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 more than 30 times its value 20 years ago.
The good news is that medical innovation isn’t coming to an end any time soon. 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.
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 vaccines 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. COVID-19 is scary, and that automatically leads many to believe that a treatment or vaccine will be overwhelmingly profitable. As a result, investors have pushed the COVID-19 subsector valuation through the roof in what is a clear bubble. These stocks are 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 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 that 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 a vast one, and there are plenty of opportunities outside of COVID-19 to take advantage of as we speak.
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Best Biotech Stocks to Buy in 2020
There are plenty of opportunities in the biotechnology space, but, as with any sector, there are also plenty of risky plays. So, making the right investments is just as important as making the investment itself. Here are the stocks that have the potential to become overwhelmingly profitable plays in the biotech space:
1. ImmunoGen (IMGN)
ImmunoGen is a clinical-stage biotechnology company that’s showing incredible promise in the field of oncology. The company’s experimental cancer treatments are centered around technology known as antibody-drug conjugates, or ADCs.
ADCs are designed as a targeted cancer therapy. They are different from chemotherapy because they are designed to target and kill cancer cells while sparing healthy cells, which is difficult to achieve using existing therapies.
Importantly, there are several upcoming catalysts that have the potential to send this stock soaring. By mid-2021, the company could release pivotal data on a cancer drug known as Soraya. Should this data be positive, the company is on track to submit a Biologic License Application to the U.S. Food and Drug Administration (FDA), seeking to market Soraya as a treatment for ovarian cancer — a market that Grand View Research says will be worth $4.5 billion annually by the year 2022.
By this time, ImmunoGen could be entering the market with a new blockbuster treatment option. The company is worth around $800 million according to Yahoo! Finance. So, if it were to tap into just 20% of the market, its annual sales would be equal to more than the company’s current market cap.
Taking a large part of the market won’t be difficult if data on the company’s Soraya candidate continues to be so positive. The current options for ovarian cancer patients are chemotherapy, radiation, hormone therapy, and surgical intervention. However, clinical studies so far have shown that Soraya outperforms these treatments in terms of efficacy, tolerability, and safety.
ImmunoGen isn’t a one-trick pony either. The company has four candidates that are currently being assessed as treatments for seven different indications. Two of these candidates are already being tested in humans with astonishing results.
Considering the potential of ImmunoGen’s lead clinical candidate and the several catalysts that are likely ahead as a result of aggressive development activities across multiple biotechnology platforms, ImmunoGen’s stock is one for the watchlist.
2. Corcept Therapeutics (CORT)
Some biotech companies focus on one field of medicine, making them pure plays. For example, ImmunoGen is a pure play in oncology, or the treatment of cancer. Other biotech companies focus on multiple indications, offering a more diversified portfolio of treatments and candidates. Corcept Therapeutics is one of the latter.
Corcept is focused on the development of treatments in the field of oncology, in addition to psychiatric, endocrine, metabolic, and psychiatric disorders. The company’s therapies are built around a technology that allows the modulation of the hormone cortisol.
Cortisol is the body’s main hormone for stress control, making it essentially the body’s natural alarm system. Modulating this alarm system has proven to be a pretty successful approach to medicine.
The company’s flagship treatment is known as Korlym. It has been approved by the FDA to treat excess glucose in the bloodstream in patients with endogenous Cushing’s syndrome who also have diabetes or glucose intolerance, and sales have been a smashing success.
The strong success in Korlym has led to consistent earnings growth over the past 16 fiscal quarters, leading to growth in earnings per share of 117% over the past five years. Also, sales have seen double-digit percentage growth for several years.
Although Korlym is the company’s flagship product, it also has 12 ongoing clinical programs that have the potential to produce positive catalysts. With Korlym providing proof that Corcept Therapeutics’ science is effective and that it is capable of selling its drugs, the investment thesis here is compelling. This, combined with several new medicines that the company may bring to market, makes Corcept Therapeutics stock hard to ignore.
3. Vertex Pharmaceuticals (VRTX)
Vertex Pharmaceuticals is known for its work in the treatment of cystic fibrosis. The condition is a chronic, fatal lung condition. 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 that you should consider for your portfolio.
4. Alexion Pharmaceuticals (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 has 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 is approved 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 (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 market 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, the company is assessing therapies in cancer as well as nonalcoholic steatohepatitis, the latter of which currently has no approved treatment options.
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 COVID-19 started to break out, 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.
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. If there ever was a biotech stock to watch, this is it.
Investing in biotechnology can be tricky. Many companies that seem to have promising treatment options 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 the 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 biotech investments, 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 your favorite biotech companies to invest in?
Disclosure: 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.