In this article, we are going to present to you the 12 Best Large Biotech Stocks to Buy Now. Click to skip ahead and jump to the 5 Best Large Biotech Stocks to Buy Now.
Biotech companies are research science-driven companies focusing on novel drug development and clinical research with aims to treat diseases and medical conditions. Biotech stocks are popular among investors who want to generate large returns in a short period of time. They are usually high risk and high return investments.
In a recent article, we defined the difference between a pure pharmaceutical company and a biotech company. Please see the 15 largest Biotech companies in the world based on market capacity and revenue for details.
When the COVID-19 pandemic was declared, many were betting on companies in the biotech industry with high hopes of ending the virus worldwide.
Recently, the US Department of Health and Human Services launched the nation’s first foundry for American Biotechnology which will be located in Manchester, New Hampshire, and managed in conjunction with Manchester-based DEKA Research and Development Corporation as part of a public-private partnership. The project aims to respond to health security threats, enhance daily medical care, and add to the nation’s economy. HHS Secretay, Alex Azar mentioned,
"As the outbreak of the novel coronavirus reminds us, protecting the health and security of the American people requires constantly investing in biotechnology innovation and partnering with the private sector"
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Even before the pandemic, biotech companies were receiving positive feedback from investors. In 2019, US biotech companies raised $5.6 billion in capital through initial public offerings (IPOs). This figure went up sharply in 2020 as biotech companies managed to raise nearly $$7 billion during the first 7 months of the year through IPOs. Biotech companies usually raise even more capital through secondary stock offerings as well as convertible note sales. Drug development is an expensive, multi-year process and the capital raised by biotech companies through an IPO usually isn't enough to get through the entire process. As a result, a large percentage of newly IPOed biotech companies usually go back to investors and raise more capital (in some cases multiple times) to fund their operations and research. These security offerings are generally very dilutive to the existing shareholders.
On top of these dilutive security offerings, there are no guarantees that the research undertaken by these biotech companies will bear fruit. In fact, only around 10% of experimental drugs manage to get FDA's approval. However, getting FDA's approval doesn't mean that these biotech companies are free and clear, and they can start making billions of dollars. We have seen companies whose stock prices went down right after getting an FDA approval. That usually happens because investors know that these companies will probably need more capital to fund the development of their sales and marketing operations. There are a lot of biotech companies with approved drugs, yet they can't generate enough sales to turn a profit. So, you need to understand that it isn't easy for a small biotech company to become a large biotech company and deliver 1000% gains. These are rare cases. That's why it might be a better idea to identify the best large-cap biotech stocks and invest in them.
According to Grand View Research, the global biotechnology industry is estimated to reach $727.1 billion by 2025 and at a CAGR of 7.4%. The best large-cap biotech stocks not only capture a large percentage of these sales, they also have a lot of potential blockbuster drug candidates in their pipelines. As you may have guessed, the US dominates the biotechnology market by a wide margin.
In this article, you will find the best large biotech stocks to buy now based on the largest holdings from iShares Nasdaq Biotechnology ETF (IBB). In order to identify the 12 best large biotech stocks to buy now, we based our list on IBB’s top 15 holdings. We were able to identify and rank the 12 best large biotech stocks using hedge fund sentiment scores. As we go along the list, you will notice that Moderna (NASDAQ:MRNA) was one of the largest holdings based on IBB’s top 15 holdings but it did not make our list because hedge funds did not invest in the stock in large numbers.
Our in-house research shows that by using the hedge fund sentiment data, we can classify a select group of stocks that can outperform the S&P 500 index on average by double digits annually. For instance, our monthly stock pick newsletter portfolio has beaten the market by more than 78 percentage points since March 2017 (see the details here). We have also publicly posted some of our monthly newsletter's portfolio picks publicly. In October, we shared this real estate stock idea and since then it is up more than 50 percent.
