There are certain sectors of the stock market that do well regardless of whether it’s a bull market or a bear market. Biotechnology is one of those sectors. Macroeconomic conditions and investor sentiment play little to no role in when you decide to seek medical attention.
Healthcare demand exists even under the poorest economic conditions, even when stock prices are falling like a brick dropped from the Empire State Building.
The key to investing in biotech stocks is making the right picks. The sector represents a highly regulated environment where the rules aren’t quite the same as other, less regulated sectors like technology and consumer goods. So, what are the best biotech stocks on the market right now?
Best Biotech Stocks
When you invest in biotech companies, it’s important to think about the following unique characteristics of the industry:
- Approval Required. Biotech companies can’t launch a new product whenever they want. Product launches typically require FDA approval which can take years to accomplish. The approval process protects consumers from inadequate or dangerous medications, biologics, and medical devices. But when approval does come, it can send a biotech stock screaming for the top.
- Exclusivity. Exclusivity in the biotech space is limited. Once approved, most new drugs only enjoy five to seven years of exclusivity before generics hit the market, so it’s important to consider the exclusivity lifespan of therapeutics that make up the lion’s share of a company’s revenue.
- Pipeline. Because of the limited exclusivity in the industry, it’s important to consider a biotech company’s pipeline of products that are still in clinical development. The best biotech companies have robust pipelines with the potential for multiple blockbuster approvals in the future.
Considering these unique aspects of the biotech industry, you’ll find my current favorite biotech stocks listed below.
1. Pfizer Inc. (NYSE: PFE)
Best for combatting COVID-19 while leaning on compelling future prospects.
- Performance: Pfizer shares are down about 13% year-to-date (YTD), but they’ve gained about 7% over the last year. Over the past five years, the stock is up about 56%.
- Dividend Yield: 3.25%
- Market Cap: $276 billion
- Analyst Ratings: Five analysts rate the stock a Buy, eight rate it a Hold, and there are no Sell ratings. The average price target sits at $57.42, representing a potential 16%+ upside.
Pfizer wasn’t necessarily a household name until the coronavirus pandemic struck, though the company was already a major player in the big pharma industry. The company’s stance as a household name quickly changed when it, in partnership with BioNTech (NASDAQ: BNTX), was the first to receive FDA approval for a COVID-19 vaccine.
Today, the vaccine is the most popular on the market. It’s known for producing the most antibodies and is generally recommended in most situations.
Some suggest the company’s recent reliance on the vaccine is a bad thing, likely playing at least some role in the losses the stock has experienced YTD. The company does expect more than half of its overall revenue will come from its COVID-19 vaccine franchise this year.
The argument against the company is that COVID-19 is fading, and its vaccines and therapeutics won’t be in demand much longer. I beg to differ.
The common flu was first identified in 1918 and was likely around for quite a while before then. Although the flu has become a normal part of life, there’s still a more than $6 billion annual market for the flu vaccine. I don’t see COVID-19 being any different in terms of long-term demand.
Moreover, Pfizer was a strong company before COVID-19 and will likely maintain this position for the long haul. The company expects to generate about $48 billion in non-COVID revenue this year and has a robust pipeline consisting of several early-, mid-, and late-stage candidates.
Considering all of this, it may be wise to take advantage of the company’s current valuation following a rough first half of the year. There’s a strong chance that it will outperform in the long run.
If you’re looking for a solid dividend stock to add to your portfolio, just take a look at Pfizer’s dividend yield. It currently stands at around 3.25%. That’s what I call icing on the cake.
2. Vertex Pharmaceuticals Inc. (NASDAQ: VRTX)
Best for banking on a coming PDUFA date.
- Performance: The VRTX share price is up more than 29% YTD and well over 40% year-over-year (YoY). The stock is up more than 89% over the past five years.
- Dividend Yield: 0%
- Market Cap: $74 billion
- Analyst Ratings: 10 analysts rate the stock a Buy, six rate it a Hold, and there are no
Sell ratings to speak of.
One of my favorite ways to invest in biotech stocks is to look for companies with upcoming PDUFA dates. These are deadlines for the U.S. Food and Drug Administration (FDA) to either approve or reject a New Drug Application NDA. This gives me a chance to invest before the news to make a quick profit.
One such company I’m tracking closely is Vertex Pharmaceuticals.
The company has a popular product called ORKAMBI, which is a drug used to treat specific cases of cystic fibrosis. The drug is already approved for a pretty large audience, but Vertex has plans to expand that audience.
The company recently submitted a Supplemental NDA to the FDA to expand the target population for the treatment to children ages 12 to 24 months. If the FDA approves the application, the stock could scream for the top as investors look forward to increasing ORKAMBI revenue.
The company also has a robust pipeline of drugs targeting eight high-value indications, including multiple rare diseases. Any one of these therapeutics could prove to be a blockbuster upon approval, which is likely why the stock trades like a growth stock in a bear market.
No matter how you slice it, Vertex Pharmaceuticals’ current and future prospects are impressive, to say the least. That makes Vertex a solid biotech stock for your growth portfolio.
3. Amgen Inc. (NASDAQ: AMGN)
Best for long-term investors.
- Performance: AMGN shares are up about 8% YTD and YoY. The stock has climbed more than 45% over the past five years.
- Dividend Yield: 3.17%
- Market Cap: $140 billion
- Analyst Ratings: Three analysts rate the stock a Buy, eight rate it a Hold, and there’s one Sell rating. The average price target is $247.36, suggesting relatively flat movement in the near term.
