In the past 20 years, technological innovation in the field of biology has saved millions of lives. Beyond the life-saving capabilities of new technologies in medicine, there are several other benefits. And, for investors, getting involved in new medical technology under development can be incredibly fruitful.
For example, 20 years ago Gilead Sciences had an experimental treatment for hepatitis C in the early stages of development. Back then, the stock was worth around $2 per share. Today, Gilead Sciences is a leading biotech company, selling not only a treatment but a cure for hepatitis C, and its stock’s price has increased to more than 33 times its value 20 years ago.
Medical innovation isn’t coming to an end any time soon. Big pharma is overwhelmingly profitable, and innovation continues where profits are made. Opportunities like these are born every day. However, as with any other industry, investing in biotech stocks is all about making the right decisions, as not all stocks are created equal.
7 Best Biotech Stocks to Buy
There are plenty of opportunities in the biotechnology space, but, as with any sector, there are also plenty of risky plays. So, selecting the right investments is just as important as making the investment itself. Here are the top biotech stocks to watch ahead for the potential for large gains as we close out the 2020 fiscal year:
1. Amazon.com (NASDAQ: AMZN)
When thinking about the top biotech stocks to buy, Amazon.com is likely the last name that comes to mind. After all, Amazon.com is an e-commerce giant. How does the tech giant count as a biotechnology company?
Well, Amazon.com is far from a one-trick pony. Sure, the company is a dominant force in the e-commerce space, but it also has its fingers in many other sectors. One of those sectors is medicine.
Jeff Bezos has long held an interest in the anti-aging market, often investing millions of dollars of his own money into the space. As the founder and CEO of Amazon.com, he has also invested millions upon millions of Amazon.com’s dollars into the space as well.
In 2017, Bezos and Amazon.com made headlines when they invested millions of dollars into a company known as Unity Biotech. The company is working to develop blockbuster anti-aging products, solving one of the biggest problems in the biotech industry today – aging.
However, the investment in Unity Biotech was just one of the many investments in the space that Amazon.com and Bezos have made. Most recently, Nautilus Biotechnology announced that Amazon.com’s venture capitalist arm invested more than $70 million into the biotech startup.
Nautilus has been operating under the radar for some time, but may be onto something. The company is currently studying the full lineup of human proteins and is in the process of building hardware and software that will allow it to perform detailed analysis of the body’s proteins in an attempt to reshape the current medical approach to some of our most pressing ailments.
Sure, Amazon.com’s core focus is e-commerce and cloud computing. However, if you don’t know much about the field of medicine and want to avoid high-risk plays, but want to put some skin in the sector, this company is a great way to gain exposure while investing in a blue-chip tech stock that you likely already know plenty about.
Pro tip: David and Tom Gardener are two of the best stock pickers. Their Motley Fool Stock Advisor recommendations have increased 563% compared to just 131.1% for the S&P 500. If you would have invested in Netflix when they first recommended the company, your investment would be up more than 21,000%. Learn more about Motley Fool Stock Advisor.
2. Novavax (NASDAQ: NVAX)
Those who follow the biotech industry generally see Novavax as a coronavirus pandemic play, but the company is far more than that. Nonetheless, to address the elephant in the room — yes, the company is currently working on a COVID-19 vaccine.
That comes with some value if the company is successful, which seems to be likely following recent promising data from a Phase 3 pivotal clinical trial that resulted in 100% efficacy against severe COVID-19 infections.
But the stock is far from being just a coronavirus stock. Even if the COVID-19 pandemic never took place, Novavax would be a stock that’s well worth watching.
The company’s claim to fame is a product known as NanoFlu, a seasonal influenza vaccine geared toward older adults.
Most recently, Novavax published Phase III clinical data suggesting that NanoFlu is not only safe, but it’s also effective, with clinical results showing that the vaccine outperformed the current standard of care. As a result, the company is pushing for U.S. Food and Drug Administration (FDA) approval, and it’s pushing very hard.
In fact, Novavax recently announced that it would be working to take the Accelerated Approval pathway, which will shorten the time to potential FDA approval and commercialization. While the Accelerated Approval pathway is only available to specific therapeutic options, the FDA has already said that the company does qualify to use this pathway to speed up the process for its NanoFlu vaccine candidate.
Should all go well, NanoFlu will likely quickly become a blockbuster vaccination option. The vaccine candidate is geared toward the most at-risk population for seasonal influenza, and shows that it outperforms the current standard of care in late-stage clinical studies.
As a result, if the FDA does approve the company’s application to move to commercialization, NanoFlu could quickly become the standard of care in terms of seasonal influenza vaccines among older adults.
That’s a massive opportunity!
Allied Market Research suggests that, by the year 2026, the influenza vaccine market will grow to be worth more than $6 billion annually. Currently available influenza vaccines are quickly losing efficacy as the virus that causes influenza continues to evolve. NanoFlu becoming the standard of care in the space would create an opportunity that has the potential to drive billions of dollars per year in revenue.
