The biotech sector is arguably the most diverse in the market, with everything ranging from speculative stocks that may one day cure cancer (though probably won't) to defensive stocks of companies that treat everyday conditions. Amphastar Pharmaceuticals is the leading biotech stock in IBD's Medical Biotech/Biomed industry group, ranking first out of 799 companies.
Amphastar — headquartered in California — develops and manufactures generic drugs. While market weakness and rising interest rates harm most of the biotech sector, Amphastar is unique in that demand for its cheaper generic alternatives should increase if economic conditions worsen. This occurs as consumers needing treatment become more likely to avoid more-expensive brand name medications in favor of generic substitutes.
Growth has been impressive, with Amphastar boasting an impressive three-year EPS growth rate of 63%. While this explosive pace is expected to moderate slightly, the company still expects strong growth moving forward. After reporting earnings of $1.37 last year, analysts expect EPS to increase to $1.68 and $2 for 2022 and 2023, respectively.
The biotech stock's first-quarter results — an EPS of 47 cents — beat analyst estimates of 36 cents. Revenue of $120.4 million was in line with the record highs reported in the prior quarter. Amphastar CEO Jack Zhang noted that these strong results and the company's growth trend are expected to continue.
Drug Approvals Help Boost Biotech Stock's Growth Prospects
A big boost for Amphastar came from successful drug approvals. Last month, the FDA approved Amphastar's Ganirelix, an infertility drug. The potential market for Ganirelix is small, with Organon (the original brand drug) and other generics collecting $89 million in sales last year.
Most recently, on May 24, the FDA approved Regadenoson, a drug used in pharmacologic stress testing for patients unable to sustain the exertion of exercise. Regadenoson has the potential to make a significant impact. Sales of the brand name Lexiscan at $650 million over the past year.
Due to strong projected growth and a relay of positive information, Amphastar Pharmaceuticals is a top biotech stock to watch, especially for more conservative investors wanting to gain exposure to the sector.
Shares of Amphastar Pharmaceuticals are forming a cup base and have a 44.56 buy point, according to MarketSmith pattern recognition. The relative strength line is near highs.
