Biotech stocks are infamously one of the most volatile sectors in the stock market. Investors often venture into speculative companies with no proven pipelines. Emerging firms with a pipeline of drugs and products still in the clinical phase post little to no revenue. They raise cash by tapping capital markets to pay for research and development. Investors face enormous risks if the firm fails to report statistically significant results. Most firms typically fail to post results, as they put all their potential into their product pipeline. In fact, one study by Avance, posits a roughly 20% success rate.
But the companies that fall into that 20% success rate can make millionaires overnight. Those who are willing to take more risks with biotech stocks will get an even bigger reward. Once the company posts favorable results and gets governmental approval, the stock could soar.
Conservative investors unwilling to wait years for a big payout should stick with biotech stocks entering the golden boom phase. They are mature companies that either already have products on the market or have acquired companies with products on the market.
With that in mind, let’s look at seven biotech stocks entering their golden phase. As you can see in the valuation table to the right, each company has great scores in their own ways.
- AbbVie (NYSE:ABBV)
- Horizon Therapeutics (NASDAQ:HZNP)
- Johnson & Johnson (NYSE:JNJ)
- Eli Lilly (NYSE:LLY)
- Merck & Co (NYSE:MRK)
- Novartis (NYSE:NVS)
- Regeneron Pharmaceuticals (NASDAQ:REGN)
Biotech Stocks About to Boom: AbbVie (ABBV)
AbbVie is on the verge of a blockbuster drug. Rinvoq, or Upadacitinib. The company submitted a regulatory application to the Food and Drug Administration and European Medicines Agency for Rinvoq in the treatment of ulcerative colitis. The company has data from two Phase 3 induction studies that support the drug approval. For example, the safety results involved more than 14,000 patients.
AbbVie’s Rinvoq already has approval for rheumatoid arthritis, psoriatic arthritis, ankylosing spondylitis, and atopic dermatitis.
CEO Rich Gonzalez said, “…we remain confident that RINVOQ will be a major contributor to our long-term growth and will be a major blockbuster asset for AbbVie.” The drug will fare well against Orencia, a leading second-line agent in the market.
In the atopic dermatitis space, AbbVie will compete against Regeneron’s Dupixent. Executive Vice President of Commercial Operations Jeffrey Stewart said 20%-25% of patients that tried Dupixent in the last few years didn’t work for them. That opens the market for AbbVie’s AD drug to take that business.
Horizon Therapeutics (HZNP)
Buyers flocked to Horizon Therapeutics after it posted upbeat second-quarter results. The company benefited from a strong relaunch execution of Tepezza, which treats thyroid eye disease. Tepezza sales rose by 173% Y/Y to $453.3 million. Sales of Krystexxa, which treats severe, treatment-refractory, chronic gout, rose by 73% to $130.3 million.
On its conference call, Executive Vice President Liz Thompson highlighted their drug, Uplizna, which treats patients with Neuromyelitis optica spectrum disorders (NMOSD). She said that data suggests there is long-term efficacy. For example, a high proportion of patients are attack-free for as long as four years.
HZNP stock will keep rising as net income grows. In Q2, non-GAAP net income was $381.4 million. Earnings per share of $1.62 surpassed the 87 cents a share forecast. For the fiscal year 2021, Horizon expects sales coming in between $3.025B and $3.125B. Adjusted EBITDA is between $1.26 billion and $1.3 billion. The firm previously guided $1.02 billion to $1.06 billion.
According to Tipranks, the average price target is $132.00.
Biotech Stocks About to Boom: Johnson & Johnson (JNJ)
JNJ has gotten major attention in the past year for its DNA-based Covid-19 vaccine. But the giant offers more than that.
Executive Vice President & Chief Financial Officer Joseph Wolk said that the business is stronger than before the pandemic period. He highlighted new products within its medical device and consumer business as an example.
JNJ is in a good position to post strong results in 2022 and into 2023. However, risks of the government demanding lower drug prices are holding JNJ stock back. CFO Wolk said that in the last five years, the company’s drug prices fell by 5% on average. Specifically, “the industry’s gross to net or the discount and rebate percentages that were applicable to list price was about 26% six years ago across the industry.”
JNJ’s consumer business has multiple tailwinds. For example, Neutrogena and Aveeno are faring very well in the skincare space. Johnson & Johnson will provide an update on their strong pharmaceutical pipeline on their Nov. 18 analyst day.
The average analyst price target is $190.50. A five-year discounted cash flow revenue exit model shows JNJ is projected to show moderate growth. This results in a nearly $200 fair value for JNJ shares.
