Biotechnology is one of the most exciting industries out there. Not only do these companies have the potential for huge gains, but they can actually change our lives in dramatic ways.
Biotech companies are working to find cures for some of the more serious illnesses and conditions that shorten and worsen human life. When a breakthrough discovery is made by one of these companies, the profits can be enormous as physicians rush to prescribe the new drugs and the giant drug companies scramble to put together licensing deals. The flip side is that those companies that are under-financed or experiencing heavy expenses in the face of no revenue can suffer enormous losses. Thus, it’s critical for biotech investors to have an eye focused on corporate fundamentals.
Right now, Aegerion Pharmaceuticals’ (AEGR) fundamentals rank among the best in the biotech industry. The company makes drugs to treat a rare but serious condition known as Homozygous familial hypercholesterolemia (HoFH). Although the patient pool for the drug is small, the treatment costs nearly $300,000 a year and is expected to be approved in Europe in the near future. It is already approved for use in the United States, and has orphan drug status, giving the company a protected market.
The steady improvement in AEGR’s fundamentals has caused the stock to be rated a “buy” for several months, and Portfolio Grader upgraded the shares to a “strong buy” in June.
Ligand Pharmaceuticals (LGND) is a biotech company that concentrates on the acquisition and development of royalty-producing assets. The company has partnerships with industry leaders such as GlaxoSmithKline (GSK), Merck (MRK), Pfizer (PFE), Bristol-Myers Squibb (BMY), and Eli Lilly (LLY), among others, from which they receive royalties on the drugs developed and licensed to the larger companies. Ligand has shown impressive revenue growth, and last quarter it surpassed the consensus earnings estimate by more than 70%. The company is hoping that its bazedoxifene/conjugated estrogen drug for the treatment of menopause symptoms will receive FDA approval later this year. The drug is being developed as a partnership with Pfizer and could be a huge driver for Ligand’s top and bottom lines.
Portfolio Grader has noted the improvement in fundamentals and upgraded the stock to an “A” back in May. The shares remain a “strong buy.”
Biotech investing can be extraordinarily rewarding, but it also can be extraordinarily risky. Using Portfolio Grader to select those companies with the best fundamentals can help investors reduce the risks and improve the rewards.
Louis Navellier is the editor of Blue Chip Growth.