Biotech stocks have been front and center on investors’ minds this year for obvious reasons. In fact, most current discussion regarding biotech stocks is centered on vaccines for the novel coronavirus and news related thereto. Yet, this article will discuss biotech stocks from the perspective of disruptive potential for the future.
These firms will be less likely to be those that address the current health crisis. This is because biotech stocks with disruptive potential are more likely geared toward greater health issues such as cancer and dementia. Overall, though, biotechs are inherently speculative, as they often fizzle out.
Nevertheless, biotech stocks represent entrepreneurial spirit combined with state of the art science. The massive funding they require correlates to astronomical revenue for those that do bear fruit. Therefore, investors searching for that should consider adding a few to their portfolios.
That said, here are five great names we’re going to take a closer look at:
- Alexion Pharmaceuticals (NASDAQ:ALXN)
- CRISPR Therapeutics (NASDAQ:CRSP)
- Vertex Pharmaceuticals (NASDAQ:VRTX)
- Editas Medicine (NASDAQ:EDIT)
- XBiotech (NASDAQ:XBIT)
So, with all of that in mind, let’s dive in.
Biotech Stocks to Buy: Alexion Pharmaceuticals (ALXN)
Alexion is a pharmaceutical company which develops treatment drugs for rare diseases. As such, its markets are often small. However, the high price of the treatments it develops makes up for the lack of volume — creating a viable business model.
Moreover, Alexion’s top-selling drug — Soliris –is used to treat a few disorders and generated roughly 70% of sales last quarter. Soliris is used to combat the effects of paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic-uremic syndrome (aHUS).
However, the company does have other revenue producing therapeutics in its arsenal. Alexion will also lose patent protection on Soliris in 2021, opening the door for generic competitors. Thus, the company is eager to ensure that it can replace that likely waning revenue stream.
One candidate is Ultomiris, which is used against PNH. That said, the company is attempting to switch patients to the drug as it does not go off patent soon. Investors would note that the dosage prices for each Soliris and Ultomiris are $500,000 and $458,000, respectively.
So, if you’re keeping track, there are downsides here. Soliris treats two disorders, where Ultomiris treats only one. Thus, less potential revenue.
And while both Soliris and Ultomiris are expensive, the latter is roughly 10% cheaper. Furthermore, Ultomiris is administered once every 2 months, while Soliris is required twice monthly. Again, not a positive for revenue.
Overall, though, the company is committed to returning half a billion dollars to shareholders this year and at least a third of free cash from 2021 to 2023. Investors should couple this with the undervalued nature of the stock and its potential to make another rare disease treatment.
In turn, there is plenty of upside in ALXN stock.
CRISPR Therapeutics (CRSP)
CRISPR Therapeutics will be an easily recognizable name to those familiar with the biotech space. Its gene editing technology holds massive promise in treating blood disorders, cancer, diabetes and other diseases. These are some of the greatest health problems of mankind. Nothing hyperbolic here, just the truth. And biotechs like CRISPR are at the leading edge of a paradigm that will transform human health and lifespan.
CRSP stock has basically continually risen since its IPO several years ago. Currently, though, shares sit around $90 — with the potential to rise much, much higher. In turn, nalysts are generally bullish on the stock, giving it a consensus overweight rating.
So, while the company recently suffered an earnings miss sending shares down, investors should not buy this for its quarter-to-quarter performance. Doing so misses the bigger picture, which is what biotech investing is really all about. And overall, the big picture is massive windfalls for the therapies this company is capable of developing using its CRISPR technology platform.
That said, there are three steps prior to bringing a therapy to market: research, IND-enabling and clinical testing. CRISPR has five therapies already at the clinical stage meaning revenue is very close.
The company’s therapeutics are addressing two blood disorders related to the production of hemoglobin: Beta-thalassemia and sickle-cell disease. Both diseases can have devastating effects, and CRISPR’s therapeutics are in the clinical stages at present. Furthermore, the general market for sickle-cell therapies is large. In fact, Bank of America predicts that sales of sickle-cell therapies will exceed $6 billion by 2028. Moreover, the company is also enrolling patients in clinical trials for three immuno-oncology therapies.
Collectively, the point here is that the success of any of these trials has the potential to not only ease human suffering, but also result in massive sales. That said, investors who’d like a short primer on the company can look at this presentation.