Novavax is also working on multiple vaccine candidates to protect patients against a wide array of serious illnesses including RSV and RSV-F, a respiratory syndrome that affects more than 60 million patients and kills around 160,000 people globally every year, according to the National Institutes of Health. The RSV-F vaccine is currently in late-stage Phase III trials and could soon be on its way to potential regulatory approval and commercialization.
All in all, Novavax is one of the few pharmaceutical companies that has seen incredible gains in its stock due to COVID-19, yet it’s likely far from overvalued, considering its long-term prospects.
With multiple vaccine candidates under development, not just for COVID-19, but for seasonal influenza, RSV, RSV-F, and several other conditions, the company has the opportunity to commercialize multiple potential blockbuster vaccines ahead. As a result, this is one of the top biotech stocks to consider on the stock market today.
3. Vertex Pharmaceuticals (NASDAQ: VRTX)
Vertex Pharmaceuticals is known for its work in the treatment of cystic fibrosis. The condition is a chronic, fatal lung disease. This is a massive market; according to Grand View Research, the Cystic Fibrosis market will grow to be worth $13.9 billion by the year 2025.
Perhaps its control of this high-value market is the reason Vertex Pharmaceuticals has generated growth in profit of 43.15% annually.
What works for one cystic fibrosis patient often will not work for another. As a result, Vertex Pharmaceuticals has brought four different treatments to market for this patient population.
The most impressive of the company’s treatment options is known as Trikafta. The strategic advantage of this treatment over all others in the space is that it is capable of leading to a better quality of life and longer life expectancy for 90% of cystic fibrosis patients.
For some time, the company was a pure play in cystic fibrosis. More recently, Vertex Pharmaceuticals has decided to expand its horizons. The company has partnered with Crispr Therapeutics and acquired a privately held company known as Exonics Therapeutics.
What’s the point of the partnership and acquisition?
The company is breaking into the gene-editing space, a new technology that has shown incredible promise in the treatment of muscular dystrophy. The company has also launched early-stage programs in the treatment of pain, sickle cell disease, beta thalassemia, alpha-1 antitrypsin deficiency (AATD), APOL-1 mediated kidney disease, Duchenne’s muscular dystrophy (DMD), and diabetes.
With incredible success in the cystic fibrosis space and several ongoing clinical studies across multiple clinical indications, VRTX is one stock in the biotech sector that you should consider for your portfolio.
4. Alexion Pharmaceuticals (NASDAQ: ALXN)
Alexion Pharmaceuticals is a powerhouse in the treatment of multiple rare diseases. It is the producer of Soliris, a treatment that’s currently indicated for patients with four rare conditions who previously had few or no treatment options.
Because it offers a treatment for several conditions with limited therapeutic options, demand for Soliris is incredibly high. Also, because it was designed for rare diseases and doesn’t have mass-market scale, it is relatively expensive compared to other drugs, generating strong revenues. According to Stat News, patients pay around $500,000 per year for the drug.
The combination of the high price tag and high demand led to the company generating more than $4 billion in revenue in 2020 through the sale of the treatment.
Recently, Alexion has started to encourage patients to use its next-generation version of Soliris, Ultomiris, which was approved for commercialization by the FDA to treat some of the same disorders. This move isn’t just to diversify its portfolio; it’s being made to capture the market before competitor Amgen launches a similar drug in 2025.
Alexion Pharmaceuticals also has a robust pipeline of clinical candidates. The company has 21 active clinical programs and is working on the preclinical testing of four other candidates that it plans to bring to market.
With a blockbuster drug already on the market and a pipeline that suggests many more to come, Alexion Pharmaceuticals has the potential to see tremendous growth ahead.
Pro tip: Before you add any stocks to your portfolio, make sure you’re choosing the best possible companies. Stock screeners like Stock Rover can help you narrow down the choices to companies that meet your individual requirements. Learn more about our favorite stock screeners.
5. Gilead Sciences (NASDAQ: GILD)
As mentioned above, Gilead Sciences made a name for itself when it cornered the market for hepatitis C virus treatment. The only other competing company in this multibillion-dollar market is AbbVie, leaving a world of opportunity for Gilead.
Aside from the company’s hepatitis C cure, there are likely plenty more blockbusters to come. The company recently received approval from the European Medicines Agency surrounding its rheumatoid arthritis drug, filgotinib. As a result, Gilead Sciences is now able to commercialize the treatment in the European Union.
Also, Gilead is in Phase 2 studies for a long-acting HIV therapy that could change the landscape for treatment of that disease. In fact, the company’s work in HIV could soon lead to a cure; it is currently undergoing early-stage studies for multiple HIV cure candidates.
Moreover, Gilead Sciences is assessing therapies in cancer as well as nonalcoholic steatohepatitis, the latter of which currently has no approved treatment options but is far from a rare disease.
Incidentally, Gilead is a way to gain safe exposure to the COVID-19 market through the company’s antiviral drug, remdesivir, which is currently the focus of multiple clinical trials. As the COVID-19 pandemic began, remdesivir was the first drug to win Emergency Use Authorization from the FDA.
