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Many physicians are looking for ways to replace lost income and save for the future. At the same time, partly as a result of the COVID-19 pandemic, developments in technology and biotechnology, including potential vaccines and treatments, have prompted many to consider biotech as having sound possibilities for successful investing.
Biotechnology — which includes biological sciences related to public health and also biochemical technologies tied to food or the environment — can be a very attractive sector of the stock market to invest in long term, say investment experts. Biotech-derived therapies, like those for rheumatoid arthritis or for certain types of cancers, are expected to make up 38.6% of global biopharmaceutical sales in 2024, up from 20.8% in 2008. It is predicted that by 2026, biotech drugs will account for 55% of sales of the top 100 revenue-producing drugs worldwide. Sales of oncology drugs in particular are expected to outpace those of other types of biotech therapies.
"Biotechnology companies have been trading at a significant discount to the market due to political pressures. We think that shares could appreciate as a robust pipeline of new therapies is brought to market," report CFRA Research analysts Kevin Huang, CFA, and Jien Loon Choong in a January 2020 Fidelity report.
Still, biotech stocks are inherently volatile. This is because, in many cases, the companies haven't yet brought a product to market — stocks in such companies are known as "prerevenue" biotech stocks. These companies need to bring a product to market before they burn through all of their assets on research and trials.
However, if you have sufficient secure savings, can tolerate risk in your investments, and can maintain a long-term outlook, biotech stocks could bring big rewards. Investment experts have identified seven companies that may be poised to do well in the coming months and years.
In the following, stock prices are quoted as of August 13, 2020.
1. Neoleukin Therapeutics (NLTX, $11.97). Neoleukin is a small biotech in terms of its assets (under $400 million), but its protein-based therapies hold great promise in the treatment of immunologic disorders, including cancer. The company's mission is to design synthetic proteins that have the ability to do what naturally occurring proteins can't. For instance, Neoleukin's current focus has been on the alpha component of the interleukin-2 (IL-2) receptor; this component, also known as CD25, interferes with the potency of IL-2 signaling.
Neoleukin's leading drug candidate (NL-201) stimulates IL-2 signaling without binding to CD25. The engineered protein can freely interact with the IL-2 receptor's beta and gamma chains to activate both antitumor T cells and natural killer cells in the immune system.
"The proteins can also be tweaked to target parts of the body and conditionally activate on or near tumors, with lower toxicity," said Michael Brush, the New York–based editor of Brush Up on Stocks (www.uponstocks.com), a biotech stock newsletter. He says a new drug application (NDA) is expected to be submitted for NL-201 to the FDA as soon as the end of this year.
"Neoleukin looks to me like a 'must own,' " Brush said. "It has a very solid ownership profile — the current president and CEO, Jonathan Drachman, was at Seattle Genetics for 14 years — and the company's tech platform is capable of spawning many products. These are two of the qualities that I like to see in biotech."
2. Kodiak Sciences (KOD, $48.20). Kodiak Sciences, based in Palo Alto, California, develops novel therapies to prevent and treat the leading causes of partial or total blindness, including wet age-related macular degeneration, macular edema, retinal vein occlusion, and diabetic retinopathy. Kodiak's KSI-301, a proprietary anti-VEGF (vascular endothelial growth factor) antibody biopolymer conjugate (ABC), is being examined in a phase 2 study as a therapy for all four of these potentially dangerous eye-related conditions.
The ABC Platform, as the company refers to it, serves as its technology base for creating multiple related products.
"KSI-301 maintains effective drug levels in ocular tissues for longer than the current therapies that treat retinal diseases," Brush said. "One other advantage is that it doesn't have to be injected as often."
Brush adds that phase 2 data presented at the 2020 American Society of Retina Specialists virtual annual meeting "look great and support very positive efficacy, a strong benefit-risk profile, and a potential blockbuster opportunity." He says Kodiak's stock — which he first recommended in October 2018, when it was $9 a share — has ample room to grow.
3. Amgen (AMGN, $240.46). It's hard to think of a highly profitable, established company like Amgen, with a market capitalization of nearly $150 billion and more than 23,000 employees, as being undervalued. But that's how one renowned stock picker views it.
"We think the below-market price-to-earnings multiple of 16 on Amgen is very reasonable for a quality healthcare name, with what we believe to be above-market growth potential. Plus, it delivers a very rich 2.5% dividend yield," said John Buckingham, editor of The Prudent Speculator (https://theprudentspeculator.com/), a top-rated investment newsletter with a 43-year history.
Recently, a US federal appeals court rejected a challenge to Amgen's patents on Enbrel, its successful therapy for rheumatoid arthritis. Because of that decision, it is expected that Enbrel's exclusivity will be extended until the late 2020s. The tussle with Sandoz, a division of Novartis, may eventually make it as far as the US Supreme Court.
