NEW YORK (TheStreet) - With Merck  (MRK - Get Report) and Pfizer (PFE - Get Report) reporting earnings today, we decided to check Quant Ratings to see what pharmaceutical companies are good investments. And while you might already know about big pharma companies to buy, there are mid-cap pharma companies that are a bit more under-the-radar and worth taking a look at, too.

Pharmaceutical companies can be risky investments. Drugs in development might flop, the FDA might not approve them, and even if they are approved, there's a chance those drugs won't sell. Mid-cap companies can also be risky, although the upside is that they have potentially higher returns. Compared to large-cap companies, they have less capital and resources to cope with economic shocks, but that shouldn't stop you from investing in them.

The plus side to investing in pharmaceuticals is that they are protected by patents, which allows them to recoup their high research and development investments should they produce a blockbuster drug. Also, the industry has been busy with mergers and acquisitions, which can potentially benefit investors.

So what are the best mid-cap pharmaceutical companies investors should buy? Here are the top three, according to TheStreet Ratings, TheStreet's proprietary ratings tool.

TheStreet Ratings projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points,TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

Check out which three mid-cap pharmaceutical companies made the list. And when you're done be sure to read about which large-cap pharmaceutical companies to buy now. Year-to-date returns are based on April 27, 2015 closing prices. The highest-rated stock appears last -- read more to see which one is No. 1.

IPXL ChartIPXL data by YCharts
3. Impax Laboratories, Inc. (IPXL)

Rating: Buy, B
Market Cap: $3.4 billion
Year-to-date return: 47.2%

Impax Laboratories, Inc., a specialty pharmaceutical company, develops, manufactures, and markets bioequivalent pharmaceutical products. It operates in two segments, Global Pharmaceuticals Division and Impax Pharmaceuticals Division.

"We rate IMPAX LABORATORIES INC (IPXL) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, increase in net income, expanding profit margins and solid stock price performance. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 11.1%. Since the same quarter one year prior, revenues rose by 30.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • IPXL has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 3.54, which clearly demonstrates the ability to cover short-term cash needs.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Pharmaceuticals industry. The net income increased by 101.2% when compared to the same quarter one year prior, rising from -$9.62 million to $0.12 million.
  • The gross profit margin for IMPAX LABORATORIES INC is rather high; currently it is at 53.06%. It has increased significantly from the same period last year. Despite the strong results of the gross profit margin, IPXL's net profit margin of 0.09% significantly trails the industry average.
  • Powered by its strong earnings growth of 100.00% and other important driving factors, this stock has surged by 90.63% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
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PBH ChartPBH data by YCharts
2. Prestige Brands Holdings, Inc.  ( PBH - Get Report)
Rating: Buy, A-
Market Cap: $2.2 billion
Year-to-date return: 21%

Prestige Brands Holdings, Inc., through its subsidiaries, is engaged in the marketing, sale, and distribution of over-the-counter (OTC) healthcare and household cleaning products in North America and internationally.

"We rate PRESTIGE BRANDS HOLDINGS (PBH) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, solid stock price performance, growth in earnings per share and increase in net income. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 11.1%. Since the same quarter one year prior, revenues rose by 36.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 566.66% and other important driving factors, this stock has surged by 55.04% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, PBH should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • PRESTIGE BRANDS HOLDINGS reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, PRESTIGE BRANDS HOLDINGS increased its bottom line by earning $1.39 versus $1.28 in the prior year. This year, the market expects an improvement in earnings ($1.85 versus $1.39).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Pharmaceuticals industry. The net income increased by 580.3% when compared to the same quarter one year prior, rising from $3.13 million to $21.29 million.
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LCI ChartLCI data by YCharts
1. Lannett Company, Inc. (LCI - Get Report)
Rating: Buy, A
Market Cap: $2.2 billion
Year-to-date return: 44.4%

Lannett Company, Inc. develops, manufactures, packages, markets, and distributes generic versions of branded pharmaceutical products in the United States. It offers solid oral, extended release, topical, and oral solution finished dosage forms of drugs that address a range of therapeutic areas.

"We rate LANNETT CO INC (LCI) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, attractive valuation levels and expanding profit margins. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • LCI's very impressive revenue growth greatly exceeded the industry average of 11.1%. Since the same quarter one year prior, revenues leaped by 70.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • LCI's debt-to-equity ratio is very low at 0.00 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 6.38, which clearly demonstrates the ability to cover short-term cash needs.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Pharmaceuticals industry and the overall market, LANNETT CO INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for LANNETT CO INC is currently very high, coming in at 77.08%. It has increased significantly from the same period last year. Along with this, the net profit margin of 39.02% is above that of the industry average.
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