As market conditions turn positive again and the major indices close at a new high, value investors should turn to the healthcare sector. Biotechnology stocks are far from their 52-week highs. And even though worries over pressured drug prices are dissipating, biotech stocks did not fully rebound.
Investors should look for two key aspects with biotech stocks. They should pick companies that already have products on the market and whose profits more than cover research spending. They should also demand companies with plenty in the pipeline. With those requirements, companies are unlikely to seek an additional cash boost through the sale of shares. That gives investors the biggest upside potential with the least amount of risk.
Here are seven biotech stocks with plenty in the pipeline to consider.
Biotech Stocks to Buy: Biogen (BIIB)
Biogen (NASDAQ:BIIB) shares languished through much of 2019 when the company abruptly canceled its Alzheimer’s drug. On Oct. 22, that changed. The company reviewed the clinical data again and decided the drug does work. Its terminated Phase 3 Emerge study met the primary endpoint. At week 78, it showed a statistically significant decline as measured by the CDR-SB scale. Greater exposure to its drug aducanumab led to a 23% clinical reduction compared to the placebo.
In its third-quarter report, Biogen reported a 17% growth in Spinraza sales, a 3% increase in Tecfidera and a 3% increase in Tysabri sales year-over-year. It continued to progress its pipeline with Vemerity and the addition of two new clinical programs. Its pipeline for multiple sclerosis drugs continued growing in the third quarter. Positive results for one of its studies on multiple sclerosis suggest strong product sales in the future.
Adding BIIB094 to its pipeline will advance its antisense oligonucleotide (or ASO) for targeting the most common genetic cause of Parkinson’s disease. It will further build depth across its ASO pipeline by focusing on genetically validated targets.
Overall, the plan to gain approval for its Alzheimer’s disease therapy is a historic milestone for Biogen and for those who suffer from it. After growing revenue by 5% to $3.6 billion in Q3, growth rates will remain steady as new drugs come to the market.
AbbVie (NYSE:ABBV) stock recently began trading above $80 for the first time since May. The company not only reported a strong third quarter but it declared a $1.18 dividend. This is 10% higher than previous payments and undermines the bearishness that followed its Allergan (NYSE:AGN) buyout.
Allergan’s product portfolio, especially the Botox lineup, broadens AbbVie’s pipeline of drugs. Although its blockbuster drug Humira faced generic competition, it still grew sales by 9.5% in the U.S. in the third quarter. It reported strong volume growth across all three segments: rheumatology, dermatology and gastroenterology.
AbbVie advanced its pipeline with recent product Rinvoq. A phase 3 study in axial spondyloarthritis next may expand the drug’s market within the rheumatology segment. In atopic dermatitis, Rinvoq results will be posted in the first half of 2020.
In hematologic oncology, Imbruvica and Venclexta are advancing its product pipeline. Expect favorable study updates to give ABBV stock another lift.
In Q3, AbbVie’s earnings per share grew 8.9% to $2.33 as revenue grew 3.5%. The company managed its mature product line and will have more than enough cash flow to grow its dividend and service the debt incurred through the Allergan buyout.
Innoviva (NASDAQ:INVA) stock topped $20 at the beginning of 2019 only to fall to $10.03. The stock rebounded by 20% in recent weeks after reporting a strong third quarter. Innoviva’s EPS was 36 cents as revenue rose to $65.8 million.
The company reported gross royalty revenue of $69.2 million from GlaxoSmithKline (NYSE:GSK), which included royalties of $46.4 million from global net sales of Relvar. Royalty revenue for Anora Ellipta was $11.6 million.
Generic versions of Advair, another asthma treatment, will continue to be a drag on results. But Innoviva lowered its operating costs by reducing its office space.
Looking ahead, the company may offset the 10% drop in Relvar sales with a continued increase in Anora Ellipta sales. To do that, it needs to grow sales in non-U.S. markets.
Last month, GSK submitted a filing to U.S. Food and Drug Administration for Trelegy Ellipta use in patients with asthma. If the new drug is approved, this would make it the first and only single-inhaler triple therapy that’s available for both asthma and chronic obstructive pulmonary disease (COPD) in the United States. The expanded market improves the revenue potential for the company’s existing pipeline.
Theravance Biopharma (TBPH)
Theravance Biopharma (NASDAQ:TBPH) and Innoviva used to be a single company, but when the two firms split, the biopharma unit led drug discovery initiatives. Theravance is building a pipeline of drugs that treat single-organ diseases. It differentiates itself from other biotech firms by carrying out difficult-to-replicate design characteristics. This gives it a sustainable competitive advantage.
Theravance Biopharma has research and development efforts that will accelerate pivotal studies, including TD-1473 and ampreloxetine. It ended the third quarter with $352.9 million in cash as of Sep. 30. So, it has enough to fund its R&D activities.
For the full-year 2019, the company forecast a lower operating loss in the range of $200 million to $210 million. The lower loss guidance is due to upfront payments from Mylan (NASDAQ:MYL) for Yupelri development and commercialization rights in China.