Biotech Stocks to Buy: Vertex Pharmaceuticals (VRTX)
Vertex Pharmaceuticals is strategically aligned with CRISPR. The two companies are collaborating on both the sickle cell and beta thalassemia therapies mentioned above. Not only that, but also they are working on four other therapies collaboratively. And while this collaboration will dictate the company’s fate, Vertex has other revenue projects in its pipeline. These other reasons should entice investors.
Analysts believe its shares have plenty of upside at their current price in the $270s. In fact, the price target range is as high as $340, with most rating shares a buy. And while the company has posted strong results with EPS based earnings beats in both Q1 and Q2, think longer. Yes, recent results are encouraging, but where this company makes most sense is from the perspective of its future potential.
Moreover, Vertex had three products which provided at least $200 million in revenues in Q2. That said, perhaps most important is that the biggest didn’t provide any revenue in Q2 last year. Trikafta is a breakthrough cystic fibrosis therapy which was approved by the FDA late in 2019. In Q2 of this year, it brought in $918 million in revenue — far outpacing Vertex’s other $200 million-plus revenue drugs.
Overall, Vertex’s three other drugs are Symdeko, Orkambi, and Kalydeko. All three are used in treating cystic fibrosis. Therefore, with all that in mind, investors should give VRTX stock a serious look with both sickle cell disease and cystic fibrosis therapies in its pipeline.
Editas Medicine (EDIT)
Editas Medicine has a large pipeline of therapeutics, and investors should consider this stock first and foremost because of this. In total, the company has three therapeutics.
Additionally, Editas utilizes CRISPR gene editing technology as its development platform. The 10 therapies it has treat ocular disorders (3), blood disorders (2), cancer (4), and neurological disorders (1). Importantly, only one is in the clinical stages of development, and this stage immediately precedes commercialization. However, the company looks to be progressing toward IND filing for its sickle cell and beta thalassemia therapies. IND filing is essentially the second hurdle drugs must pass of three prior to commercialization.
In terms of financial news that would catalyze investment, there hasn’t been much. The company’s only significant Q2 year-over-year change was an increase in collaboration and R&D revenues from $2 million to $10 million. However, that isn’t very important in the grand scheme of things given the scale and costs present in the biotech industry. The company still reported a net loss of $23.6 million for the quarter.
Investors in this area will be quick to note that financials are not that important despite the seemingly large losses here. What really matters is securing funding and progressing research through the clinical pipeline. Editas is continuing to do that.
Overall, the point here is that this company is one to buy for the future with a ton of upside. EDIT stock competes in a sector of biotech that seems to be just beginning to bear fruit. And as companies begin to grasp the power of gene editing, there are going to breakthroughs minting overnight millionaires.
Biotech Stocks to Buy: XBiotech (XBIT)
The last stock in this article is also the best value pick. Currently, XBIT stock has a very low trailing price-earnings (P/E) ratio of 1.1 — making it a real value.
Recently, one of XBiotech’s therapeutic candidates showed promise in mediating the effects of stroke. The candidate drug works by blocking interleukin-1 alpha which is an inflammatory response to injury. The applicability is in the use as a therapeutic in stroke patients who suffer an inflammatory response following reperfusion. XBiotech’s drug could block that response, which could in turn, lessen the neurological deficits that stroke victims often suffer.
That said, the upshot is the potential to make strokes much less devastating. Of course, there is a lot of money in such a treatment. Thus, investors should consider XBIT stock now.
Some investors are worried that the company has sold off valuable rights in regard to its interleukin treatment. However, that application for interleukin-1 alpha blocking therapeutics was dermatology, and not strokes. The company actually received $750 million in cash from that deal, which also may later pay another $600 million.
Overall, investors should consider these stocks as solid buys for the future. Investors should also note that gene therapies for sickle cell disorder popped up multiple times within this article. This is a trending theme in biotech, and markets are interested because of the potential windfall there. However, the interest is also there because solutions there can lead to other related therapies creating cascade of revenues.
But, regardless of whether readers choose to invest in any of these stocks or not, sickle cell disorder and beta thalassemia therapeutics might deserve to be on your radar.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing. As of this writing, Alex did not own shares of any stocks mentioned above.