8 Biotech Stocks to Watch

NEW YORK (TheStreet) -- The markets were a mixed bag over the past month or so. The S&P 500 declined 2.8%, while the S&P 500 Biotechnology Index and the Nasdaq gained 3.3% and 4.1%, respectively. Industry analysts believe the recent selloff signals bargain-buying opportunities for investors as most of these stocks are trading at attractive discounts.

Despite challenges from the worldwide economic turmoil, the global biotech and pharmaceutical industry achieved profitability for the second consecutive year in 2010 with an acceleration in merger and acquisition activity. During the first quarter of 2011, the value of mergers and acquisitions in the biotech industry was more than $1 billion. Specifically, with cancer drugs costing the U.S. a whopping $30 billion each year, it is a lucrative sector for drug developers.

Based on latest quarterly results and according to analysts' recommendations, these eight biotech stocks have potential upsides ranging from 8% to 62%. On average, these stocks have buy recommendations of 65% and hold ratings of 29%, based on a Bloomberg consensus.

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These stocks are listed in ascending order of upside potential.

8. Hi-Tech Pharmacal ( HITK) is a specialty pharmaceutical company manufacturing and marketing generics and branded prescription and over-the-counter products.

The company is scheduled to report its quarterly results prior to the market opening on Wed., Sept. 7. Analysts polled by Bloomberg expect the company to report record earnings of 86 cents a share for the first quarter of fiscal 2012 ended July 31, compared to 67 cents a share in the same quarter of fiscal 2011. Net income for the quarter is estimated at $10.93 million, vs. $8.02 million in the same period a year ago. Meanwhile, net sales are seen at $54.1 million, an increase of 34% from the year-ago quarter. Cash flow per share is estimated to increase by 29% to 80 cents.

The company recorded a trailing P/E of 7.70 as compared to its own three-year average of 9.46. Also, diluted earnings per share soared to $3.36 for 2010 relative to the previous two-year EPS of 84 cents.

During the last week of August, HITK announced acquiring the marketing and distribution rights for TussiCaps extended-release capsules from Mallinckrodt. The company paid $11.6 million in cash for the deal and depending on the competitive landscape and sales performance, may pay an additional $12.5 million over the next four years.

Of the five analysts covering the stock, four recommend a buy. Data from Bloomberg has analysts forecasting the stock gaining 7.7% to $31.94 in the upcoming 12 months.

7. Celgene ( CELG) is an integrated biopharmaceutical company focused on innovative therapies designed to treat cancer and immune-inflammatory diseases.

Second-quarter 2011 non-GAAP total revenue increased 38% year-over-year to $1.18 billion. Non-GAAP diluted net income stood at $417 million, or 89 cents diluted earnings per share, up 29% year-over-year. Global sales of REVLIMID rose 35% to $795 million.

The company recorded a trailing P/E of 25.04 relative to its own three-year average of 76.77. Diluted earnings per share swung to positive $1.88 for 2010, as against the prior two-year EPS of negative $3.46 cents. Mid-August, Celgene announced that its board of directors has authorized the repurchase of an additional $2 billion of its common stock. The company's chief executive believes that this share repurchase program indicates confidence in the Celgene's long-term operational and financial growth.

For the full year, total revenue is projected between $4.6 billion and $4.7 billion, increasing 29% from the prior year and from a previous view of $4.45 to $4.55 billion. Non-GAAP diluted earnings per share for the full year are seen rising by 25% to range from $3.45 to $3.55, up from the prior projection of $3.35 to $3.40.

Of the 29 analysts covering the stock, 72% recommend a buy and the rest rate a hold. The stock has no sell ratings. Data from Bloomberg has analysts forecasting the stock gaining 18.4% to $70.11 over the next 12 months.

6. Biogen Idec ( BIIB) is a global biotechnology company focused on creating products for the treatment of neurological disorders and other diseases. The company derives other revenue from royalties received on sales by its licensees of other products covered under patents that it owns.

