To say the last few weeks have been tough ones for biotech stocks would be quite an understatement — they’ve been downright miserable for the biotechnology sector.
And it wasn’t just Hillary Clinton’s now-infamous tweet that did the damage either (although it certainly fanned the flames). Biotech stocks were already facing a valuation headwind by midyear thanks to a multiyear run-up, which was proving to be a drag on these names.
All told, the biotechnology sector’s stocks lost more than 30% of their value between late July and late September.
The pendulum swings both directions, however, and in the same way the market may have pushed these names too high though July, traders may have pushed them too low in the meantime.
With that as the backdrop, here’s a closer look at four undervalued biotech stocks that aren’t quite facing the dire straits their recent pullbacks would imply.
Bargain Biotech Stocks: Aegerion Pharmaceuticals (AEGR)
With a market cap of only $379 million, Aegerion Pharmaceuticals (AEGR) isn’t exactly a household name, nor is it a stock for the faint of heart. But for traders who can stomach the stress, AEGR is one of those few biotech stocks where big risks are matched by equally big potential.
The company’s flagship product is lomitapide, though you’ll hear Aegerion use its trade name of Juxtapid far more often. Regardless of the name, the drug — and this is an oversimplified description — combats high cholesterol.
The company’s had Juxtapid on the market since 2013, and is measurably growing the top line with it even though Aegerion has yet to turn a profit. In the world of biotechnology, though, sales growth is the name of the game when profits aren’t on the horizon. In that vein, the price/sales ratio of 1.72 is unusually low by most any industry’s standards.
It’s of particular interest right now, as Leerink Partners thinks the company could be low-balling its sales outlook for Juxtapid.
Bargain Biotech Stocks: Horizon Pharma (HZNP)
For some investors, Horizon Pharma (HZNP) may look and feel a little too much like Valeant Pharmaceuticals (VRX) to make it a comfortable buy; Valeant is one of the specialty drug makers the Clinton tweet was taking aim at.
Horizon Pharma, however, isn’t as neck-deep in specialty drugs as one might think. A big chunk of its portfolio addresses a relatively commoditized arthritis and inflammation market, and its recent bid for Depomed (DEPO) is designed to get its hands on a novel but not-especially game-changing pain management drug portfolio.
On the flip side, HZNP still has a decent-sized handful of specialty drugs in the portfolio to keep things interesting.
To that end, Horizon Pharma has earned a spot on a list of biotech stocks to consider not just because it has a compelling portfolio, but because it has been converting and should continue to convert that portfolio into solid income.
The pros think between organic and acquisition-driven growth, per-share income will grow from last year’s total of 95 cents to $1.36 this year to $1.87 next year.
Bargain Biotech Stocks: Celgene Corporation (CELG)
Clinton’s tweet explicitly put specialty drug stocks in the market’s crosshairs, based on the assumption that sky-high drug prices would be going away. That wasn’t quite what the presidential hopeful meant, though.
She — and any other candidate or politician for that matter — are mostly interested in destroying price-gouging from drugmakers who make a simple drug for a small market and capitalize on that unusual supply/demand dynamic. If a drug can justifiably merit a high price based on its actual development costs and benefit to a wide (and competitive) market, those companies should mostly escape any impending legislation.
In that light, Celgene Corporation (CELG) rises back near the top of bargain-priced biotech stocks to chew on. The 18% dip since July has left the stock at prices not commensurate with its growth rate.
Something to watch for: Psoriasis and arthritis therapy Otezla is off to a great start after its launch earlier in the year, and sales could reach the $2 billion mark as early as 2017.
Bargain Biotech Stocks: Gilead Sciences (GILD)
Last but certainly not least, Gilead Sciences (GILD) is a biotechnology bargain right now for an old-fashioned reason … its valuation is downright low thanks to the 19% pullback GILD shares have dished out since topping in June.
Gilead Sciences is the world’s biggest HIV drug supplier, and while some might consider that a specialty arena, it isn’t. There are more than 35 million people on the planet who have HIV, and more than enough other drug companies offer enough competition to keep Gilead’s prices honest and fair.
More important than that, however, is that the HIV epidemic isn’t going away anytime soon. Gilead continues to see strong top- and bottom-line growth as it reworks its old portfolio and launches new and better treatments.
The result is a very palatable trailing price-to-earnings ratio of 10.4 and a very plausible forward-looking P/E of 8.6. Those are valuations one would expect to find in the utilities and consumer staples sectors.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.