Biotechnology is a notoriously difficult industry to invest in. Companies live or die based on the strength of their patents and the speed and impact of their innovations, and there are very few sure bets from an investment perspective among the businesses that operate within it. Particularly when the overall market is on a roller-coaster ride, biotech can be a frightening sector to consider.
Still, as the old saying goes, often the best time to buy is while there's blood in the streets. We asked three of our contributors to help cut through the clutter and concern and look for biotech stocks worthy of considering buying today. They picked Celgene (NASDAQ: CELG), Acceleron Pharma (NASDAQ: XLRN), and Nektar Therapeutics (NASDAQ: NKTR).
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Keith Speights (Celgene): I get it. Celgene has made some boneheaded mistakes, most notably its botched filing for ozanimod earlier this year. The company is reliant on one drug, Revlimid, for the lion's share of its revenue. And the market has tanked. But Celgene is now ridiculously cheap. So cheap, in fact, that it's my No. 1 no-doubt-about-it top biotech stock to buy right now.
Celgene currently trades for a little over six times expected earnings. Think about what that metric actually means. If Celgene hits earnings expectations next year (and it almost certainly will) and simply kept earnings at that level for five more years, it would make enough in profits to buy all of its shares back.
Sure, Revlimid will face generic competition no later than 2023. But Celgene has other strong products already on the market with Otezla and Pomalyst. Abraxane's sales growth isn't anything to write home about, but it should still rake in over $1 billion this year.
More importantly, Celgene's pipeline is loaded to the brim with promising blockbusters. There's ozanimod (which should sail through to Food and Drug Administration approval this time around), luspatercept, liso-cel, fedratinib, bb2121 -- and that's just the candidates that could hit the market within a couple of years.
Could Celgene drop even more? Sure. But there's only so low a biotech with an already dirt cheap price and strong growth prospects will go.
This tiny biotech could have big news coming
Todd Campbell (Acceleron Pharma): It's almost that time of year again. The flip of the calendar to a new year corresponds to the annual J.P. Morgan Healthcare Conference, a highly anticipated event during which companies put their best foot forward for investors.
Picking the conference's winners and losers is tough, but Acceleron Pharma is one company that could come out of the conference with positive momentum. Last year, it unveiled data from trials evaluating luspatercept in beta thalassemia and myelodysplastic syndromes showing its use can reduce transfusion burden in patients, significantly decreasing treatment costs while improving patients' quality of life.
The company is particularly intriguing to me because luspatercept is licensed to Celgene, a deep-pocketed biopharma giant with a penchant for acquisitions. Last year, Celgene announced its acquisition of Impact Bio during the J.P. Morgan conference, and while I have no idea if it will announce a deal this year, I feel confident luspatercept will be a central focus of Celgene's pitch to investors.
Celgene's already has a 12% ownership stake in Acceleron Pharma, and in 2018, it's highlighted luspatercept as a potential backbone drug with peak sales potential north of $2 billion. Acceleron currently has a co-promote option on luspatercept for North America and it can receive low-to-mid 20% royalties on sales.
Admittedly, there's no telling if Celgene will acquire Acceleron Pharma outright, but even if it doesn't, the potential approval of luspatercept means Acceleron Pharma could be generating significant revenue soon, making it a speculative investment worthy of consideration.
A decent pipeline, proven products in market, and a reasonable price
Chuck Saletta (Nektar Therapeutics): Ordinarily, when a pharmaceutical company trades at a modest valuation, it's a sign that it has blockbuster products about to lose patent protection and not much in the pipeline to replace them. With Nektar Therapeutics, on the other hand, the stock is down because of less-than-perfect results from the clinical trials of one of the products in its pipeline.
Despite those results, the company still has a decent pipeline of both independent compounds and partnered ones that offer hope of treatments for cancer and auto-immune disease patients. Perhaps most encouragingly in the short term, it has filed a New Drug Application for its pain medicine NKTR-181. That compound is an opioid pain medication that works without causing nearly as much euphoria as traditional opioids.
Addiction to opioid painkillers drives a huge part of the drug abuse crisis in the United States. If Nektar's compound can provide effective pain relief without the euphoric -- and addictive -- side effects, it may become a critical part of stemming that abuse problem.
In addition to its pipeline, it developed two products that are in market in the U.S. (licensed to partners) and has licensed its technology for several other compounds as well. Those licenses both provide revenue to the company and help establish its track record in the event additional funding may be needed to bring future innovations to market. With its shares trading near their lows for the year, now may be a great time to consider Nektar Therapeutics shares.
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Chuck Saletta has no position in any of the stocks mentioned. Keith Speights owns shares of Celgene. Todd Campbell owns shares of Celgene. The Motley Fool owns shares of and recommends Celgene. The Motley Fool has a disclosure policy.