5 Pharma & Biotech Stocks That Could Be Big Winners in Q3 Earnings

Pharma and biotech stocks started 2017 on a strong note with this part of the market remaining in favor as the year progresses. So far this year, the Nasdaq Biotechnology Index and the NYSE ARCA Pharmaceutical Index are up 25.6% and 14.6%, respectively.

With investors being more comfortable with the drug pricing scenario, focus has shifted to the fundamentals of the sector. Although the drug pricing issue will remain a headwind, expectations are that steps taken by the Trump administration to drive down drug prices will not be as draconian as previously expected.  

Deregulation and increased competition seem to be some of the ways that will be used to control drug prices. The FDA is working to lower healthcare costs by speeding up the development of next-generation treatments, especially for rare diseases or targeted cancer therapies and is also working on clearing up a backlog of orphan drug applications.

Eli Lilly and Company LLY: Lilly, which has a strong presence in the pharmaceuticals as well as animal health segments, is slated to report third quarter 2017 results on October 24. This Zacks Rank #3 stock has an earnings ESP of +4.46% for the third quarter. Lilly surpassed earnings expectations in the first two quarters of 2017. Although the company is facing challenges including generic competition, new products should drive results. Lilly has several important pipeline catalysts lined up for the coming quarters as well. Estimated earnings growth for the current year is 17.9%.

Lilly has gained 18.4% year to date, compared to the 18% rally of the industry it belongs to.

Vertex Pharmaceuticals VRTX: Vertex, a key player in the cystic fibrosis CF market, surpassed earnings expectations in three of the last four quarters with an average surprise of 17.9%. The company holds a strong position in the CF market with two products, Orkambi and Kalydeco, in its portfolio. Early in August, Vertex had said that it expects its CF franchise to deliver revenues of $1.87 billion - $2.1 billion in 2017 including Orkambi revenues of $1.1 billion - $1.3 billion.

The company is working on expanding its CF portfolio and is currently seeking both FDA and EMA approval for a tezacaftor/ivacaftor combination. With the FDA granting priority review, a response should be out by Feb 28, 2018.

Vertex, a Zacks Rank #1 stock, has gained 111.1% year to date, substantially outperforming the 13.9% rally of the industry it belongs to. The company, which is expected to report third quarter results on October 24, has an Earnings ESP of +2.56% for the quarter.

Biogen Inc. BIIB: Biogen is a key name in the multiple sclerosis ("MS") market with several approved products like Tecfidera, Tysabri and Avonex in its portfolio. The company also has a spinal muscular atrophy product (Spinraza) in its portfolio and is working on developing treatments for diseases like Alzheimer's, Parkinson's and amyotrophic lateral sclerosis.

Biogen's earnings track record is good with the company surpassing earnings expectations in each of the last four quarters with an average surprise of 6.4%. The company, which is scheduled to report third quarter results on October 24, has an Earnings ESP of +0.32%. Over the last 7 days, the stock has seen the Zacks Consensus Estimate for third quarter and current-year earnings being revised 0.5% and 0.2%, respectively.

Biogen, a Zacks Rank #3 stock, has gained 16% year to date, outperforming the 13.9% rally of the industry it belongs to.

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