Biotech has become an increasingly important in the market, as healthcare takes on a more central role in public policy and healthcare events such as the pandemic, or more long-term trends such as ageing populations, have resulted in more expenditure toward healthcare. In looking toward the rest of 2021,
I think that Gilead Sciences (NASDAQ:), CRISPR Therapeutics (NASDAQ:) and InnoCan Pharma (CSE:), are stocks to watch when making capital allocation decisions and looking for exposure in this space.
1. Gilead Sciences
Gilead Sciences has a wonderful portfolio of drugs and research in cardiac and respiratory diseases, Hepatitis C, HIV/AIDS,, liver disease, and oncolog. Gilead’s strength is its capital allocation system. The company has grown net operating profits after tax (NOPAT) by 44% compounded per year since 2003. The company currently has a 16.6% return on invested capital (ROIC), an attractive dividend yield of 4.3% and positive economic earnings over the last decade.
The company has managed to keep its revenues growing even during the pandemic, with operating revenues at $23 billion for the trailing twelve month period. It has spent the last few years investing in acquisitions that it believes will drive long-term growth. Gilead is currently trading at a discount to its usual valuation.
The rollout of the COVID-19 vaccine has led many investors to take their eye away from this giant, and its coronavirus treatment, remdesivir. This is not the sole reason that the stock is trading at a discount: there are other reasons, such as its previously mentioned aggressive acquisitions policy over the last few years, and troubles the company had with its rheumatoid arthritis drug candidate.
This is, however, the time to invest in an undervalued giant with attractive growth prospects. Analysts are expecting zero sales growth year on year, and this is part of the reason why there has been some fear in terms of investing. But as we have said, the company has been very good at delivering profitability over a period of more than a decade. For this reason, analysts like RBC’s Brian Abrahams have named it as a top biopharma pick for 2021, predicting gains of around 50% gains.
2. CRISPR Therapeutics
CRISPR Therapeutics is a Swiss biotech firm that forms part of the Ark Genomic Revolution ETF, an ETF which had an incredibly good 2020. CRISPR Therapeutics is a pure play in a space that is riding a revolutionary wave. One of its co-founders is Emmanuelle Charpentier, who won the Nobel Prize in Chemistry in 2020 for her role in discovering the CRISPR technology.
The company has a few drugs in development, such CTX001, which is used in the treatment of rare blood disorders Beta thalassemia and sickle cell disease, and is being developed jointly with Vertex Pharmaceuticals (NASDAQ:).
CRISPR technology has been called the biggest revolution in gene editing. It is a tool through which we can edit genes. Conceptually, the idea is quite simple: CRISPR allows us to find a specific bit of DNA within a cell, after which, that piece can be altered. CRISPR has also been used for other purposes as well, such as turning genes on and off without changing their sequence.
CRISPR is currently widely used in scientific research and will in the near-term, be used in altering many of the plants and animals in our homes, gardens, or farms. In fact, many people already are eating food that has been altered by CRISPR.
CRISPR technology is being looked at as something which will transform medicine, allowing us to treat as well as prevent many diseases. It will also be possible to change the genomes in our children. China has already attempted to do this, which many people have seen as being both premature and unethical, but some believe that it could be of benefit to children in the future.
CRISPR Therapeutics has been growing economic earnings over the last few years, from a loss of $126 million in 2016 to a loss of just -$260,000 in 2019. ALongside rising profitability operating revenues have been growing as well, going from $5.16 million in 2016 to $289.59 million in 2019.
As the company has become more profitable, ROIC has increased from -26.9% in 2016 to 7.6% in 2019. This suggests that the company is growing a real moat and is better placed to defend its profitability and earn economic profits in the future. CRISPR Therapeutics is certainly leading the way in innovation.
3. Innocan Pharma
Innocan Pharma is an Israeli biotech firm that specializes in developing cannabinoid (CBD) integrated pharmaceutical and cosmetics products. The company recently reached a milestone in this fast growing industry, when it completed initial production in Portugal of SHIR, its premium cosmetic line and Relief & Go topicals, and began manufacturing of the brands in the United States.
The company has 35,000 units of SHIR and Relief & Go in inventory in Portugal, which will act as a distribution centre for the European market. 40,000 units will be developed for the North American market. and will produce an initial stock of 40,000 units for North America. The product launch has generated immense enthusiasm and the share price has continued to do well.
It is also developing an innovative injectable CBD delivery system that will allow doctors to have precise, controlled administration of cannabinoids into the bloodstream. This is a big deal because presently, only 15% of CBD oil can be absorbed when taken orally, though the average is somewhere between 5% and 10%. Liver enzymes destroy more than 80% of CBD’s essential components.
The company’s Liposome Platform Technology (LPT) is a game-changer because it increases bioavailability, in a focused way with precise dosage and time controls. The company is a real pioneer and the market will respond in 2021 to its work.