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Top 10 Healthcare Stocks To Buy for the Future

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Tim Frederick
·6 min read
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In this article we present the list of Top 10 Healthcare Stocks To Buy for the Future. Click to skip ahead and see the Top 5 Healthcare Stocks for the Future.

Small- and mid-cap biotech and pharmaceutical companies represent some of the most compelling gambles available on the market. All it takes is one blockbuster drug to be developed for a small-cap biotech’s shares to explode by dizzying multiples. One need only look to a company like Questcor Pharmaceuticals, which rode a single drug, Acthar, to greater than 5,000% gains and eventually a sale to Mallinckrodt PLC (OTCMKTS:MNKKQ) for $5.6 billion.

On the other hand, there are an untold number of pharma companies that held once-promising pipelines that ended up fizzling out into nothing, their companies and shares relegated to the dustbins of history.

M&A activity is also high in the healthcare sector given the modern cost of drug approval and commercialization being more exorbitant than ever. This can be either a good or bad thing depending on your perspective. Unless you catch a biotech very early, an acquisition at an early stage will severely cap that stock’s upside potential, making you unlikely to hit on a ten-bagger. Nonetheless, it’s one more way you can enjoy sizable returns with smaller healthcare stocks.

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To uncover some intriguing lesser-known biotech and healthcare stocks we turned to Dr. Christiana Goh Bardon’s Burrage Capital Management, a long/short biotechnology/medical technology-focused equity hedge fund based in Boston that was founded in 2010 by Dr. Bardon, who currently serves as the fund’s Portfolio Manager and Managing Member. Burrage Capital utilizes its extensive industry knowledge and contacts, as well as in-depth research to uncover compelling small- and mid-cap medical stocks with promising technologies and product pipelines, with special emphasis given to cancer-related treatments.

Burrage Capital’s Healthcare Fund I LP has been very successful from its inception in July 2013 through March 2020, delivering a compound annual return of 19.58%. Those returns are in spite of the fund being battered in the first quarter of 2020, losing 23.49%, results which likely turned around later in the year. 2019 and 2017 were exceptional years for the fund, with returns of 40.22% and 50.72% respectively. Burrage Capital also had a big winner in Q3 with one of its top stock picks, Aimmune Therapeutics, which was bought by Nestle for $2.6 billion during the quarter, sending shares up by over 150%. Burrage Capital had $161 million in assets under management as of June 2020. We will be using Burrage Capital's latest 13F filing to create our list of the top healthcare stocks to buy for the future.

Now then, let’s check out Burrage Capital’s favorite healthcare stocks, which could be poised for big things in the near future. Note: All hedge fund data is based on the exclusive group of 800+ funds tracked by Insider Monkey.

10. Insmed Incorporated (NASDAQ:INSM)

Insmed Incorporated (NASDAQ:INSM) kicks off our list, with Burrage Capital owning 165,400 of its shares at the end of September. Hedge fund ownership of INSM jumped by 50% in Q2 of this year, during which the biotech made a secondary offering and released positive primary and secondary endpoint results from its Phase 2 trial of brensocatib. Stifel believes the treatment for non-cystic fibrosis bronchiectasis will be established as a “standard-of-care” therapy following its upcoming Phase 3 trial. Insmed’s MAC lung disease treatment Arikayce, achieved $136 million in net sales in 2019 and $43.6 million in Q3.

9. Aurinia Pharmaceuticals Inc (NASDAQ:AUPH)

Burrage Capital owned just over 362,000 shares of Aurinia Pharmaceuticals Inc (NASDAQ:AUPH) on September 30 and was more bullish on the stock during Q3 than any of the other stocks on this list, buying nearly 106,000 shares during the quarter. Hedge fund ownership of AUPH has jumped by nearly 150% in the last year.

Aurinia is preparing for the launch of its kidney inflammation treatment Voclosporin, which could take place before the end of 2020. Cantor Fitzgerald models the treatment pulling in sales of $56 million in 2021 and $308 million in 2022, which are significantly reduced from previous estimates in light of pandemic headwinds. In the meantime, Aurinia continues to pursue additional enhancements to its development pipeline.

8. Cytokinetics, Inc. (NASDAQ:CYTK)

Cytokinetics, Inc. (NASDAQ:CYTK) is another biotech that’s experienced a surge in hedge fund support since 2019, with 86% more hedge funds owning CYTK shares on September 30 than 15 months earlier. Burrage Capital is one of them, buying into the stock during the first quarter of this year and owning just under 265,000 shares at the end of Q3.

Amgen, Inc. (NASDAQ:AMGN) recently returned omecamtiv mecarbil’s and AMG 594’s rights to Cytokinetics, the former of which could be worth $3 per share to CYTK according to Mizuho and which represents a “potentially significant commercial opportunity” for the company according to H.C. Wainwright. Omecamtiv mecarbil received fast track designation from the FDA in May and has since demonstrated the ability to lower the prevalence of heart failure events in patients with chronic heart failure.

7. Turning Point Therapeutics, Inc. (NASDAQ:TPTX)

Turning Point Therapeutics, Inc. (NASDAQ:TPTX) was owned by 15 hedge funds in the middle of 2019 following its IPO in the second quarter of that year. That figure has since risen to 24, with one of the more recent buyers being Dr. Bardon’s fund, which initiated a stake this year and owned 78,118 shares on September 30.

Turning Point went public at $18 per share and has plopped a big fat zero in there since, skyrocketing to $108. The biotech’s lung cancer treatment Repotrectinib has delivered promising results but could be several years away from approval yet. The multi-targeted kinase inhibitor TPX-0022 also demonstrated effective results across multiple tumor types in a Phase 1 study, while exhibiting a good safety profile.

6. NeoGenomics, Inc. (NASDAQ:NEO)

Hedge funds began piling into NeoGenomics, Inc. (NASDAQ:NEO) in 2018, but many of those funds ended up selling out of the stock throughout last year. Burrage Capital bucked that trend by taking a stake in NEO towards the end of last year and owned 192,671 shares of the stock at the end of Q3. NEO shares have gained 63% in 2020.

NeoGenomics is already the leading oncology diagnostic testing provider in the U.S and has been further growing its market share. CEO Douglas M. VanOort said testing volumes appear to be undergoing a V-shaped recovery after sliding in Q2, rising by 10% year-over-year in Q3, while net revenue jumped by 20%. Morgan Stanley predicts “robust” revenue growth for NEO near-term as it continues to target the underserved community oncology market, which treats about 55% of all cancer patients in the U.S.

Click to continue reading and see the Top 5 Healthcare Stocks for the Future.

  • Disclosure: None. Top 10 Healthcare Stocks for the Future is originally published at Insider Monkey.