A Six-Pack of Biotech Best Bets

Biotechnology is a risky sector given that valuations can rapidly shift based on results from clinical trials. Ironically, however, some experts now see biotech as a safe haven as the sector remains unaffected by trade wars and other global headwinds. Six investment experts and contributors to MoneyShow.com highlight their current favorites in the biotech space. Scott Chan, The Complete Investor Regeneron Pharmaceuticals recently had a rough earnings release; the shortfall is attributable to a big increase in spending on launch support for its new skin cancer drug Libtayo. In regards to product sales, it was a solid quarter. Despite competition, Eylea has become the leading franchise in wet AMD thanks to its more convenient dosing regimen. Additionally, the FDA has just further approved Eylea injection to treat diabetic retinopathy, a leading cause of blindness in diabetic patients, which expands the addressable market for Regeneron. Dupixent had global sales of $374 million, nearly tripling on a year-on-year basis. Originally approved for atopic dermatitis, Dupixent's label has expanded to include asthma. Regeneron's newest launched drug, Libtayo, generated $27 million in net sales in the quarter, its second on the market. Regeneron thinks Libtayo could be a cornerstone for a future oncology franchise; the drug is being tested in combination with other drugs to treat cancer. Playing a role in the stock's drop is Regeneron's announcement that a Phase-1 lymphoma study that evaluates the combination of two drugs (Libtayo and the experimental REGN1979) had two deaths. REGN1979 is a bispecific antibody. This type of engineered protein can bind to two different types of antigens and mark up more cancer cells for the patients' T-cells to destroy. While the two patient deaths are unfortunate, the studies continue and Regeneron still regards REGN1979 and bispecifics in general as big parts of its future growth. We continue to view Regeneron, now trading at historically cheap levels, as the company best poised for growth among the major biotechs. Its rich pipeline, with 20 candidates including studies seeking to expand the label for existing drugs, is testament to its R&D prowess. The stock remains a buy. Mark Skousen, Five-Star Trader Based in San Francisco, Exelixis is a drug company that is dedicated to the discovery, development and commercialization of new medicines for cancer treatment. The company has three commercially available products: CABOMETYX, COMETRIQ and COTELLIC. In January, the FDA approved CABOMETYX for patients with hepatocellular carcinoma, the most common form of liver cancer and the fastest-rising cause of cancer-related death in the United States. The firm has entered into partnerships with several leading pharmaceutical companies to deliver these breakthrough medicines to patients worldwide. Its big-name collaborators, including Bristol-Myers Squibb and Roche Holdings , are evaluating its drugs in more than 45 planned or ongoing clinical trials. Exelixis just reported a strong first quarter, beating sales and earnings estimates. In fact, the company has beaten Wall Street's consensus earnings estimate in each of the last five quarters. Revenue, earnings and cash all continued to grow as the company executed its strategy to make CABOMETYX the leading tyrosine-kinase inhibitor (TKI) in renal cell carcinoma. Plus, Exelixis is using its free cash flow to invest in additional clinical trials, boost internal discovery efforts and pursue new licensing opportunities. Exelixis is also an attractive takeover candidate. Big Pharma continually makes strategic acquisitions to acquire new drugs or promising drug candidates. Exelixis has both. And with a market cap of just $5.8 billion, even a mid-sized drug company would find it easy to acquire. Andrea Kramer, Schaeffer's Investment Research Like most of the stock market, the shares of Alexion Pharmaceuticals struggled in May. However, now could be an opportune time to roll the dice on a big rebound for the stock, for two reasons: first, pullbacks to a key trendline have preceded healthy gains in the past; and second, the security has seasonality on its side, tending to heat up in the summer. The stock is back within one standard deviation of its 160-week moving average, after a lengthy stretch above this trendline. Over the past 15 years, there have been four similar pullbacks to this moving average, after which the stock was higher an average of nearly 36% three months later, per data from Schaeffer's Senior Quantitative Analyst Rocky White. From current levels, another 36% surge would put Alexion Pharmaceuticals stock around $167 -- territory not charted in more than three years. Even more compelling, perhaps, Alexion has been the best stock to own in the summer, looking back 10 years. More specifically, considering only S&P 500 stocks with at least 10 years' worth of data, its average return from June through August was the highest, at 14.62%. Looking at trader sentiment, the options crowd is already speculating on a bounce for the pharma concern. Its 10-day call/put volume ratio of 7.09 is in the 98th