Today, remdesivir has become the standard of care for treating severe COVID-19 infections. It was even used as a key ingredient of the cocktail that doctors provided to former President Donald Trump when he contracted the virus.
Nonetheless, COVID-19 is only a small part of this play, and even without its activity in the space, Gilead Sciences’ other work represents a tremendous investing opportunity. The company has a blockbuster drug generating billions of dollars annually, it’s developing what could prove to be a cure for HIV, and it’s in the midst of several other clinical studies for a wide range of indications.
With a proven ability to successfully develop and commercialize treatments for ailments that have stumped the healthcare community, if there ever was a biotech stock to watch, Gilead Sciences is it.
6. Biogen (NASDAQ: BIIB)
Biogen is a biotech company with a focus on neuroscience, or the development of medications designed to treat conditions of the brain. While the company has been around since the mid-1970s, it wasn’t until recently that it was awarded its first new drug approval. But that approval, which took place in early June 2021, sets the stage for a blockbuster in the making.
The treatment aducanumab, also known by its brand name Aduhelm, was approved as a potential option for patients with Alzheimer’s disease. Although there are a few different treatments available for Alzheimer’s disease patients, these all lack efficacy in a large percentage of patients. This is the first new drug approved for Alzheimer’s disease since 2003, and the only treatment on the market regulators say has the potential to slow cognitive decline.
As a result, many expect for the treatment to become the standard of care for Alzheimer’s disease, a market that Acumen Research and Consulting expects to grow to be worth more than $5.6 billion by the year 2027.
In most cases, it would be a mistake to expect one treatment to take the lion’s share of any market. But in this case, due to the lack of effective competing treatment options and the overwhelmingly positive clinical results achieved with aducanumab, that’s exactly what experts are expecting for Biogen. In fact, according to The Motley Fool, Goldman Sachs expects the drug to generate $12 billion in annual sales at its peak.
All in all, Biogen is onto something big with aducanumab, which alone is a reason to be excited about the stock. However, the company also has a long line of treatments under development for serious medical conditions, all of which have the potential to become blockbusters, making the stock even harder to ignore.
7. Pfizer (NYSE: PFE)
Pfizer is a massive drug maker that has become a household name as of late. Int was part of the team that became the first to produce an FDA-approved vaccine for COVID-19, which plays a big role in the idea of investing in the company.
Pfizer and BioNTech were the first to bring a vaccine to market, and will likely benefit greatly because of it. In fact, some experts suggest that each company will generate more than $20 billion in revenue from the vaccine this year alone, but there’s a catch.
Looking at the growth of PFE in comparison to the overall market, the stock hasn’t performed so well so far this year.
There are fears that while the company’s COVID-19 vaccine is expected to be a major revenue driver this year, that won’t be the case beyond 2021. However, that creates a bit of an opportunity.
Several experts in the field of medicine, including the Pfizer CEO Albert Bourla, have pointed to the possibility that consumers will need to be vaccinated against COVID-19 on an annual basis as is the case with seasonal influenza. As the first to produce an approved vaccine, the company’s product has become the go-to option, and will likely remain that way in the future, setting the stage for significant revenues for some time to come.
It’s also important to remember that the company focuses on far more than the coronavirus. The company has more than 100 development programs in high-value fields of medicine like oncology and immunology. Of these, 10 programs are in the registration phase, meaning they are being pushed for regulatory approval.
At the same time, the stock is likely to be attractive to both income and value investors. The company’s forward looking price-to-earnings ratio sits at under 12 in an industry where the average is more like 21. Moreover, the stock comes with a dividend yield near 4%, which is high for any industry, especially health care and pharmaceuticals.
All in all, fears that COVID-19 vaccine sales will slow in the years to come seems to have held the stock down so far in 2021, but those fears are likely overblown. They have created a compelling opportunity.
With a massive pipeline of products under development, several products already generating revenue, and impressive value and income metrics, PFE stock is one that shouldn’t be left on the backburner.
Investing in biotechnology can be tricky. Many companies that seem to have promising treatment and vaccine candidates or devices will fail in clinical trials, costing investors millions.
However, when these companies do succeed, the potential rewards can be outlandish. Moreover, there’s a sense of accomplishment in knowing that your investment dollars helped bring a product to market that improves quality of life or extends the lives of patients across the United States and around the world.
The companies above are a great place to start when looking for solid investment opportunities in the biotech sector, but make no mistake, there is no guarantee that these companies will be winners in the long run. Moreover, they aren’t the only stocks out there that can be huge long-term winners.
Do you invest in biotech stocks? What are the top biotech stocks in your portfolio?
Disclaimer: The author currently has no positions in any stock mentioned herein nor any intention to hold any positions within the next 72 hours. The views expressed are those of the author of the article and not necessarily those of other members of the Money Crashers team or Money Crashers as a whole. This article was written by Joshua Rodriguez, who shared his honest opinion of the companies mentioned. However, this article should not be viewed as a solicitation to purchase shares in any security and should only be used for entertainment and informational purposes. Investors should consult a financial advisor or do their own due diligence before making any investment decision.