would affect their results. So companies like Biogen BIIB and Alexion Pharmaceuticals, Inc. ALXN were also badly hit as investors got jittery that their newly approved drugs would also be subjected to the same pricing scrutiny.

However, the concern regarding Sovaldi's pricing seems overdone. Sovaldi is the new HCV treatment on the block and should see strong demand until an improved treatment enters the market. The product remains on track to gain blockbuster status and Gilead's first quarter results should lay rest to concerns.

Meanwhile, fundamentals in the biotech sector remain attractive. Strong pipelines, innovative treatments and impressive results should help these stocks rally from the recent doldrums. The price correction, in fact, provides a good opportunity to invest in some stocks that are a combination of robust fundamentals and a strong Zacks Rank.

We have picked three names from the biotech sector which sport a strong Zacks Rank and look poised to perform well in the coming quarters.

First on our list is Ireland-based Alkermes plc ALKS, a Zacks Rank #1 (Strong Buy) stock. So far this week, Alkermes shares are up almost 9%. The company has a good earnings track record having exceeded expectations in three of the last four quarters with an average earnings surprise of 29.16%. The company has several pipeline events lined up this year.

Earlier this week, Alkermes reported impressive top-line data from a pivotal study on its experimental schizophrenia drug aripiprazole lauroxil. With the once-monthly injection achieving the primary as well as secondary endpoints in the study, Alkermes is set to file for FDA approval in the third quarter. With doctors recognizing the advantages of long-acting injectable antipsychotics, aripiprazole should be able to take share once launched given its once-monthly dosing option (which provides dosing flexibility and enhances current treatment options).

Our second choice is Amgen AMGN, another Zacks Rank #1 stock. Amgen exited 2013 on a strong note with earnings being boosted by higher revenues, the end of the Enbrel profit share, a lower tax rate and a lower share count. Amgen's earnings track record is pretty impressive with the company beating expectations consistently. Following the release of 2013 results, earnings estimates for 2014 and 2015 are up significantly. We expect 2014 to be a data rich year for Amgen.

Our third pick is Alexion. This Zacks Rank #2 (Buy) stock also has an impressive track record with earnings surpassing expectations over the past four quarters. Earnings estimates for 2014 and 2015 have been increasing consistently. Soliris is doing well with its first approved indication (paroxysmal nocturnal hemoglobinuria) and the second indication (atypical hemolytic uremic syndrome) is surpassing expectations. The company will also benefit from lower tax rates. So far this week, Alexion's shares are up 9.38%.