percentile of its annual range, pointing to a much healthier-than-usual appetite for bullish bets over bearish lately. Mike Cintolo, Cabot Growth Investor Biotech stocks have been laggards this year, but we still keep our eyes open because the group can launch a few big winners once it gets its act together. One of our favorites is Array Biopharma , which is transitioning to a commercial-stage operation thanks to two drugs -- Braftovi and Mektovi -- that just launched in mid-2018 to treat later-stage melanoma patients with specific gene mutations. With outstanding results (nearly doubling life expectancy), sales are off to a good start; in the March quarter, these drugs brought in $35 million, up from $23 million the prior quarter and well above expectations. But there's even more excitement for another potential treatment! Array also just recently announced study results for these two drugs in combination treatments for certain gene-specific colorectal cancer patients (which, in total, account for about 15% of all CC patients), and they were great, with prolonged survival rates and response rates as high as 26% (vs. 1% with the control group), causing shares to surge back to their all-time highs on big volume. The approval process still has months to go, and even without it, analysts see the top line growing 56% this year and another 31% in 2020. But if given the thumbs-up, Array's growth should exceed even those lofty targets. Doug Gerlach, Investor Advisory Service Gilead Sciences has endured a string of setbacks, some due to bad luck and others self-inflicted. A new CEO looks to return the company to its old winning ways. Market expectations are low, which could offer a setup for investor success. Gilead has led the charge in the highly successful war against HIV and AIDS. The company estimates that 89% of newly treated HIV patients in the U.S. currently receive a Gilead product. Gilead's portfolio of HIV medications should carry it for another ten years or so, but the company will have to look elsewhere if it wants to thrive beyond the early 2030's when its most innovative HIV drugs lose patent exclusivity. In 2011 Gilead purchased Pharmasset for $11 billion, acquiring a Phase II molecule, which would ultimately prove a groundbreaking, curative treatment for Hepatitis C. However, Gilead did a poor job defending its market against competitors. Much worse, Gilead appears to have wasted most of the rewards via ill-timed stock buybacks, a risky acquisition of Kite Pharma, and R&D initiatives that have yet to bear fruit. From 2014 to the present, Gilead is approximately $10 billion underwater compared to the price it has paid for its own shares. Investors have become accustomed to failure at Gilead. At some point, the company needs to get its substantial cash flows working for it again. This responsibility falls to new CEO Daniel O'Day, previously in charge of Roche's Pharmaceuticals division. O'Day will scour the public and private markets for partnership and acquisition opportunities. Gilead's balance sheet is loaded with $30 billion in cash. We model 10% compound EPS growth, with a P/E range of 11.1 to 14.5. The stock is cheap, particularly considering the ongoing strength of its HIV portfolio. Ben Reynolds, Sure Retirement AbbVie is a biotech company that is focused on the development and commercialization of treatments in immunology, virology, and oncology. It generates $33 billion in annual revenue and reported Q1 earnings on 4/25/19 and results were better than expected. Imbruvica continues to be a strong driver of growth for the company, grossing just over $1 billion during the quarter, a 34% increase over the prior year. Humira remains the world's highest-grossing drug and AbbVie is working to replace the revenue it will lose in the coming years as Humira's patent protection expires. AbbVie did not exist as a standalone entity during the last recession, so there is no track record for this company. However, its former parent, Abbott Labs , did exist during the last recession and it performed extremely well, continuing to grow its earnings-per-share at impressive rates. The firm's competitive advantage is its large cash flows that allow it to spend aggressively on research and development. The company's size advantage has allowed it to build a pharmaceutical portfolio that is robust, deep, and has potential blockbusters waiting in the wings. The stock trades for just 8.7 times our earnings-per-share estimate of $8.78 for this year, which compares very favorably to our estimate of fair value at 13 times earnings. AbbVie, therefore, represents a unique combination of a very high yield, strong growth prospects, and a deeply undervalued stock that offers investors 22%+ prospective total annual returns.

A Six-Pack of Biotech Best Bets

Ironically, some experts now see biotech as a safe haven as the sector remains unaffected by trade wars and other global headwinds.

Columnist Conversation

AAP Podcast: A Tongue -- and a Market -- Twister: 'Get a Debt Deal Done'

Selling Some of This Surging AI-Related Stock

AAP Podcast With Portillo's CEO!

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.