4 Top Ranked Biotech Stocks that Beat the Market in 2014 - Analyst Blog - Amgen (NASDAQ:AMGN)

It has been a volatile and highly eventful year for the biotech sector characterized by mergers and acquisitions (M&A), deals galore, stretched valuations and the usual pipeline updates.

The sector, which had an incredibly good run over the last two years, went through a major selloff in late March triggered by concerns about the pricing of Gilead's (GILD) hepatitis C virus (HCV) treatment, Sovaldi. However, the biotech sector pulled off a slow but steady recovery with the NASDAQ Biotechnology index delivering a year-to-date (YTD) return of almost 32%. Here's a look at the year that was.

Deal-Making Frenzy Showing No Signs of Slowing Down

2014 has been one of the most active years where M&As and licensing agreements are concerned. While tax inversion deals were being actively pursued until a few months back, these cross-border deals do not look all that attractive now considering new rules imposed by the Treasury Department.

To combat thin pipelines and generic competition, pharma companies sitting on huge piles of cash continue to seek suitable acquisition targets. Some of the important acquisitions announced/completed this year include those between Roche (RHHBY)-InterMune, Merck (MRK)-Idenix, Endo (ENDP)-Auxilium (AUXL), BioMarin (BMRN)-Prosensa (RNA) and Merck-Cubist (CBST).

Licensing agreements and deals including deals with opt-in arrangements have also picked up pace with oncology remaining a favorite area. Companies like Five Prime Therapeutics (FPRX), Geron (GERN), Celgene (CELG), Celldex (CLDX) and Incyte (INCY) have been pretty active on the collaboration front. Most of the deals signed by these companies are with big pharma companies and focused on cancer and immuno-oncology. According to the IMS Institute for Healthcare Informatics, more than 2,000 products are estimated to be in late-stage development at present -- oncology therapies make up for about one-fourth of this total.

Blockbuster Potentials Gain Approval

Several important product approvals as well as label expansions were gained this year. Gilead strengthened its position in the HCV market further with its combination treatment, Harvoni, gaining FDA approval. Harvoni is expected to bring in multi-billion dollar sales for Gilead.

The highly lucrative obesity market got a new player with Orexigen's (OREX) Contrave gaining FDA approval. Meanwhile, it proved to be third time lucky for MannKind (MNKD) with the company finally gaining FDA approval for diabetes product, Afrezza.

The FDA also said yes to BioMarin's Vimizim for the treatment of Morquio A syndrome, Celgene's blockbuster hopeful Otezla and Amgen's (AMGN) leukemia drug, Blincyto. Products like Medivation's (MDVN) Xtandi and Pharmacyclics' (PCYC) Imbruvica gained label expansions.

Biotech Shines at ASCO and ASH

Several biotech companies came up with promising data on approved products as well as pipeline candidates at the annual meeting of the American Society of Oncology (ASCO) in Jun 2014. A key focus area was immuno-oncology which has been attracting a lot of interest. Immuno-oncology therapies have the potential to change the treatment paradigm for cancer -- they basically use the natural capability of the patient's own immune system to fight the cancer.

Many companies fared well this year thanks to impressive data on pipeline candidates. Achillion (ACHN), which is up 285.5% YTD, presented impressive data on its experimental HCV treatment, ACH-3102. The company is viewed as a potential acquisition target. Puma (PBYI) is also up significantly (91.4%) on pipeline updates.

However, it's been a rollercoaster ride for companies like Intercept (ICPT) which saw its shares skyrocket 281% on data. Although the company gave up most of its gains as the year progressed, shares are still up 94.7% YTD.

But it hasn't been all good news on the pipeline front. In fact, it's been a rough year for companies like Sunesis (SNSS), Cytokinetics (CYTK), OncoGenex (OGXI) and Regado (RGDO) which came out with disappointing pipeline updates. Meanwhile, Dendreon, which had been struggling for quite some time with the performance of its sole product, Provenge, filed for bankruptcy.

That being said, the biotech sector signed off the year with a bang at the annual meeting of the American Society of Hematology (ASH) where several companies presented impressive data. A company that stood out at ASH is bluebird bio (BLUE) --shares shot up a whopping 72.4% on encouraging early-stage data on LentiGlobin BB305 for the treatment of subjects with beta-thalassemia major and severe sickle cell disease.

Meanwhile, the Ebola outbreak, which has been making headlines, has brought quite a few biotech companies like Tekmira (TKMR) and Chimerix (CMRX) into the limelight for their experimental Ebola disease treatments.

New Kids on the Block

With the biotech sector garnering a lot of interest, quite a few companies including Zafgen (ZFGN), Eleven Biotherapeutics (EBIO) and Revance Therapeutics (RVNC) pulled off IPOs.

A Look at 4 Top-Ranked Biotech Stocks

Here's a look at 4 top-ranked biotech stocks that beat the market in 2014 and look poised to perform well in 2015.

Thousand Oaks, CA-based Amgen, a Zacks Rank #1 (Strong Buy) stock, had a strong run in 2014 with shares rising 40.5% YTD. This biotech major has consistently performed well so far this year and is poised to continue with its robust performance in 2015 as well.

Amgen's preliminary outlook for 2015 was better than expected -- the company's restructuring plan should make it leaner and more cost-efficient. Amgen's pipeline is also progressing with important candidates under regulatory review and major late-stage data readouts lined up for 2015 and 2016.

Cambridge, MA-based Biogen (BIIB), which focuses on the treatment of neurodegenerative diseases, hematologic conditions and autoimmune disorders, also had a good run this year. The company, which specializes in multiple sclerosis (MS) treatments, ran into a roadblock recently with its oral MS treatment being associated with a progressive multifocal leukoencephalopathy (PML)-related death. However, concerns regarding the drug's growth prospects seem overblown and this Zacks Rank #1 stock should continue with its stellar performance going forward. Shares are up 19.8% YTD.

Zacks Rank #1 stock, Celgene, is up 30.1% YTD. This Summit, NJ-based company's flagship product, Revlimid, continues to contribute significantly to the top-line. In addition to a promising pipeline, Celgene has quite a few products (Abraxane, Pomalyst and Otezla) in its portfolio that represent blockbuster potential.

North Chicago, IL-based AbbVie (ABBV) known for its multi-billion dollar drug, Humira, also looks well poised for growth after having performed well so far in 2014. Although the company did not go through with its planned acquisition of Shire (SHPG), it continues to work on growing its pipeline and expanding its portfolio. AbbVie's HCV cocktail treatment could gain approval shortly and allow the company to enter the highly lucrative HCV market. AbbVie's YTD return is 30.3% and the company holds a Zacks Rank #2 (Buy).

Looking Ahead

Strong pipelines, innovative treatments, impressive results, growing demand for drugs especially for rare-to-treat diseases, an aging population and increased health care spending should support growth in the biotech sector.

With the sector witnessing a lot of M&A and licensing activity this year, expectations are high that more such deals will follow. Companies that may attract such deals include those focusing on immuno-oncology, antibody drug conjugates (ADCs), CAR T-cell therapy, anti-infectives, HCV treatments, TCRs and breakthrough therapies. The development of personalized treatments will also gain momentum.

On the flip side, the high cost of treatments and the emerging threat of biosimilars remain dampeners for this high risk-high return sector.

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4 Top Ranked Biotech Stocks that Beat the Market in 2014 - Analyst Blog

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