Based on our hedge fund sentiment data, we present to you, the 12 Best Large Biotech Stocks to Buy Now among the 800+ hedge funds by Insider Monkey:
12. Sarepta Therapeutics, Inc. (NASDAQ:SRPT)
No of HFs: 35
Total Value of HF Holdings: $880 Million
We start our list of the best large biotech stocks to buy now with, Sarepta Therapeutics, Inc. originally named Antivirals, Inc., SRPT is a medical research and drug development company that focuses on the development of precision genetic medicines to treat rare neuromuscular and central nervous system diseases. During the third quarter of 2020, the company reported net product sales of $121.4 million, a 23% increase over the same quarter of 2019.
The top hedge fund holder of this stock is Kurt Von Emster’s VenBio Select Advisor with over $235 million invested in the stock at the end of September.
11. Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY)
No of HFs: 35
Total Value of HF Holdings: $902 Million
ALNY ranks 11 among the 12 best large-cap biotech stocks to invest in. Alnylam Pharmaceuticals, Inc. focuses on the discovery, development, and market of RNA interference therapeutics for genetically defined diseases. The company’s first medicine, ONPATTRO (patisiran) became the world’s first approved RNAi therapeutic. During the third quarter of 2020, ALNY reported global net product revenue of $82.5 million, including over 20% quarterly US growth, with more than 1,150 patients on commercial products worldwide.
The company recently announced their 2021 product and pipeline goals where John Maraganore, Ph.D., Chief Executive Officer of Alnylam mentioned,
“In 2021, across our portfolio of partnered and proprietary programs, we aim to deliver performance on four commercial brands, file one new NDA, and report topline results on two Phase 3 programs, amongst other objectives. In the coming years, we believe Alnylam is positioned to emerge as a leading, top-five biotech company, driven by continuous global commercial execution and top-line growth, advancement of a robust clinical development pipeline, continued leverage of our organic product engine as a source of sustainable innovation and transformational medicines, and achievement of a self-sustainable financial profile.”
10. Incyte Corporation (NASDAQ:INCY)
No of HFs: 35
Total Value of HF Holdings: $3.8 Billion
Incyte Corporation is a global pharmaceutical company that focuses on finding solutions for unmet medical needs. Their research is focused on transforming the treatment of cancer and inflammatory and autoimmune conditions. During the third quarter of 2020, the company reported a total product and royalty revenue of $621 million.
The company recently announced that phase 3 of their RUXCOVID study with Novartis did not meet its endpoint. Although this may be disappointing, John Tsai, Novartis’ head of global drug development and the chief medical officer said, they will not stop working to understand COVID-19 and the role of JAK inhibition,
"While the RUXCOVID trial did not give us the results we hoped for, we will continue working with the medical community to analyse its findings to better understand COVID-19 and the role of JAK inhibition,"
9. Illumina, Inc. (NASDAQ:ILMN)
No of HFs: 44
Total Value of HF Holdings: $1.3 Billion
ILMN ranks 9th in our list of the top large-cap biotech stocks to buy now. Illumina develops integrated systems for the analysis of genetic variation and biological function. During the third quarter of 2020, the company reported a revenue of $794 million, an increase of 26% compared to the second quarter of 2020.
In an article, we mentioned what RiverPark Advisors, LLC’s investor letter said about ILMN,
“Illumina: ILMN shares were our top detractor for the quarter, as the market viewed negatively its $8 billion purchase of liquid biopsy leader GRAIL. The acquisition marks a shift in strategy for Illumina from its highly profitable selling of tools to the liquid biopsy market (among other markets) to actively participating in the development of tests themselves. This market (earlystage cancer screening via blood samples), however, is a massive long-term opportunity that can dramatically change the face of healthcare. GRAIL is a leader and should have a commercial product as early as next year.
