If you're thinking about investing in biotech stocks, there's no time like the present. Many biotechs have plenty of catalysts in the near future that could light a fire beneath their share prices. But which biotech stocks are the best picks?
We asked this very question to three Motley Fool contributors. They identified Catalyst Pharmaceuticals (NASDAQ: CPRX), Intercept Pharmaceuticals (NASDAQ: ICPT), and Vertex Pharmaceuticals (NASDAQ: VRTX) as top biotech stocks to buy right now. Here's why they think these three stocks stand out.
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The trend is your friend
George Budwell (Catalyst Pharmaceuticals): Catalyst Pharmaceuticals, a rare-disease drug specialist, has been crushing it this year. The biotech's shares have risen by 82% during the first three months of the year and its stock is showing no signs of cooling off.
What's driving Catalyst's stratospheric move higher? On Jan. 15, the biotech launched its Lambert-Eaton myasthenic syndrome treatment called Firdapse. However, Wall Street didn't have particularly high expectations for the drug heading into this launch because of its $375,000-per-year price tag and the fact that a highly similar medicine, known as 3,4 DAP, costs next to nothing for most patients.
Catalyst's fourth-quarter earnings report, though, radically changed Wall Street's tone toward Firdapse. The headline from this latest earnings release is that Firdapse has captured most of the 3,4 DAP patient population within just the first two months of its launch, with next to no resistance from major insurance companies. That's a big win for Catalyst and its shareholders.
Looking ahead, Catalyst is scheduled to release top-line data for Firdapse's two pivotal trials in congenital myasthenic syndromes and muscle-specific tyrosine kinase myasthenia gravis. And in the back half of 2020, the company is slated to unveil the drug's proof-of-concept data in spinal muscular atrophy type 3 as well.
If these additional indications all pan out, Firdapse has a realistic shot at posting blockbuster-level sales figures (annual sales in excess of $1 billion) in the next decade. And that's a key reason why analysts at Oppenheimer think this red-hot biotech stock could shoot up by yet another 84% within the next 12 months.
Introducing your de facto NASH winner
Sean Williams (Intercept Pharmaceuticals): It's been a wild past two months for mid-cap liver-focused drugmaker Intercept Pharmaceuticals.
After years of waiting, investors were finally treated to phase 3 data from the Regenerate study in mid-February, which examined Ocaliva as a treatment for nonalcoholic steatohepatitis (NASH). NASH is a liver disease that could impact up to 5% of the adult U.S. population and is expected to be the leading cause of liver transplants by the midpoint of the next decade. Having two co-primary endpoints -- a statistically significant reduction in liver fibrosis and NASH resolution -- Ocaliva met the first, liver fibrosis, while having a positive impact on NASH resolution, although the impact wasn't statistically significant relative to the placebo.
Although this probably sounds great, Intercept came under fire for the safety of its drug, which is currently approved to treat primary biliary cholangitis (PBC). Having already faced safety concerns regarding incorrect dosing for PBC patients in September 2017, Intercept now had to deal with high instances of pruritus (i.e., itching), which occurred in 51% of patients taking the more-effective higher dose (25 mg) in the Regenerate trial. Roughly 9% of patients had to discontinue treatment due to pruritus in the high-dose arm, compared with less than 1% in the low-dose Ocaliva arm and placebo.
So, where does Ocaliva's market opportunity lie? My belief as a shareholder since September 2017 is that it's still pretty significant. There are no other Food and Drug Administration (FDA)-approved treatments for NASH, and what few companies have recently reported clinical data on NASH have come up empty. Gilead Sciences' selonsertib failed miserably in late-stage trials just a week before Intercept reported its Regnerate trial results, while Conatus Pharmaceuticals bombed just over a week ago in mid-stage studies. The recent failure rate in NASH is high, and right now Intercept appears to have a clear path to market sometime in 2020.
From a sales perspective, Ocaliva is expected to generate $225 million to $240 million from PBC in 2019, up strongly from $177.8 million in global sales in 2018. But by 2022, following the expected expansion of its label to include NASH, Intercept could top $1 billion in annual sales. That would place the company at three times its 2022 sales (which may not even be its peak). That's frankly low relative to the multiples we've seen in biotech stocks in recent years. Though I believe upside will be somewhat modest (i.e., this stock won't see $400 again), Intercept looks to be a bargain following its FDA approval.
A biotech with a fitting name
Keith Speights (Vertex Pharmaceuticals): A vertex is the highest point of a mountain or a geometric figure. I think that definition is quite fitting for Vertex Pharmaceuticals. In my view, Vertex is the top biotech stock on the market right now. That's a bold claim, but I think the facts for Vertex back it up.
Vertex dominates the cystic fibrosis (CF) market with its three approved drugs Kalydeco, Orkambi, and Symdeko. The company could more than double the number of patients using its drugs without having to gain any additional approvals. But Vertex fully expects to pick up additional approvals that allow the drugs to treat younger patients, increasing its addressable market.
An even greater opportunity lies with Vertex's triple-drug combination therapies for treating CF. The biotech plans to file for regulatory approval for its first triple-drug combo within the next few months. Assuming the combo wins approval as expected, Vertex's addressable market will expand by close to 75%.
What about potential competition? No worries. Vertex has a commanding head start over AbbVie. A small potential rival, Proteostasis Therapeutics, is advancing a triple-drug CF combo to phase 2 clinical studies. However, Vertex's data for its combo appear to be much better than what Proteostasis has reported so far.
In addition to all of this good news, Vertex is developing drugs that treat diseases other than CF. The company's big cash stockpile should enable Vertex to add to its pipeline in the future as well.
Perhaps the biggest downside for Vertex is that its shares trade at nearly 29 times expected earnings. But with exceptionally strong growth prospects ahead of it, I think Vertex remains a great biotech stock to buy right now.
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George Budwell owns shares of AbbVie. Keith Speights owns shares of AbbVie, Gilead Sciences, and Vertex Pharmaceuticals. Sean Williams owns shares of Intercept Pharmaceuticals. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool recommends Intercept Pharmaceuticals and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.