In its early stage pipeline, TD-8236 completed a Phase 1 study. With both healthy volunteers and patients with asthma, the study included a biomarker evaluation in patients who have the active disease. The company posted generally good tolerance as a single dose and as a once-daily dose for those with mild asthma. The results validate drug safety and tolerability, pharmacokinetics and preliminary pharmacodynamics activity.
The company initiated a Part C extension portion of the Phase 1 trial that will assess a range of more biomarkers in patients with more severe asthma.
TBPH stock may have bottomed at $16 and could potentially rebound back to the $20 level as the market gains confidence in the company’s product development.
Regeneron Pharmaceuticals (NASDAQ:REGN) stock rallied by around 8% on Nov. 5 after reporting strong earnings. Its two blockbuster drugs, Dupixent and Eylea, beat consensus estimates. The company has clear cash flow growth ahead of these products. This will fund the company’s oncology studies.
In the third quarter, Regeneron reported Eylea sales of $1.9 billion, 14% above last year’s levels. Sales beat consensus estimates because the level of generic competition is not as high some predicted.
The real highlight in the company’s quarter was Dupixent’s quarterly sales. Sales more than doubled to $633.1 million. An expanded indication for the drug for treating adolescent and pediatric atopic dermatitis will lead to significantly stronger sales in the years ahead.
To broaden its business and pipeline, the company continued development in drugs treating cancer. On Nov. 5, the company reported updates to its ongoing Phase 3 development program evaluating Libtayo. This is a PD-1 inhibitor and is a monotherapy and combination therapy in first-line patients with advanced non-small cell lung cancer (NSCLC). This study enrolled 90% of the 700 planned patients. Once it achieves full enrollment by the end of this year, it will start the study with 361 randomized patients with a minimum of 6 months of follow-up.
The second trial will have two parts that evaluate Libtayo in combination with platinum-based chemotherapy. Part 1 evaluates patients with PD-L1 expression. And Part 2 is a Phase 3 trial that evaluates patients with all PD-L1 expression levels in two treatment groups: chemotherapy alone or chemotherapy in combination with Libtayo.
At the time of writing, REGN stock is still a paper loss year-to-date. As markets catch on to the growth prospects for Regeneron, look for the stock to outperform its peers.
Mylan stock is more than half price and is still struggling on the market. On Nov. 5, it reported third-quarter revenue growing 3.5% to $3 billion. Non-GAAP EPS was $1.17 while GAAP EPS was 37 cents. Still, the company has areas of strength that suggest its core business is stabilizing.
Mylan’s North American segment reported net sales of $1.1 billion, up 8%. Its European segment was steady, with net sales up below 1%. In Q3, adjusted free cash flow of $542 million brought the year-to-date total to $1.3 billion. And with a $1.9 billion to $2.3 billion FCF forecast for the full-year 2019, Mylan will continue paying off its debt. In Q3, it repaid around $650 million of debt. It plans to pay back $1.1 billion of debt for 2019.
Mylan’s 2019 EPS will be in the range of $4.20 to $4.40.
Mylan is simplifying its business by merging its off-patent branded drugs with Pfizer’s (NYSE:PFE) Upjohn unit. Impatient investors also fretted over Mylan’s caution of a decline in revenue. Still, Wixela and Yupelri, which treats respiratory ailments, are new drugs that contributed to the 8% sale rise. But for the full year, Wixela sales will fall short of estimates.
If investors bet that the short-term hiccup in sales for new products is temporary, then MYL stock may recover as revenue growth resumes in 2020 and beyond.
Novartis (NYSE:NVS) is having trouble trading above the $95 level. But last month, the stock resumed its uptrend after receiving an FDA approval for Beovu and reporting Q3 results.
Novartis enjoyed a 9% sales growth from its oncology unit. It has many drugs in the pipeline driving that growth. At the European Society for Medical Oncology conference, abstracts were accepted and 13 Novartis brands or compounds with data were presented. The company highlighted Monaleesa-3, which is the second Phase 3 trial in which Kisqali demonstrated a statistically significant overall survival benefit of around 30%.
The FDA also approved Beovu, which will offer wet macular degeneration patients vision gains and greater fluid reductions through aflibercept. This approval may have contributed to the drop in REGN stock. For diversification, investors may hold both REGN and NVS stock.
In the third quarter, Novartis reported double-digit top and bottom-line growth. The company highlighted Beovu’s launch in the U.S., Cosentyx meeting primary endpoints and positive results from the Kisqali and Entresto studies. These will all deepen the company’s drug pipeline. In the near term, Novartis may count on its key growth drivers of more than 10 drugs that contribute to 28% of its sales growth.
China is another important opportunity for Novartis. In the last two years, it had 24 new drug applications approved. And between now and 2023, it expects to have 50 new drug application submissions. Growth rates in the region are in the high 20% level. So, expect Entresto, Lucentis and Cosentyx to lead that sales growth.
As of this writing, Chris Lau owned ABBV and INVA stock.