For the second quarter of 2011, revenue was reported at $1.2 billion, relatively at the same level as of second quarter 2010. Revenue from TYSABRI increased 28% year-over-year to $281 million, recording maximum segmental growth. GAAP diluted earnings per share rose 5% year-over-year to $1.18. Other product revenue grew 36% to $16 million from the year-ago quarter. As of June 30, cash, cash equivalents and marketable securities stood at $1.3 billion, vs. $1.2 billion at the end of Dec. 2010.

The company recently acquired 100% of Dompé shares in its joint ventures in both Italy and Switzerland. Under the agreement terms, the joint ventures will become 100%-owned affiliates of Biogen Idec, giving the company direct commercial presence in 29 countries.

The company has raised its 2011 GAAP diluted earnings per share estimate upward of $4.91, while non-GAAP diluted EPS is seen above $5.70. Capital expenditure is forecast between $200 and $220 million.

Of the 25 analysts covering the stock, 56% recommend a buy and 40% rate a hold. Analysts surveyed by Bloomberg expect the stock to gain an average 24.9% to $114.80 over the next 12 months.

5. Charles River Laboratories ( CRL) is a global provider of solutions that advance the drug discovery and development process. The company operates in two business segments: Research Models and Services and Preclinical Services.

Second quarter 2011 net sales stood at $288.3 million, flat compared to the prior-year quarter. Net income attributable to common shareholders increased to $32.3 million, or 63 cents per share, from $14.4 million, or 22 cents per share, in the year-ago quarter.

The company recently announced a new business alignment merging its research arm and preclinical services segments into a single entity to drive efficiency. The merger will enhance the ability to deliver clients a seamless and integrated portfolio of essential products and services required to support their drug research and development programs.

The company has raised its full-year earnings guidance based on the strong first-half performance, especially in the RMS segment. GAAP earnings per share are expected to range from $2.11 to $2.21 from the prior view of $1.81 to $2.01. Net sales are likely to improve from the earlier flat estimate.

Of the 16 analysts covering the stock, 19% recommend a buy and the rest rate a hold. There are no sell ratings on the stock. Data from Bloomberg has analysts forecasting the stock gaining 33.2% to $42.00 in the upcoming 12 months.

4. Illumina ( ILMN) is a genetic variation analysis tools. Its operations are divided into two main segments: Life Sciences and Diagnostics. Its line of genetic solutions serve in sequencing, genotyping, gene expression and molecular diagnostics.

Second-quarter 2011 revenue was recorded at $287.5 million, up 36% year-over-year. GAAP net income increased to $30.6 million, or 22 cents per diluted share, from $29.8 million, or 21 cents per share, in the year-ago quarter. Meanwhile, non-GAAP earnings per diluted share surged 46%.

On Aug. 1, the company's board of directors authorized a share repurchase program of up to $100 million of its outstanding common stock in open market or in privately negotiated transactions. The company has collaborated with the University of Oxford to sequence the whole genome of 500 individuals afflicted with life-threatening diseases that pose major challenges in diagnosis, treatment, and care.

For the full year, the company projects revenue growth of 24% to 26% compared to 2010 revenue of $902.7 million. The guidance for gross margin is 69% to 70%. Non-GAAP earnings per diluted share are forecast to grow between 33% and 36% from non-GAAP earnings per diluted share of $1.06 in the prior year.

Of the 23 analysts covering the stock, 74% recommend a buy and 22% rate a hold. Analysts polled by Bloomberg expect the stock to gain an average 49.1% to $73.79 over the next 12 months.

3. Teva Pharmaceutical Industries ( TEVA) is a global pharmaceutical company focused on generic drugs for all treatment categories. The company's principal products include Copaxone and Azilect. Teva's active pharmaceutical ingredient business provides vertical integration to its own pharmaceutical production.

For the second quarter of 2011, net sales rose 11% to $4.2 billion. Turnover in Europe surged 82%. Cash flow from operations was a record $1.324 billion, vs. $954 million in the same quarter prior year. Free cash flow stood at $897 million, $197 million higher than the year-ago quarter. Cash dividend for the quarter stood at 22 cents. The company recorded a trailing P/E of 11.13 as compared to its own three-year average of 22.12. Also, diluted earnings per share soared to $3.66 for 2010 relative to the previous two-year EPS of 78 cents.

