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By Mark Goldstein

The biotech sector has always been risky due to the fact that its product pipeline is affected by FDA approval and risks in the development of products. At the same time, this sector is driven by many catalysts, including key acquisitions of small, highly specialized companies and quickly developing drug pipelines. From a stock perspective, the biotech sector traditionally provides high returns. In the following article I will analyze five biotech stocks that look promising for investors right now based on several positive catalysts.

Gilead (NASDAQ:GILD)

The current stock price is around $50. Gilead (see chart below) has been relatively volatile with highs from February to July 2011, partly thanks to its acquisition of the small oncology company, Seattle based Calistoga Pharmaceuticals, along with the acquisition of New Jersey biotech company Pharmasset for $11 billion in the same year. Pharmasset has a promising drug candidate against Hepatitis C, which would for the first time do away with the need for Interferon.

With a 70% gross margin, close to $ 8 billion in revenue and $ 2.8 billion operating cash flow, Gilead is one of the jewels of the biotech sector. Taking into account Gilead's EPS of 3.93, the stock has a price to earnings ratio below industry average. It could therefore reach $55-60. I believe the growth potential of this company is huge for investors. There is not much to worry regarding Gilead. In spite of a subpoena for quality and manufacturing addressed to the company by the attorney general's office in June 2011, the stock has not experienced any major decrease except in August. The firm is on an acquisition spree, and has the cash on hand to support this. A new formulation of one of its star products, Viread, was approved by the FDA for children with AIDS in January 2012. The company's AIDS franchise is still the strongest. Additionally, patent risk is almost 0. The worst that could happen is for Gilead to be bought by a big pharma, like Roche did with Genentech. It is for these reasons that I would recommend Gilead stock as a strong buy.

Amgen (NASDAQ:AMGN)

The stock currently trades around $69. Amgen stock has risen approximately 26% over the course of a year. I would still keep it as a buy. Explanations are provided below the chart.

Amgen's growth has been relatively slow if not disappointing over the past years leading up to 2010. 2011 marked a real turnaround for the company.The good news did not stop for Amgen. Once it bought Biovex in early 2011, the company's recent agreement on generics (biosimilars) with Watson, as well as the new Enbrel patent and the way it secured the market of its anemia drug, Epogen, provide examples of how it reacted to the changes in the Affordable Patient Protection act. My opinion is that the current positive changes will augment with the departure of the CEO and head of research announced for 2012, which is likely to bring a larger transformation in the company and to boost the share price, even if the price to earnings ratio is already at 17.

Spectrum Pharmaceuticals Inc. (NASDAQ:SPPI)

The current stock price is around $14 and is on an upward trend since the company announced the encouraging results of its Zevalin study for patients scheduled for a bone marrow transplant.

On SPPI, Redman and Renshaw analyst Reni Benjamin says: "We believe Spectrum represents an undervalued oncology player with significant upside potential for the long term investor." Fusilev ( the number one product) sales exploded in 2011 due to the shortage of Teva's product, but more importantly, new applications are being found for Zevalin. 2010 revenue was around $ 40 million and a significant increase is expected in 2011. Given its growing pipeline in the area of rare diseases and cancer, the positive trend should continue for the company. I believe this makes Spectrum's stock a strong buy for the long term.

Intermune (NASDAQ:ITMN)

The stock is currently trading around $16 at the time of writing. The company faced a series of blows with the sentencing of its ex-CEO in April 2011 and its troubles with the German health authorities in December regarding the efficacy of one of its products. Financial basics are excellent though: Revenue went from around $48 million to $ 259 million and 95% gross margin and cash flow of $ 72 million in 2010. The strength of the company lies in its product portfolio: Pulmonology and fibrotic diseases. However, Intermune is on a downward trend given the above mentioned events, as shown in the chart below.

In terms of portfolio, some Phase III studies, grouped under the name "capacity" studies, are promising regarding the development of a potential treatment for idiopathic pulmonary fibrosis. These studies have just been completed. It is for this reason that I believe the stock will recover before June 2012 unless regulatory risks surface. I still view the company as a buy because of its medium to long-term potential.

Viropharma (VPHM)

The stock is currently trading around $29 at the time of writing. The stock has been on an upward trend since early 2011 and has seen a sharp increase since August. Primarily focused on rare diseases, Viropharma is a high risk/high reward asset. In addition, the company made a significant acquisition in December last year, with California-based Meritage. The chart below shows the stock's performance:

The company doubled its revenues in less than three years to reach around $ 439 million today while containing spending in general. Gross margin is above industry range at around 85% and the company generated $193 million in cash flow. Two modest risks exist for Viropharma: Its goodwill and the amount of intangible assets. However, I believe this stock is a strong buy for any investor, due to its highly specialized focus on rare diseases, coupled with the key acquisition of Meritage.

Source: 4 Biotech Stocks To Buy, 1 To Avoid For Now