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 a great idea. The company had an experimental treatment for hepatitis C in the early stages of development. Back then, the stock was worth around $2 per share and growing consistently. Today, Gilead Sciences is one of the leaders in biotech, selling not only a treatment, but a cure for hepatitis C. Today, the company’s shares are trading for well over 30 times its value 20 years ago.
The good news is that 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.
Pro tip: Make sure your investment portfolio is diversified beyond just biotech stocks. Companies like FarmTogether allow investors the opportunity to invest in Farmland. This asset class provides strong, passive returns as high as 13% annually.
Stay Clear of COVID-19 Stocks
When you read a headline about the five best biotech stocks to buy in 2020, you’re likely expecting biotech stocks that are developing treatments or vaccine candidates for COVID-19. But these are not good investments in general and will not be on this list. In fact, unless you’re an expert investor, you should stay far away from COVID-19 stocks for several reasons:
- Overvaluation. The COVID-19 pandemic is scary, and that automatically leads many to believe that a treatment or vaccine will be overwhelmingly profitable. As a result, investors have pushed COVID-19 subsector valuations through the roof in what is a clear bubble. This specific category of biotech stocks is destined to come back to reality.
- Slim Profitability. On the vaccines side, two major companies have already pledged to make vaccines free for consumers in the United States. One other company has pledged to sell the vaccine candidate they are developing at cost. In the COVID-19 market, the global push for free or low-cost vaccines and treatments will greatly limit the potential for profits, making the millions or even billions of dollars in development efforts fruitless for investors.
- Too Many Fraudsters. Finally, when any subsector of any industry gets as popular as COVID-19 has, you will find bad actors. There are countless companies on the market today that claim to be working on the development of COVID-19 related products but don’t have anything tangible to offer. Their ultimate goal is to profit from investor excitement in the space, which will ultimately end in losses for those who get involved.
Considering all of these risks, COVID-19 stocks are just not the place to be right now. Nonetheless, the world of medicine is vast, and there are plenty of opportunities outside of COVID-19 to take advantage of as we speak.
Best Biotech Stocks to Buy Right Now
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. So, where does biotech come in?
Well, Amazon.com is far from a one-trick pony. Sure, the company is a dominant force in the e-commerce space, taking the lion’s share of that market, but it also has its fingers in many other sectors. One of those sectors is biotechnology.
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. The company is in the process of building hardware and software that will allow it to perform detailed analysis of the human body’s proteins in an attempt to reshape the current medical approach to some of the most pressing ailments.
Sure, Amazon.com’s core focus is e-commerce and cloud computing. However, if you don’t know much about biotechnology 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.
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, Novavax is currently working on a COVID-19 vaccine, and it seems to be one of the leaders in the race to commercialize a vaccine option.
Sure, that comes with some value if the company is successful, but Novavax is far from being a coronavirus stock. Even if the COVID-19 pandemic never took place, this 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 Novavax 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. With NanoFlu showing incredible promise in effectively preventing infection, especially in older adults, the vaccine could quickly become the standard of care in the space, creating 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 kills between 100 and 500 children under the age of 5 and about 14,000 adults each year. The condition also leads to more than 177,000 hospitalizations every year. The RSV-F vaccine is currently in late-stage Phase III trials and could soon be on its way to potential FDA 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 treatment options 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 99% annually, on average, over the past five years.
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, Vertex Pharmaceuticals 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 several clinical indications, Vertex Pharmaceuticals 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 Solaris, 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 Solaris is incredibly high. Also, because it was designed for rare diseases and does not have mass-market scale, it is relatively expensive compared to other drugs, generating strong revenues. According to Drugs.com, the price tag on one prescription for Solaris runs just short of $7,000, depending on the pharmacy of your choice.
The combination of the high price tag and high demand led to the company generating $2.6 billion in revenue in 2019 through the sale of the treatment.
Recently, Alexion has started to encourage patients to use its next-generation version of Solaris, 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.
5. Gilead Sciences (NASDAQ: GILD)
Gilead Sciences may be the last on this list, but it is certainly not the least worthy of being here. 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, the company likely has plenty more blockbusters to come. The company is waiting on a decision from the European Medicines Agency surrounding its rheumatoid arthritis drug, filgotinib. If approved, Gilead Sciences will be 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 Sciences 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, it is believed that remdesivir could become the standard of care for treating COVID-19. It was even used as a key ingredient of the cocktail that doctors provided to President 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 is developing what could prove to be a cure for HIV, and it is 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.
Pro tip: If you’re going to add biotech stocks to your portfolio, make sure you choose the best possible companies. Stock screeners can help you narrow down the choices to companies that meet your requirements. Learn more about our favorite stock screeners.
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 are not 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.