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.

The FDA has approved far more drugs this year than it did in the whole of 2016. Key approvals this year include Novartis’s (NVS – Free Report) Kymriah (the first gene therapy in the United States), Lilly’s Verzenio (advanced or metastatic breast cancer), Gilead’s (GILD – Free Report) Vosevi (hepatitis C virus), Puma’s Nerlynx (to reduce the risk of breast cancer returning), J&J’s Tremfya (moderate-to-severe plaque psoriasis), Regeneron/Sanofi’s Kevzara (rheumatoid arthritis), Roche’s multiple sclerosis treatment, Ocrevus, Regeneron and Sanofi’s eczema treatment, Dupixent, Tesaro’s PARP inhibitor, Zejula, and BioMarin’s Brineura (treatment of a specific form of Batten disease) among others. Quite a few of these drugs have blockbuster potential.

Meanwhile, some other factors that should continue having a positive impact on pharma and biotech stocks are new product sales ramp up, R&D success and innovation, strong results, a higher number of FDA approvals and continued strong performance from legacy products.