The Dow Jones Industrial Average is off 9.5% this year. The S&P 500 is off 6.4%. But the Nasdaq is down less than 1%. And much of that is because biotechs are back.
The top-rated biotech stocks here — Regeneron (REGN), China Biologic (CBPO), Ligand (LGND), Incyte (INCY), Repligen (RGEN), Emergent Biosolutions (EBS) and AMAG (AMAG) — are all great buys after shaving some of their premiums off in the recent correction.
There’s no doubt that biotech is changing the way we see medicine moving forward. Advances in computing technology have allowed biologic and medical research to advance remarkably swiftly in the past decade.
What was once only theoretically possible is now out of R&D and into trials. And with many biotechs, trials have a much better chance of positive outcomes because much modeling can be done on potential drugs before they leave the R&D lab.
Also, healthcare systems are much more receptive to treatments that don’t involve costly hospital stays and procedures. The systems have made a concerted effort to use medications as the first line of treatment rather than more complex reactionary measures.
All this adds up to a bright future for biotech. And these seven stocks are on the vanguard of that trend.
Biotech Stocks: Regeneron Pharmaceuticals (REGN)
Regeneron Pharmaceuticals (REGN) was founded in 1988 with the simple notion that, if early biotechs like Genentech could build growth factors for cells to develop insulin and other similar agents, there had to be growth factors for the nervous system as well.
Two years later, REGN published its first paper in Science on cloning a novel neurotrophic factor. It became the most read neurobiology paper of the year.
The same year, another leading biotech, Amgen (AMGN) reached out to REGN for collaboration on some of this work.
By 1992, REGN had a drug in trials for ALS. And the company hasn’t stopped since then.
At this point, the company has three successful products on the market, but its real value is in its broadening pipeline. In this new “Drug Age,” the pipeline is crucial: As the big pharmaceutical companies watch their patents expire, smaller firms can get into the market with more targeted and effective therapies.
REGN is one of the new disruptive players.
Biotech Stocks: China Biologic Products (CBPO)
I’ve liked China Biologic Products (CBPO) for a long time. And given the madness in Chinese markets — and even U.S. markets – I am still very bullish.
A couple things to bear in mind: The Shanghai exchange was up 150% in the past year and even now has dropped less than 50% from those levels. That’s still 100% upside.
The real problem is volatility. But again, this is developing market, so these kinds of things are part of the journey.
For the year-to-date, this Chinese biopharmaceutical company is up 40%; it’s up 76% in the past year — even now, after the selloff. Best of all, CBPO has dropped a ridiculous 24% in the past month. This spells opportunity for smart long-term investors. It’s a chance to get into one of the biggest trends in China at a discount.
One of the sectors China has to modernize to be considered a developed nation is its healthcare system. And with 1.3 billion people, that’s a huge job.
CBPO is well positioned for the massive healthcare growth in China, and it has good visibility (and accessibility) to Western investors and institutions. This is a great time to take advantage of all the Cassandras and turn crisis into opportunity.
Biotech Stocks: Ligand Pharmaceuticals (LGND)
It’s one thing to have an effective drug in the lab. It’s entirely another to get that drug into a human body and have it do its work effectively and safely.
That’s why in clinical trials Phase I is safety. Phase II is efficacy. Phase III is evidence of Phase II efficacy.
Ligand Pharmaceuticals’ (LGND) entire purpose is to partner with companies to allow their drugs to do their work more safely and effectively. Its Captisol technology is built specifically for this purpose.
While a company like LGND wouldn’t have had much of market 20 years, ago, today it has more than 120 fully-funded programs underway and has seven drugs through the FDA approval process that it derives revenue from.
Currently LGND has a 30% annual growth rate, working with 70 partners that are the who’s who of the pharmaceutical and biotech industries. In 2015 Ligand expects its partners to spend $1.1 billion in R&D on its products. A solid 13 are in Phase III trials, with 38 in Phase II and 58 in Phase I. That’s quite a pipeline, and quite the opportunity for LGND stock.
Biotech Stocks: Incyte Corporation (INCY)
One of the biggest growth spaces in the biotech sector is in rare diseases. Biotechs can charge more for drugs that are developed for a relatively small part of the population but are filling a void in care or are more effective than previous treatments.
Incyte Corporation (INCY) is a biotech focused on rare blood cancers. About 300,000 people in the U.S. suffer from myeloproliferative neoplasms (MPNs). INCY already has a drug on the market to address this population.
Another thing to bear in mind with this type of cancer is that it also relates to other blood cancers like leukemia and multiple myeloma. INCY has the opportunity to transition to larger sectors, which would certainly help build its core competencies.
What’s more, such specialized companies are always tempting targets for bigger biotechs and pharmaceutical companies looking to add a strategic niche quickly.
INCY stock is up 123% in the past year and has weathered the correction without missing a beat. That shows some real strength, both fundamentally and technically.
Biotech Stocks: Repligen (RGEN)
Repligen (RGEN) has been around a very long time — for a biotech, anyway. And the fact that it has made it through the toughest times for small biotechs is a credit to its management and its adaptability.
Now sporting a $1.1 billion market cap, it has become a respectable player in one of the more dynamic spaces in the biotech sector.
Today is the age of biopharmaceuticals, drugs derived from biological sources, rather than synthesized lab-created sources. And RGEN makes the core products that allow biopharmaceuticals to isolate, grow, test and examine their prospective ingredients.
RGEN stock has been on fire in recent years as investors begin to realize the major role biopharmaceuticals are going to have in coming years and the growing role RGEN has in aiding biopharmaceuticals.
In the past 5 years RGEN stock is up 900%, including 70% in the past year, even after the correction.
RGEN has been expensive, so being able to get in at a discount is a great opportunity.
Biotech Stocks: Emergent Biosolutions (EBS)
Emergent Biosolutions (EBS) also provides a unique niche of a different sort. It focuses on treating emerging specific biological threats to large populations.
For example, EBS linked up with the U.S. government to provide anthrax vaccines to U.S. armed forces. It also worked with mobilized facilities to produce vaccines for the general public in the aftermath of 9/11 and the anthrax scares around the nation.
EBS has bio-defense products available in the U.S., Germany and Singapore and other products available in Canada. Having major governments as your clients is a very stable business model and also helps get products through the time-consuming and expensive approval process.
EBS is also developing a line of cancer drugs. Two are in trials now, one for leukemia and other for prostate cancer.
As with most niche players, EBS is a potential takeover target … although in this case, that’s not necessarily for its blockbuster potential, but for the opposite — its stability. It’s a unique bird in the biotech flock.
AMAG Pharmaceuticals (AMAG)
AMAG Pharmaceuticals (AMAG) has two products, but one of those products is a major product to help treat a chronic disease.
Chronic kidney disease (CKD) is growing in the U.S., just by sheer demographic trends. As the baby boomers get older and represent a large proportion of the U.S. population, there will be more cases of CKD.
But an aging population isn’t the only thing that is making CKD such a pernicious threat. The leading causes of CKD — diabetes rates and hypertension — have skyrocketed in the U.S. So, the combination of accelerating growth in the causes of CKD as well as the demographic inevitability of the aging population make the disease a very real issue.
And AMAG is currently a leader in CKD treatment.
It also bought Cord Blood Registry for $700 million in late June. CBR is the world’s largest stem cell collection and storage firm and houses more than 600,000 umbilical cord blood and tissue stem cell units, representing more than 50% of the privately stored cord units in the U.S.
As stem cell technology advances, AMAG is sitting on the biggest accessible repository in the world for this important R&D work.