Eli Lilly (LLY)
Ely Lilly posted strong Q2 results, lifted by the performance of its Trulicity and Humalog products. Injectable diabetes medication Trulicity revenue rose by 25% to $1.54 billion. Trulicity is an injectable diabetes medicine. Humalog, a type of insulin used to treat diabetes, added $607.6 million in revenue, up 9% Y/Y.
Eli Lilly expects GAAP EPS in the range of $6.73 to $6.93 for FY 2021.
In the summer, the company said that its Phase 2 study demonstrated a benefit of its Alzheimer’s candidate donanemab. The drug targets a modified form of beta-amyloid plaque, called N3pG. Alzheimer’s has baffled the medical community for decades, and has very little on the market to treat or diminish its effects. The phase 2 results showed a slowdown of cognitive decline. Should the drug reach final approval by the FDA, LLY stock would likely experience a massive boon as one of the first companies to pass a drug that effectively slows the rate of Alzheimer’s.
Eli Lilly may not necessarily have a blockbuster drug for Alzheimer’s if blocking amyloids does little to treat the disease. Still, patients are better off getting any available treatment. The company may analyze results and continue investing in the drug.
Biotech Stocks About to Boom: Merck & Co (MRK)
On Sept. 17, Merck announced the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency recommended approval of Keytruda, an anti-PD-1 therapy. Patients would use this drug in combination with chemotherapy to treat locally recurrent unresectable or metastatic triple-negative breast cancer when the tumor expresses PD-L1.
Merck is advancing its broad portfolio in the gynecologic and breast cancer space.
In the second quarter, Merck posted revenue growing by 22% from last year to $11.4 billion. It expects full-year 2021 revenue of between $46.4 billion and $47.4 billion. On the conference call, Frank Clyburn, President of Human Health, said that Keytruda sales grew by 20% Y/Y to $4.2 billion, benefiting from strong global demand.
Merck is navigating the eventual Keytruda loss of exclusivity. Its strategy of extending the benefit of Keytruda to more patients will pay off. This includes starting a phase III trial for “evaluating a subcutaneous formulation of Pembrolizumab in combination with chemotherapy in patients with non-small cell lung cancer.” Merck will post results in early 2023.
Novartis recently posted positive data from studies. On Sept. 17, it announced that its alpelisib drug demonstrated clinical benefits in people with PIK3CA-related overgrowth spectrum. This is a rare disorder characterized by atypical, visible overgrowths in blood vessels, lymphatic system, and other tissues. On the same day, Novartis reported positive quality of life data for its study in patients with advanced prostate cancer.
In the second quarter, the company posted a non-GAAP EPS of $1.66. Revenue grew by 14% Y/Y to $12.96 billion. CEO Vas Narasimhan said, “We reached a notable milestone in our journey to build trust with society, tackling global health access challenges, by reaching a billion antimalarial courses delivered to patients most in need.”
In the medium term, Marie-France, President of Novartis Pharmaceuticals, said that Kesimpta will drive growth for the company. It has already added 500 new prescribers and doubled the number of patients on Kesimpta compared to the first quarter.
After having the second-highest prescription share in the multiple sclerosis space, investors should expect the strong momentum to continue.
Biotech Stocks About to Boom: Regeneron Pharmaceuticals (REGN)
Markets bid up shares of Covid-19 vaccine suppliers, overlooking Regeneron’s Covid-19 antibody cocktail. Last month, the U.K.’s Medicines and Healthcare products Regulatory Agency approved Ronapreve. This is Regeneron’s first monoclonal antibody that prevents and treats acute Covid-19.
Patients may take Ronapreve through injection or infusion. The drug acts at the lining of the respiratory system. It binds tightly to the virus, stopping it from gaining access to the cells of the respiratory system. Hospitals will inevitably get patients who refuse vaccination and get seriously ill. Breakthrough infections may increase in number, too. So, Regeneron’s cocktail will give hospitals another way to treat them.
On Sept. 14, Regeneron was awarded a $2.94 billion contract for the antibody therapeutic doses.
Dupixent, which treats Atopic Dermatitis and chronic spontaneous urticarial, accounted for $1.5 billion of the $5.14 billion in quarterly revenue.
CEO Leonard Schleifer also highlighted its genetics medicines business. He said the platform progressed, “with landmark clinical data alongside our collaborator Intellia using a CRISPR therapeutic and the discovery of a promising new obesity target from the Regeneron Genetics Center.”
REGN stock will continue rising from its blockbuster drug sales. Growth will accelerate as it wins approval for treatments from the genetics medicines platform.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.