On the whole, drug stocks performed very badly in 2021, as the SPDR S&P Biotech ETF (NYSEARCA:XBI) tumbled nearly 27%. And signaling that the sector’s woes aren’t over yet, XBI sunk about 16% from the beginning of 2022.
But for a few reasons, I believe that the sector will soon make a dramatic comeback. First of all, growth stocks within the biotech sector have been badly hurt by worries about inflation and higher interest rates. But, as supply chain woes improve and year-over-year comparisons get more favorable, those fears should subside within a few months.
Also likely to help the sector is the easing of the coronavirus pandemic, since Americans are likely to see doctors much more often as the virus becomes endemic.
Finally, worries about Congress instituting controls on the prices of drugs have, I believe, contributed to the struggles of biotech stock. But because President Joe Biden has historically been very supportive of the sector, while his campaign and the campaigns of congressional Democrats received a great deal of money from the sector, I think those worries will prove to be greatly overdone.
Of course, long-term investors should only buy the stocks of biotech companies that appear to have strong pipelines. In other words, for such individuals, it only makes sense to invest in companies that are developing and testing drugs which are likely to be very successful.
Three drug stocks in that category are:
Drug Stocks to Buy: Harmony Biosciences (HRMY)
The company has developed Wakix, or pitolisant, for the treatment of narcolepsy. The drug has been approved by the FDA. According to Harmony, WAKIX offers a “lack of abuse potential” and is the first treatment for narcolepsy with a new “mechanism of action” in more than 10 years.
In recent months, there has been a great deal of good news about the company. On Sept. 2, the American Academy of Sleep Medicine recommended Wakix as a treatment for narcolepsy. Harmony was added to the S&P SmallCap 600 index on Oct. 19, and it reported higher-than-expected third quarter revenue of $80.7 million on Nov. 9.
Research firm Oppenheimer started coverage of HRMY stock with an “outperform” rating, along with a $55 price target. In the words of The Fly, the firm believes that Wakix’s “strong revenue ramp during the pandemic reflects its differentiated profile and notes that the company is also working on the treatment of {excessive daytime sleepiness} in patients with Prader-Willi syndrome and myotonic dystrophy, arguing that Wakix ‘is still scratching the surface.'”
Schrodinger (SDGR)
As I reported in a past column, Schrodinger’s AI-based system incorporates physics-based technology. That allows the drug creation process to be shorter and cheaper.
The company seeks to create drugs on its own and partners with drugmakers, including Sanofi (NASDAQ:SNY) and Bristol-Myers Squibb (NYSE:BMY), to develop treatments.
On Dec.11, Schrodinger reported that it had discovered a number of protein inhibitors that “demonstrate strong anti-tumor activity across multiple (lymphoma) tumor models.” The company noted that it expects, in the first half of this year, to seek permission from the FDA to begin trials on one inhibitor.
Two oncology drugs that Schrodinger developed in tandem with Agios (NASDAQ:AGIO) have been approved by the FDA. Two drugs that it’s developing with Nimbus – for metabolic diseases and autoimmune and inflammatory diseases – are in Phase 2 trials.
Schrodinger is partnering with many other companies on a large number of drugs for a high number of indications that are in the discovery or preclinical stages.
And since Schrodinger says that its AI technology speeds up the drug discovery process and makes the process more accurate, investors likely won’t have to wait many years for some of these drugs to be proven safe and effective.
Drug Stocks to Buy: Protagonist Therapeutics (PTGX)
The company is developing a treatment for Polycythemia vera, described by Johns Hopkins as “a rare blood disorder in which there is an increase in all blood cells, particularly red blood cells.”
In two Phase 2 open-label, randomized trials, Protagonist’s treatment, rusfertide, showed that it was able to eliminate the need for phlebotomies in patients. Rusfertide also demonstrated that it was able to control the levels of the patients’ red blood cells, Protagonist reported. The company is currently preparing to carry out a Phase 3 trial of the drug.
Moreover and impressively, Protagonist is collaborating with Johnson & Johnson (NYSE:JNJ) on a drug for multiple illnesses. For now, the drug is called PN-235. It is a potential treatment for psoriasis and inflammatory bowel diseases.
PN-235 is expected to advance into Phase 2b studies in psoriasis and at least one new Phase 2 clinical study in inflammatory bowel disease, Protagonist recently stated.
Finally, Protagonist’s peptide drug, PN-943, is in a Phase 2 trial involving adults with moderate to severe active ulcerative colitis.
On the date of publication, Larry Ramer was long SDGR stock.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.