Amgen is a major player in the biotech sector and has been for decades. Throughout the company’s history, it has successfully developed and marketed several treatments, more than 20 of which are still on the market today.
On the other hand, there’s good reason for the iffy analyst ratings on the stock.
The company has been struggling with generic competition that has hit some of its best sellers hard. Aranesp, the company’s anemia treatment, and Neulasta, a product used to decrease infection risk due to low white blood cell count, have both experienced recent declines in sales.
Unfortunately, these declines and coming patent expirations are at the center of investor attention at the moment.
However, Amgen didn’t make it through the past several decades sitting on its hands when biosimilars threatened declines, and it’s not doing it this time either.
The most important of these approvals is Tezspire, the most recently approved of the lot. The drug is approved for patients with severe asthma who are 12 years old or older, and it’s one the company’s management expects to be a significant revenue driver ahead.
The company’s pharma pipeline features 38 candidates ranging from early stages to late stages of development, including more than 20 late-stage clinical trials. The vast majority of these candidates target high-value indications in fields like oncology (cancer treatments), neuroscience, hematology (blood disorder treatments), and nephrology (kidney disease treatments).
All told, the company’s fundamentals are strong. At the end of 2021, it had well over $8 billion in cash on hand – plenty to get it over the biosimilar competition hurdle. Considering the company’s long history of producing and marketing blockbuster products and a more than reasonable valuation, now may be the perfect time to dive into Amgen as a long-term play.
4. Novavax Inc. (NASDAQ: NVAX)
Best for banking on vaccines.
- Performance: Novavax shares have lost more than 58% of their value YTD and are down more than 70% over the last year. The stock is up over 200% over the past five years.
- Dividend Yield: 0%
- Market Cap: $4.7 billion
- Analyst Ratings: Seven analysts rate the stock a Buy, one rates it a Hold, and one rates it a Sell. The average price target is $124.83, representing a potential 106%+ upside ahead.
Novavax may be a familiar name to you. If so, you likely heard it when the race to develop the first COVID-19 vaccine took place. Unfortunately, other companies beat Novavax to the finish line. Nonetheless, you shouldn’t count this innovative biotechnology company out.
The company’s COVID-19 vaccine candidate, NVX-CoV2373, isn’t exactly a candidate anymore. It has received approval in the United States, the European Union, India, Indonesia, the Philippines, and South Korea.
However, none of those are the most impressive accomplishments the company made with its COVID-19 vaccine. It received Emergency Use Listing (EUL) from the World Health Organization (WHO). This listing is key to taking part in the COVAX Facility, a WHO initiative to ensure vaccine access to the low- and middle-income nations of the world.
And Novavax’s single protein molecule COVID-19 vaccine isn’t the only trick it has up its sleeve. Novavax has been working on NanoFlu for several years, and the fruits of its labor may be just around the corner. Positive Phase 3 clinical results were announced just before the onset of the coronavirus pandemic. I expect to hear more about potential regulatory filings soon.
Finally, Novavax may produce a best-of-both-worlds vaccination. The company’s currently working to combine its NanoFlu technology with its NVX-CoV2373 vaccine to produce a dual-purpose vaccine targeting the flu and COVID. Should the company be successful in doing so, it may pave the way for tremendous future growth.
Sure, NVAX is one of the riskier players on this list, but the stock also represents one of the biggest opportunities. If the company receives FDA approval for its COVID vaccine or successfully produces a dual-action vaccine for COVID and the flu, its stock could fly through the roof.
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. Axsome Therapeutics Inc. (NASDAQ: AXSM)
Best for buying before a potential blockbuster approval.
- Performance: AXSM shares are up 18% YTD, 63% YoY, and 729% over the last five years.
- Dividend Yield: 0%
- Market Cap: $1.74 billion
- Analyst Ratings: Eight analysts rate the stock a Buy, one rates it a Hold, and one rates it a Sell. The average price target is $70.11, representing a potential 56% upside.
Axsome is the smallest biotech company on this list, but don’t let that fool you – it could have a blockbuster drug on the market in no time.
The company’s flagship candidate is AXS-05, which is currently under development to treat depression and Alzheimer’s disease-related agitation. The drug is also being developed as a cigarette smoking cessation aid.
The company already filed for approval in the first of these indications, depression. But the FDA rejected it, citing two manufacturing deficiencies. The company is working with the regulatory agency to address these issues and expects to produce a positive outcome.
If the drug is approved for all indications, it could become a major hit. Analysts predict that AXS-05 has the ability to produce about $2.6 billion in annual revenue at its peak.
The company’s pipeline also includes two more late-stage candidates, one that targets migraine headaches and the other indicated for the treatment of fibromyalgia. Between the two, analysts expect the company to generate additional revenue between $1 billion and $1.5 billion. Not too bad for a company with a market cap below $2 billion!
Sure, there are clear risks here. These therapeutics may never make it to market, and any investment in Axsome Therapeutics may prove to be a loss.
But that doesn’t look to be the way things are going. The company has produced plenty of positive clinical data, and the only reason its NDA was rejected had to do with manufacturing inefficiencies that will likely be easy to solve. So if you’ve got a healthy appetite for risk, AXSM stock is worth some serious consideration.
In my opinion, the stocks above are the best biotech stocks to buy at the moment – in my opinion. The top biotech stocks for your unique portfolio may be completely different. That’s why it’s important to do your own research and form your own opinions when you invest your hard-earned money.
If you’re not comfortable researching individual stocks, consider diving into an exchange-traded fund (ETF) or mutual fund. There are plenty of healthcare ETFs and mutual funds that provide diversified exposure to the sector with investments managed by the pros.
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.