Teva recently asked European Union regulators to approve its bid for Cephalon ( CEPH). The European Commission has set an initial deadline of Sept. 29 to rule on the deal. Both of the companies are being investigated by the EU antitrust agency over an agreement that may have delayed generic versions of Cephalon's biggest product, Provigil. Additionally, the U.S. FDA recently accepted Teva's New Drug Application for BDP Nasal HFA, the first non-aqueous dry spray available to treat seasonal allergic rhinitis.

Of the 32 analysts covering the stock, 81% recommend a buy and the rest suggest a hold. There are no sell ratings on the stock. Analysts polled by Bloomberg foresee the stock gaining an average 50.5% to $59.25 over the next 12 months.

2. WuXi PharmaTech (Cayman) ( WX) is a global contract research outsourcing provider serving the pharmaceutical, biotechnology and medical device industries. The company has operations in both China and the U.S. Its operations are divided into two segments: laboratory services and manufacturing services.

The company recorded a trailing P/E of 9.63 as compared to its own three-year average of 22.44. Also, diluted earnings per share swung to positive 15 cents for 2010 relative to the previous two-year negative EPS of 3 cents.

Second-quarter 2011 revenue was recorded at $101.1 million, an increase of 24.8% from the year-ago quarter. Revenue surged 10.3% and 148.7%, respectively, over the year-ago period. GAAP diluted earnings per share rose 34.2% to 25 cents from the second quarter of 2010. Net income for the quarter soared 35.6% to $18.7 million, led by a 33.7% increase in operating income and higher interest income from short-term investments.

WuXi AppTec, the operating subsidiary of WuXi PharmaTech, announced that its Bioanalytical Services unit received a certificate of Good Laboratory Practice from the Organization for Economic Cooperation and Development and the European Union. This represents WuXi's third successful regulatory audit of its bioanalytical laboratory.

For the third quarter of 2011, net revenue is forecast to range from $100 to $103 million. For the full year, the company has raised its guidance and expects revenue growth of 20% to 22%, with net revenue of $400 to $407 million. Capital expenditure for the year is pegged at $60 million.

All 13 analysts covering the stock recommend a buy on it. Analysts polled by Bloomberg expect the stock to gain an average 59.8% to $20.04 in the upcoming 12 months.

1. Dendreon ( DNDN) is a biotechnology company focused on therapeutics that improve cancer treatment. The company's product portfolio includes active cellular immunotherapy and small molecule product candidates for cancer treatment.

Second-quarter 2011 revenue was $49.6 million compared to $2.8 million in the same quarter prior year. GAAP net loss for the quarter narrowed to $114.6 million, or 79 cents per share, from a net loss of $142.6 million, or $1.04 per share, in the second quarter of 2010. As of Jun. 30, the company had cash, cash equivalents and short-term and long-term investments of $673.9 million, compared to $277.3 million at the end of Dec. 2010.

Due to "unforeseen delays and implementation difficulties in achieving the commercial purpose of the agreement," DNDN announced Tuesday it is ending the Provenge prostate cancer drug distribution deal with GlaxoSmithKline ( GSK). However, it will continue to pay GSK $2 million a month for Sep. and Oct. 2011.

The U.S. FDA has approved the company's Atlanta cancer immunotherapy manufacturing facility, the third location at which Dendreon will produce Provenge to meet growing demand in the U.S. Looking ahead, the company estimates a modest quarter-over-quarter revenue growth for the rest of 2011.

Of the 24 analysts covering the stock, 38% assign a buy rating and 46% rate a hold. Analysts polled by Bloomberg expect the stock to gain an average 61.9% to $17.50 in the upcoming 12 months.

>>To see these stocks in action, visit the 8 Biotech Stocks to Watch portfolio on Stockpickr.

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