5 Reasons to Bet on Biotech

A confluence of events has created temporary headwinds for the biotech sector, causing what one noted expert calls a liquidation sale. Below we review five reasons why investors should remain bullish on the sector, along with several favorite investment ideas shared by MoneyShow.com contributors. John McCamant, The Medical Technology Stock Letter With continued tax-loss selling and forced selling in several funds that are closing doors, small-cap biotechs are seeing dramatic, widespread drops in their stocks, creating a liquidation sale for biotech investors. We strongly believe that this soft period will eventually subside -- in our view by year end. Here are five factors we are considering. 1. Tax-Loss Selling Tax-loss selling has hit the group hard, where most diversified investors have gains in almost every other sector. The momentum-driven biotechs are feeling the rotation to electric vehicles and energy stocks that are being supported by the Biden infrastructure bill. As a result, biotechs are an afterthought right now and any loss is being used as a tax offset for a capital gain. As a reminder, there is a 30-day window to buy back a stock used for tax loss year-end planning, hence anything sold lately may stay depressed or not recover for a month or so. 2. Funds Are Closing/Returning Cash Some large, dedicated funds are turning to what are called Family Offices and they are returning funds to limited partners and that in turn leads to further selling, exacerbating the moves. In addition, we have also learned that there are some smaller funds closing doors in the current weak environment -- where year-to-date losses are way more than double-digits. At the same time, existing larger funds (e.g., Perceptive, Baker Bros, etc.) are having poor years and more likely sitting on their hands and/or supporting existing positions. Taken together there is little incentive to step in while there is a forced fire sale. 3. Too Many Companies Whether public or privately held, there are just too many biotech companies. The vast majority are well funded thanks to the success of 2020 and early 2021, but that doesn't mean there is enough money to soak up all the new paper. There will be many companies trading at cash that brokers will be promoting in the current market environment. We advise sticking with those with strong and improving fundamentals. 4. A Nice M&A Surprise The recent announcement of a takeover of Dicerna by Novo Nordisk at an 80% premium is a reminder of the appeal of biotechnology investments. We expect that Big Pharma/Big Biotech will use their strong balance sheets to add pipeline assets this year, especially as corporate tax rates are going to rise next year. In addition to DRNA/Novo, Alnylam , the mRNA leader, was also in the rumor mill lately as a target for Novartis . 5. We Will See a Year-End Rally If there was fear & greed index for biotech, we believe it would be in the extreme fear mode. Also, most good news is being greeted as a trading/liquidity event, so there really is a dearth of buyers/demand. This has created a major opportunity, we believe, for any patient investor. As has been the case, the fundamentals of the sector remain strong (e.g., pro industry veteran Bob Califf was just named by President Biden to head the FDA) and this, too, shall end. We are always recommending our Top Picks and acknowledge the weakness in several of our coverage universe -- such as Alkermes Plc , which is involved in oncology and treatments for alcohol and opioid dependance; Precigen , involved in gene and cell therapies; and even Celldex Therapeutics , a developer of monoclonal and bispecific antibodies that target inflammatory diseases and cancers. For those unsure of exactly what stocks to buy, we see support in the SPDR S&P Biotech ETF and higher volatile Direxion Daily S&P Biotech Bull 3X Shares ETF at ~$118-120 and $48-50, respectively as the indexes are nearing oversold conditions. Jim Powell, Global Changes & Opportunities Report Crispr Therapeutics , BioNTech , Moderna and Pfizer have created many of the genetic tools that pharmaceutical companies are using to develop vaccines to fight viral infections, and specialized drugs to treat many common cancers. Crispr Therapeutics opened the door to repairing defective genes that cause many maladies such as cystic fibrosis, several types of heart disease, diabetes, and sickle cell disease - to name only a few. With Crisper's tools, bad genes can be removed and replaced with genes that function properly. Thanks to Crispr, over the next few years many deadly conditions are expected to join polio, smallpox, and other killers in the dustbins of medical history. The Covid-19 vaccines that were developed recently use mRNA (messenger RNA technology. In this case, mRNA is used to create a flood of coronavirus surface proteins that will trigger an antibody defense by our immune systems. BioNTech pioneered the techniques that use mRNA (messenger RNA) to create viral vaccines. Because the Mainz, Germany-based firm is primarily a research organization, it decided to team up with Pfizer to produce and distribute the Covid-19 vaccine in large quantities. The Pfizer partnership is now using mRNA technology to create treatments for several types of cancer. Another innovative company that's been developing mRNA technology is Moderna, based