While the biotech sector saw early gains in 2019, the selling pressure has picked up steam recently as the government continued its scrutiny over the Medicare system and the pricing model for drugs. Not only are biotechnology stocks lower, but so are drug stores and drug plan suppliers. But this could be creating an interesting entry poinnt. Investors could invest in all of those sectors but the biotechnology stocks could prove the most rewarding.
Biotechnology companies spend enormous amounts of money and time developing drugs. They will eventually prove to the government that rising product prices are a necessity in developing novel and better drugs. Should they succeed and a drug comes to market, everyone wins.
Patients who need the drug will have another treatment option. Drug plan providers may negotiate better prices and offer
Biotech Stocks to Buy: Regeneron Pharmaceuticals (REGN)
Regeneron Pharmaceuticals (NASDAQ:REGN) fell 14% on news that its competitor, Novartis AG (NYSE:NVS), secured a speedy review for brolucizumab for use in wet, age-related macular degeneration. In August 2018, the FDA approved Regeneron’s marketing for Eylea. But if Novartis has a superior product, this could put pressure on one of Regeneron’s major product lines.
In 2018, Eylea sales topped $4.1 billion, up from $3.7 billion in 2017.
Markets chose to ignore the ongoing success of Regeneron’s Dupixent drug. In 2018, sales topped $922 million. The high efficacy and safety profile of the injectable drug will surely drive sales higher this year and beyond. Dermira (NASDAQ:DERM) may have announced good Phase 2b study results last month but the company is a long way away from releasing a competitive product.
Sarepta Therapeutics (SRPT)
Sarepta Therapeutics (NASDAQ:SRPT) lost about one-third of its value from 52-week highs. Markets are still unhappy over the company’s $350 million share offering announced in March. The company said that it would use the proceeds “for the continuation and initiation of further clinical trials, commercialization, manufacturing, business development activities, including the potential licensing or acquisition of complementary products, technologies and entities.”
More recently, Sarepta presented a positive development in its gene therapy. With four patients involved in the age group of 4-7, the study met the primary end-point for safety. Secondary endpoints included a decrease in CK and a change in micro-dystrophin expression before and after treatment.
In the fourth quarter, Sarepta reported revenue increasing 47.3% Y/Y to $84.4 million. Still, even though the company reported a loss of $2.05 a share (GAAP), EXONDYS 51 revenue for the year topped $301.1 million. The company’s NDA filing for golodirsen with priority review and a PDUFA of August 19 is notable. Golodirsen advances Sarepta’s RNA strategy. The drug is for patients with Duchenne Muscular Dystrophy Amenable to Skipping Exon 53.
If the company receives approval, it would gain another 8% of the Duchenne community.
In the fourth quarter, Sarepta tripled its R&D spending, to $146.2 million. $10.4 million of the costs in clinical and manufacturing expenses also include a ramp up in manufacturing activities for Golodirsen.
Sarepta is scheduled to report first-quarter results on May 29, after market close.
Incyte Corporation (INCY)
Incyte Corporation’s (NASDAQ:INCY) 14% monthly drop on the stock market, to a recent closing price of $73.52, should pique value investor interest. In the fourth quarter, the company reported revenue growing 25.2% to $468.4 million. Non-GAAP EPS came in at 40 cents.
The markets may have a memory that is too short-term. In the quarter, it saw a growth of 22% from Jakafi, 19% from Iclusig and 28% growth in Jakavi royalties. Jakafi is used for the treatment of intermediate or high-risk myelofibrosis. Management forecast Jakafi sales of $1.58 billion to $1.65 billion in 2019. Olumiant is now adding meaningfully to the company’s top-line results. The drug is used to treat adults with moderate to severely active rheumatoid arthritis.
Incyte forecasts the royalty revenue for both Jakavi and Olumiant growing by around 20%. Overall, sales are expected to grow by between 14% and 19% in 2019.
Management is confident that its rich product portfolio will accelerate revenue growth. Already, top-line growth is due to revenue growth exceeding expense growth.
Incyte’s strong balance sheet, with cash growing to $1.4 billion last year, gives the company the flexibility to develop products. Pursuing Phase 1 products will take a few years to pay off. Investors who are patient and buy and hold INCY stock will get rewarded if these projects are successful.
Vertex Pharmaceuticals (VRTX)
Vertex Pharmaceuticals (NASDAQ:VRTX) traded in a narrow range of between $180-$190 for most of 2019, only to fall below $168 in recent sessions. Investors may be getting nervous over its valuation, where its forward P/E is 28 times.
Vertex grows through investing in transformative medicines that offer a benefit, regardless of modality. It develops drugs for cystic fibrosis while expanding its pipeline. In 2018, it initiated clinical development of CRISPR-Cas9 treatment in Beta –Thalassemia and Sickle cell disease. This year, it aims to advance one or more compounds from research into clinical development.
Vertex reported revenue from the CF product line topping $3.04 billion in 2018, up from $2.17 billion in 2017. The company saw a sharp increase in the number of patients being treated by its approved medicines. The launch of Symdeko in the U.S. and multiple label expansions for Kalydeco and Orkambi also added meaningfully to results.
In 2019 and beyond, the company forecasts that with a triple combination regimen, it has the potential to increase treatment from ~44,000 to ~68,000 worldwide.
Non-GAAP operating income also grew sharply, from $564 million in 2017 to $1.11 billion in 2018. For 2019, Vertex forecasts operating income of $1.35 billion.
The 15 analysts who cover VRTX stock have, according to Tipranks, $209 price target, which implies the stock could rise by 23% in the next year. Investors should look at Vertex after the stock’s recent drop.
Bluebird bio (BLUE)
Bluebird bio (NASDAQ:BLUE) fell about 12% in the last week alone, on no company-specific news. Just as markets quickly forgot the strong quarterly earnings report for the other biotech stocks mentioned, investors did the same with BLUE stock.
Bluebird expects LentiGlobin in TDT, a gene therapy, to win approval in 2019. But the company said the launch will be country-by-country progressive in Europe. The upside of this approach is that the company will not commit any major hiccups on the launch. The downside is that the revenue growth from sales will be slow. However, this should not concern investors who have a long-term time horizon in mind.
Last December 2018, the company presented new data for LentiGlobin in patients with transfusion-dependent β-thalassemia (TDT). It also discussed results for its Phase 1/2 HGB-206 study. And in November 2018, it completed enrollment for its Phase 2 study evaluating the efficacy and safety of bb2121 in patients with relapsed/refractory multiple myeloma.
Bluebird ended the fourth quarter with $1.9 billion in cash equivalents and marketable securities. With the most recent cash raise of $600.6 million in July 2018, the company is unlikely to issue any more shares in the short-term. Instead, the company may invest prudently in its clinical studies to advance drug development. Any good news from these studies will drive the stock price back to yearly highs.
Disclosure: As of this writing, the author did not hold a position in any of the aforementioned securities.
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