We continue to view the company’s core genomics industry as offering one of the larger total addressable markets that we cover, and ILMN is the clear innovation leader in sequencing and array-based solutions for genetic analysis. With less than 0.02% of humans having been sequenced and 99% of the variants discovered in the genome having not yet been deciphered, Illumina, at only $3.4 billion of TTM revenue, is still in its infancy in what is potentially a greater than $50 billion genetics analysis tools market opportunity. With Illumina’s entrance into the potentially larger liquid biopsy market, we believe that the company has a significantly larger growth opportunity ahead.”
In a separate article, we mentioned Baron Asset Fund’s investor letter highlight on ILMN
“Illumina, Inc. is the leading manufacturer of DNA sequencing systems for genetic analysis. Shares fell as lower utilization of the company’s systems during COVID-19 led to disappointing second quarter financial results. Illumina also announced the acquisition of Grail, which is developing a blood test for early stage cancer detection. Investors responded negatively to the acquisition because of substantial near-term earnings dilution and concerns about competition with Illumina’s customers. Although we appreciate these concerns, we believe the Grail investment offers the potential for significant long-term value creation in the rapidly growing market for early cancer screening.”
8. Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN)
No of HFs: 44
Total Value of HF Holdings: $1.4 Billion
REGN ranks 8th in our list of the best large-cap biotech stocks to buy now. Regeneron Pharmaceuticals, Inc. is one of the leading biotechnology companies using the power of science to invent life-transforming medicines for people with serious diseases. During the third quarter of 2020, REGN announced total revenue increased by 32% to $2.294 billion in the third quarter of 2020 compared to $1.744 billion in the third quarter of 2019.
Is REGN a compelling investment case? Check out this article, where Polen Capital Management mentioned that Regeneron was their largest absolute detractor in the third quarter.
“Regeneron was our largest absolute detractor in the third quarter, although year to date, the shares have appreciated nearly 60%. Before the end of the third quarter, Regeneron released early data on its COVID-19 antibody cocktail therapy. Data showed a strong reduction in viral load for patients who had not yet produced their own antibodies and almost no adverse events in approximately 275 patients. Soon after Regeneron’s data was released, it was announced that the President received the same therapy early in his own COVID battle. We have not included revenues from this drug in our expectations for Regeneron as we are unsure how big or how long any sales would last. That said, we believe the speed and accuracy of bringing this drug to market is a testament to Regeneron’s R & D prowess. In six months, this therapy went from idea to development to real patient treatment with strong efficacy data thus far.”
7. BioMarin Pharmaceutical, Inc. (NASDAQ:BMRN)
No of HFs: 44
Total Value of HF Holdings: $1.5 Billion
BMRN ranks 7th in our list of the best large-cap biotech stocks to buy now. BioMarin Pharmaceutical, Inc. is headquartered in San Rafael, California. The company focuses on the development of innovative biopharmaceuticals for rare diseases driven by genetic causes. During the third quarter of 2020, the company reported total revenue of $477 million.
The top hedge fund holder of this stock is Julian Baker and Felix Baker’s Baker Bros. Advisors, which had $577 million, invested in the stock at the end of September.
6. Amgen, Inc. (NASDAQ:AMGN)
No of HFs: 45
Total Value of HF Holdings: $1.2 Billion
Amgen, Inc. formerly known as Applied Molecular Genetics, Inc is a multinational company that focuses on unlocking the potential of biology for patients suffering from serious illnesses. The company’s top-selling drugs between 2017 to 2019 were Enbrel, Neulasta, Prolia, XGEVA, Aranesp, KYPROLIS, EPOGEN, and Sensipar. During the third quarter of 2020, Amgen reported total revenue of $6.4 billion, a 12% increase in comparison to the third quarter of 2019.
The top hedge fund holder of this stock is Cliff Asness’ AQR Capital Management, which had over $300 million invested in the stock at the end of September.
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Disclosure: None. 10 Best Large-cap Biotech Stocks To Buy Now is originally published at Insider Monkey.