in Cambridge, Mass. Moderna independently developed its own Covid-19 vaccine that stimulates a person's immune system to produce antibodies against the virus. In addition, Moderna has 13 other products in its development pipeline - particularly for respiratory diseases. Whatever biotechnology stocks you may choose, you should expect greater price volatility than is common with other healthcare companies. The key to success is to buy the highest quality biotech companies with technologies that nearly every drug maker uses -- and plan to hold them until they reach their potential. Scott Chan, Investing Daily's The Complete Investor Regeneron Pharmaceuticals remains one of our favorite biotech companies. It just reported an excellent third quarter. Revenue grew 51% on a year-over-year basis in the September quarter to $3.4 million, a combination of $2.3 billion in net product sales and $1.1 billion in collaboration revenue. Net income almost doubled to $1.6 billion, good for EPS of $15.37. Its top-two selling core drugs, Eylea and Duxipent, plus the Covid-19 cocktail, were the main forces driving the growth. For those of you who remember an iconic marketing gimmick from three decades ago, Eylea is basically Regeneron's version of the Energizer Bunny. It just keeps going and going. Last year, global sales clocked in at $8.36 billion (split $4.95 billion and $3.41 billion, respectively, between Regeneron and its partner Bayer), a 7% improvement over 2019's figures. Through the first three quarters of 2021, global Eylea net sales are $6.9 billion, up 21%. Although there is more brand competition to treat wet AMD now than ever before, Regeneron reports that Eylea has gained market share. As for Dupixent, global net sales are up 54% through the first nine months of the year, attributable to the drug's success in treating multiple type 2 inflammatory diseases. Originally approved for eczema for adults in 2017, the label for Dupixent has quickly expanded to include other indications in the years since. Besides gaining regulatory approval to treat eczema in adolescents and children. Dupixent has been subsequently approved for asthma in patients 12 and over (2018), and then, just weeks ago, for asthma in children between 6 and 11 years old. In total, Regeneron's pipeline has 10 programs in Phase 3 and another 13 in Phase 2, with a broad range of diseases targeted. The company also boasts strong profitability metrics and a solid balance sheet. We regard Regeneron as a quality company with an undervalued stock. If its portfolio can continue to deliver expectation-beating results, we expect the valuation to increase, providing shareholders with an extra boost. Ben Reynolds, Sure Passive Income Amgen is the largest independent biotech company in the world. The firm generates annual revenue of more than $25 billion while the stock has a market capitalization of $115 billion. Amgen reported third-quarter earnings on Nov. 2. Revenue and adjusted profits came in slightly ahead of expectations. Revenue was up 4.5% to $6.7 billion, and adjusted net income of $2.7 billion, or $4.67 per share, was up from $2.5 billion, or $4.19 per share, respectively, in the year-ago period. Product revenue was up 4% even as sales for Enbrel fell 3% and that drug continues to post market-share losses. Neulasta was down 25% to due weakness in pricing and volume from biosimilar competition. Prolia saw its top line grow 15% and is now Amgen's second-highest grossing product. Likewise, Repatha revenue soared 33% year over year. Amgen continued to buy back its own shares, this time retiring 4.6 million shares in the third quarter at an average price of $239 million. The company has $2.9 billion remaining on its current buyback authorization and ended the quarter with almost $13 billion in cash on the balance sheet. Amgen's competitive advantages include its strong pharmaceutical assets as well as its robust pipeline. Amgen spent 17% of its 2020 sales on research and development. The company also expects capital expenditures of $900 million for 2021, up from $600 million in 2020. As a result, it has a well-stocked pipeline to fuel its future growth. Amgen is the largest biotech company in the world, giving it size and scale over its peers. This allows the company to reduce its net selling price on products, such as with Repatha, to take market share. The company has demonstrated resilience during recessions, as people will seek treatment for their health issues regardless of economic conditions. The company also has a reasonably low expected payout ratio of 42% for 2021, which will allow it to continue to raise its dividend going forward, even in a prolonged recession. We expect 9% annual EPS growth over the next five years for Amgen. This EPS growth could be achieved through a combination of rising revenue as well as share repurchases. We also expect the company to increase its dividend by 9% per year over the next five years, in line with its EPS growth rate. In total, we see Amgen as a strong income stock with a robust yield and safe dividend that is likely to be raised for many years to come, along with a strong growth pipeline and reasonable valuation.

5 Reasons to Bet on Biotech

Small-cap biotech names are seeing dramatic, widespread declines, creating a liquidation sale for investors.

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