Solid clinical results for Biogen (NASDAQ:BIIB) sent the stock up nearly 20% in a single day last week. That set the tone for a number of hot drug stock picks for July.
The bullish madness did not stop at Biogen last week. News of positive clinical data for its Alzheimer’s study lifted the entire biotechnology sector. Oddly enough, markets largely ignored pharmaceutical stocks, choosing instead to invest in the riskier biotech sector. Still, companies on the cusp of launching a blockbuster product have tremendous revenue potential: they just need enough cash to fund research and development in the interim.
So what stocks in the biotechnology and pharmaceutical sector should investors consider? The following are Big Pharma stocks that should be on the radar of most investors.
Big Pharma Stocks Investors Love: Acadia Pharmaceuticals (ACAD)
Investors changed their mind on Acadia Pharmaceuticals (NASDAQ:ACAD) on Monday, July 9 after Southern Investigative Reporting Foundation (SIRF) wrote a negative piece on it. Acadia is described as a biotechnology company that makes drugs targeting disorders in the central nervous system. But the Foundation believes that Acadia is not a biotech company at all, but instead a “ruthless marketing entity.” It also cited an April CNN report that said that the FDA did not determine the safety of the drug.
The accusation is hard to believe. In the first quarter, Acadia generated $48.9 million in sales, up by over two-fold from last year. It forecast net sales of $255 million – $270 million for 2018. It is worth noting that R&D expenses rose to $39.3 million, up from $35.4 million. Acadia ended the quarter with $298.1 million, down from $341.3 million sequentially.
Prior to the negative report, Acadia announced that the FDA approved a new formulation and dosage of Nuplazid. The 34 mg daily dose is delivered in a single small capsule. With around 4 to 6 million Parkinson’s disease sufferers, half of them exhibit symptoms of psychosis that this drug would address.
Big Pharma Stocks Investors Love: AbbVie (ABBV)
AbbVie (NYSE:ABBV) has an immense portfolio of drugs and many more in the pipeline. At a share price of around $97, the stock dropped sharply from its $125.86 yearly high when markets decided in late-June that the company could face generic competition for Humira. Credit Suisse analysts speculated that the drug, which treats arthritis, may face downward pressure as generics make a copy of the drug. Humira is a core AbbVie product that accounts for 60% of its total net present value.
CS concedes that AbbVie’s patents are protected in the U.S. until 2023, but that biosimilars will start appearing in Europe in late-2018. Longtime ABBV stockholders have been aware of the risks of competition for nearly two years. Now, at a share price below $100, investors get paid to wait, with a dividend that yields nearly 4%. Management continues to spend well on R&D to boost its pipeline to offset the potential of generic competition.
Humira’s competitors have a long road to travel. It must first meet the FDA requirements for the product. Then it must show non-inferior efficacy. Only after those steps may physicians prescribe the drug. Unless the drug copies are cheaper, doctors will likely continue prescribing Humira.
Big Pharma Stocks Investors Love: Celgene (CELG)
Celgene (NYSE:CELG), which develops drugs for the treatment of cancer and inflammatory diseases, continues to underperform on the markets. At around $84 a share, the stock is barely above the $74.13 52-week low. Although the stock moved slightly higher last week when Pfizer (NYSE:PFE) raised prices for a number of its drugs by up to 10%, investors still have little confidence that the company will execute on its multi-year growth plans.
Celgene stretched its balance sheet in a bad way when it bought Juno Therapeutics for $9 billion back in January. While higher cash flow growth from the business is more than enough to manage interest payments to service the higher debt levels, Celgene has little room to stumble on new product launches. The “Refusal to File” it received for its multiple sclerosis candidate Ozanimod adds to its woes of having a number of consecutive pipeline drug failures. In October 2017, Celgene said mongersen, which treats Crohn’s disease, failed. These missteps are uncharacteristic for a company that executed so well before the recent string of bad news.
And while the possibility of a patent expiry for Revlimid, a drug that treats multiple myeloma in 2022 poses a threat, if it goes off patent in 2027 and Celgene faces no further new product launch delays, then Celgene is clearly an undervalued drug stock at this share price.
Big Pharma Stocks Investors Love: Crispr Therapeutics (CRSP)
For the more adventurous biotechnology investor, gene therapy is attracting investors. Crispr Therapeutics (NASDAQ:CRSP), whose shares traded at a low of $15.67 but closed at around $63, has the potential game-changing technology in gene editing that could change the way scientists approach curing various human diseases. But while CRISPR has the great science for a novel treatment method, it still has no product on the market.
Crispr ended the first quarter with $341.8 million in cash. It generated $1.4 million from collaboration revenue, but expenses jumped to $19.5 million, up from $14.8 million year-on-year. For the quarter, the company lost $28.3 million.
Just three analysts cover Crispr, with two calling the stock a “buy” and another rating it as a “hold.” The average price target, per TipRanks, is $69.75. This suggests the stock has upside of around 10%.
Big Pharma Stocks Investors Love: Nektar Therapeutics (NKTR)
Nektar Therapeutics (NASDAQ:NKTR) may have lost around half its value in the last quarter but the drug targeting developer is still up nearly double from its yearly low. The stock fell after the company reported results of its PIVOT 02. The drug, which treats myeloma, had an ORR (or Overall Response Rate) of 50%. Investors had expected better results. Still, Nektar may proceed to Phase 3 of the study.
At an investor conference held by Jefferies on June 6, Nektar highlighted three things. It said it filed its NDA for NKTR-181 in late-May and that it is looking for partners for the program. In its NKTR-214 study, the company confirmed it will advance into the Phase 3 study. This will involve kidney and bladder cancer subjects. The third point it made was that the Takeda’s TAK-659 Phase 1/2 study will have a second-half of the year launch.
On Wall Street, eight analysts cover the stock. On average, the price target is around $96, implying upside of over 100%.
Conversely, five finbox.io models suggest the fair value of NKTR stock is around $45, which is close to the current share price. Another negative for Nektar is the lack of insider buying. Prior to the stock dropping on May 16, several insiders sold the stock.
Despite the potential near-term risks, investors may look forward to Nektar posting initial early data its triplet study of NKTR-262, NKTR-214 and Opdivo in the fourth-quarter timeframe. As for funding for 2018, the company is financially sound. It expects to end the year with around $1.9 billion in cash. Bristol-Myers Squibb (NYSE:BMY) paid a $1 billion upfront payment in April and made an $850 million premium equity investment.
As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.