In the meantime, Amgen's strong cash flow and diversified product portfolio continue to make it attractive to investors. "While the COVID-19 pandemic adds stiffer near-term headwinds, we also like that Amgen has shifted the conversation from legacy drugs to its growth products and shown that its opportunistic partnerships and purchases — including immunology drug Otezla, which Amgen bought in 2019 — have added value," Buckingham said. He notes that the company could easily see its share price rise another 10% to 15% this year.
4. Biogen (BIIB, $288.54). Another multibillion-dollar biotech? Don't let the size of the company (worth about $43 billion) or the stock price fool you. Like Amgen, Biogen, too, is undervalued, Buckingham says.
Also reminiscent of Amgen, Biogen is engaged in a patent war, this one with Mylan over Biogen's blockbuster multiple sclerosis (MS) drug, Tecfidera. But unlike Amgen, Biogen came out on the losing end.
"The MS franchise, with Tecfidera as its star, represented 39% of 2019 product sales, so an earlier-than-expected loss of patent protection would be a big deal," said Chris Quigley, a value investing specialist and contributing editor to The Prudent Speculator. "Not surprisingly, Biogen will appeal, even as Mylan is said to be eager to launch its generic alternative later in the year. No doubt, plenty of legal fees will be racked up before all is said and done, and this is certainly a tough blow for Biogen, as the firm's future seemingly becomes characterized more and more by a pipeline of high-risk/high-reward neurological therapies."
So why invest in Biogen now? For one, the company still has several promising therapies in its pipeline, including aducanumab — a "home run if it passes muster," Quigley said of the investigational treatment for Alzheimer's disease. Other reasons to invest in Biogen include its strong balance sheet and very low price-to-earnings ratio, which may make it attractive to other biopharmaceutical companies looking to strengthen their product roster.
"It's hard to imagine the company not being snapped up by an acquirer if the shares continue to reside in the discount bin," Quigley said. He expects the stock to rise 20%, to $330 a share, in the next 12 to 18 months — higher if aducanumab proves to be effective.
5. Inovio Pharmaceuticals (INO, $14.39). With at least a dozen companies vying to create a commercially successful COVID-19 vaccine, one of the dark horses in this race is Inovio Pharmaceuticals, which is based in Plymouth Meeting, Pennsylvania. The company's vaccine, known as INO-4800, demonstrated overall immune responses in 40 healthy volunteers who experienced no serious adverse events after being given two doses of the drug.
"Inovio looks to be an underdog in the race, having no big pharma partner and assembling only about $100 million in external funding," according to the authors of a recent report.
Some of the funding, Inovio says, has come from the Bill and Melinda Gates Foundation.
Inovio's nucleic acid–based vaccine doesn't need to be refrigerated and can remain stable at room temperature for more than a year, which, the company says, "are important factors when implementing mass immunizations."
6. Regeneron (REGN, $610.89). Regeneron is another of the global biotech companies working on a COVID-19 vaccine, but it's far from a one-trick pony. With a market capitalization of more than $65 billion, this Tarrytown, New York–based firm has a wide portfolio of FDA-approved therapies for everything from eczema (Dupixent) to eye disease (Eylea) to cutaneous squamous cell carcinoma (Libtayo).
"There's still a lot we don't know about the novel coronavirus, which makes it a good idea to fill your portfolio with stocks that can still provide positive returns if their coronavirus candidates flop," wrote stock analyst Cory Renauer for The Motley Fool. "With multiple blockbuster drugs in pharmacies now and more on the way, Regeneron fits this description perfectly."
If the company does, however, produce a safe and efficacious coronavirus vaccine, it "could allow Regeneron to provide market-beating gains over the long run," Renauer added.
7. Kadmon Holdings (KDMN, $4.17). A relatively small company with assets of roughly $600 million, Kadmon Holdings recently launched a phase 1 clinical trial of KD033, an anti-PD-L1/IL-15 fusion protein, for patients with metastatic or locally advanced solid tumors. According to Kadmon's president and CEO, Harlan W. Waksal, MD, KD033 has the potential "to stimulate patients' immune responses to fight cancer while avoiding systemic toxicities."
Kadmon's product development pipeline is focused on inflammatory and fibrotic diseases, as well as immune-oncology therapies such as KD033. For instance, the company is developing a new therapy, known as KD025, for chronic graft-vs-host disease, a leading cause of complications or death after allogeneic stem cell transplant.
An NDA presubmission meeting with the FDA was held earlier this year, which Kadmon and stock analysts have described as very successful, owing to the quality of the study's data. The drug has also been granted an orphan drug designation by the FDA.
Kadmon, which has traded as low as about $2 in the past 12 months, has the potential to top $10 in a relatively short period. At least one analyst predicts it will go to $25, according to a recent report in Kiplinger.
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Cite this: Should You Invest in Biotech Stocks Now? - Medscape - Aug 18, 2020.