The number of cases of the novel coronavirus worldwide is once again turning investors’ attention to biotech stocks. Over the past several weeks, shares in many established and relatively young stocks have hit new highs. Therefore today, we will discuss three biotech stocks with eye catching-pipelines.
Recent research highlights, “Research and Development (R&D) within the pharmaceutical and biotechnology sector fills an important role concerning public health. It is a driver of innovation leading to higher output of medical products, resulting in more treatments and higher quality substances reaching the market.”
However, the cost of developing and commercializing a new medicine is high, standing well over $2 billion. Many analysts concur the U.S. is excellent at medical and healthcare research. The work carried out by many biopharma companies and researchers is impressive when it comes to turning the knowledge generated into practical outcomes that benefit millions of people.
For successful biotech investing, continued pipelines are crucial. Research led by Mark Ahn of Portland State University concludes, “Typically, large biopharma firms create drug development pipelines in three ways: internal development, strategic alliances (e.g., joint ventures, alliances, co-promotion, co-development), and mergers and acquisitions.”
There are also numerous companies outside the U.S. delivering high-impact research and that have impressive pipelines. Companies often combine synergies and decide to collaborate on various parts of drug development. For example, Pfizer (NYSE:PFE) is working with with Germany-based BioNTech (NASDAQ:BNTX) to develop a vaccine against the novel coronavirus. Similarly, UK-based GlaxoSmithKline (NYSE: GSK) and France-headquartered Sanofi (NASDAQ:SNY) have been collaborating on a potential cure for the virus since early spring.
With that background information, here are three biotech stocks to buy in the last quarter of the year:
Biotech stocks: AbbVie (ABBV)
As a global research-based biopharma company, North Chicago, Illinois-based AbbVie needs little introduction. The group was spun off from Abbott Laboratories (NYSE:ABT) in 2013. During that strategic move, Abbott retained the branded generic pharmaceuticals, diagnostics, medical devices and nutrition.
AbbVie decided to concentrate on immunology and oncology. Regular InvestorPlace.com readers would be familiar with Humira, its flagship drug used to treat autoimmune diseases as well as Imbruvica, which differentiates between cancer cells and regular cells. Earlier in the year, AbbVie acquired botox-manufacturer Allergan, which will add drugs in aesthetics and women’s health. It was a $63.4 billion acquisition.
AbbVie has several other products, including:
- AndroGel, a testosterone replacement therapy.
- Creon, a pancreatic enzyme therapy to treat exocrine pancreatic insufficiency.
- Duopa and Duodopa, gels to treat Parkinson’s disease.
- Viekira Pak, which treats chronic hepatitis C.
- Zinbryta, to treat multiple sclerosis.
Year-to-date, ABBV stock is down around 9%. Its forward P/E and P/S rations stand at 6.64 and 3.39, respectively. In the coming weeks, the markets are likely to stay volatile. Although there could be further weakness in ABBV shares, pushing it toward the low-$70’s, the company belongs in a diversified portfolio.
Global X China Biotech Innovation ETF (CHB)
Our next discussion focuses on an exchange-traded fund (ETF), i.e. the Global X China Biotech Innovation ETF. Currently, U.S.-China relations are at multi-year lows as tensions and emotions run high.
From an investment perspective, however, China offers a range of long-term investing opportunities and CHB provides exposure to companies directly involved in China’s biotechnology industry. The fund started trading in September 2020 and has only $2.5 million under management. Therefore, there is not enough data to analyze the fund’s performance.
The ETF has 27 holdings. The top 10 firms make up over 60% of net assets. Drug developer Wuxi Biologics, Beijing-based Beigene (NASDAQ:BGNE) and Shenzhen-headquartered Shenzhen Kangtai Biological Products lead the names in the fund. China is the most populous nation in the world and its economy comes behind that of the U.S. The industry and firms in the sector deserve to be on the radar of biotech investors.
Royalty Pharma (RPRX)
Our final stock for the day is Royalty Pharma, which went public in June. RPRX stock was initially priced at $28. The shares opened at $44 and on June 18, hit a high of $56.50. RPRX stock is currently shy of $35.
FDA says that a drug patent lasts for 20 years. But about half of that time is, in general, spent to develop the drug. The biotech industry has been searching for alternative methods of financing for R&D efforts and drug commercialization. And that is potentially where Royalty Pharma, a buyer of biopharma royalties, comes in.
Management identifies, evaluates and acquires royalties from innovators in the industry. It also partners “with companies to co-fund late-stage clinical trials and new product launches in exchange for future royalties.” The group was set up in 1996. It currently has royalties around 50 marketed drugs. Several of the companies its partners include AbbVie, Biogen (NASDAQ:BIIB) and Merck (NYSE:MRK).
The forward P/E and P/S ratios for RPRX stock currently stand at 13.12 and 11.41. We’d look to buy into the declines in share price.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also publishes educational articles on long-term investing.