Over the past 12 months, the Nasdaq Biotech Index (NBI) has kept up with the broader market, slightly outpacing the S&P 500, until the last few months.
Certainly 2019 has been a bumpy ride. But it looks like the sector, especially thanks to its larger firms, is finally hitting its stride.
The index is rising and a growing number of mergers over the past couple years are starting to pay off.
It usually takes about 10 years and costs around $2 billion to get a drug through trials these days.
That’s a lot of commitment. And during that time, you need to develop a strong pipeline for future growth.
At Growth Investor, we are focused on pure biotech stocks, not big pharma. These seven big biotech companies are driving cutting-edge therapies. These names are either currently thriving or well positioned for buyouts that would come with big premiums.
Biotech Stocks to Buy: Galapagos (GLPG)
Galapagos (NASDAQ:GLPG) is a perfect example of the new wave in biotech. It uses adenoviruses — viruses that usually cause respiratory illnesses — to introduce human gene sequences to help or prevent certain proteins from multiplying.
The formations of proteins play a critical role in a number of diseases, including cancer. They are also key in autoimmune diseases. And GLPG focuses on the latter.
It has four drugs in clinical trials currently, and two of those are in Phase 3 trials. That is encouraging, since it is usually moving into Phase 3 trials where many drugs fall short.
The stock is up a whopping 94% this year as trial results are driving price, yet its trailing price-to-earnings ratio is 38. It has a $12 billion market capitalization, so it’s well funded.
China Biologic Products (CBPO)
China Biologic Products (NASDAQ:CBPO) is one of China’s leading biotech companies. Its work isn’t fancy, but it’s functional. And in a population of 1.4 billion people, high-quality drugs represent a huge step forward.
China is very focused on developing its pharmaceutical and healthcare industry instead of relying on the U.S or Europe to sell it medicines. But this is a huge undertaking to start from nearly scratch.
CBPO is one of the first to do it. It’s not making cutting-edge drugs and doing breakthrough research — it’s focused on plasma-based biopharmaceutical products. These are fundamental for treatment of immune system disorders, epidemic diseases and disaster relief.
It gained a lot of attention last year when a consortium offered nearly $4 billion for the company. Its current market cap is $4.5 billion and the stock is up 54% year-to-date. That’s the kind of momentum I like to see at Growth Investor, and there’s still plenty of headroom here.
Arrowhead Pharmaceuticals (ARWR)
Arrowhead Pharmaceuticals (NASDAQ:ARWR) works on novel drugs for intractable diseases. And that about sums up its focus.
Right now, it has nine drugs in trials. Two of them are in Phase 3. One is for liver disease and the other for Hepatitis B. Most of its other drugs are focused on diseases affecting the liver. It also has one in trial for lung cancer and another for renal cell carcinoma.
It is focused on using RNAi, or RNA interference, to prevent cells from expressing a specific gene, usually a gene linked to a disease. RNAi has been around for a long time, and ARWR has been around since 1989. But it’s now coming into its own, as technologies have grown up around it.
The stock is up a staggering 432% year-to-date, due to its own work and the interest that big pharma is now taking in the sector. With a $6.3 billion market cap, it would be an easy buy for a big firm looking to acquire a solid pipeline of RNAi drugs.
Acadia Pharmaceuticals (ACAD)
Acadia Pharmaceuticals (NASDAQ:ACAD) focuses on central nervous system disorders. These range from schizophrenia to Parkinson’s to major depressive disorder.
It actually has a drug in the market. In 2016 Nuplazid was launched to help manage the hallucinations and disorientation sometimes experienced by Parkinson’s patients. Second-quarter sales were $83 million, up 46% from the same quarter a year ago. That’s more than $300 million a year, and growing.
It has another drug that is wrapping up Phase 3 trials and is targeted at dementia-related psychosis. Yet another drug is halfway through Phase 3 trials focused on providing an adjunctive therapy for major depressive disorder.
This firm isn’t just about the future, it’s succeeding in the market right now. And in a unique niche, no less. This niche will continue to grow as boomers age, so demographics are also on its side. That’s the kind of growth potential I demand from stocks in any industry.
ACAD stock is up 182% year-to-date and with a $7 billion market cap, it’s still the early days.
Spark Therapeutics (ONCE)
Spark Therapeutics (NASDAQ:ONCE) is a gene therapy company that focuses on genetic diseases including blindness, hemophilia and neurodegenerative conditions.
These can be good areas for a relatively young gene company to plant its flag, because they aren’t usually filled with as much competition. That also means that during drug trials, its efficacies don’t have to meet as high standards.
ONCE just launched its first drug this year, Luxturna, for inherited retinal dystrophy, which ultimately leads to blindness. Sales and results have been positive. The company also has a licensing and development deal with Pfizer (NYSE:PFE) for a drug targeting hemophilia. And Novartis (NYSE:NVS) has control of European marketing for Luxturna.
The stock is up 184% year-to-date and has a bright future if it can keep delivering.
Zai Lab (ZLAB)
Zai Lab (NASDAQ:ZLAB) is a Chinese biotech that launched in 2014. But today, it has a $2.6 billion market cap. That’s some pretty fast growth.
Part of the reason is that Incyte Pharmaceuticals (NASDAQ:INCY), maker of the rheumatoid arthritis drug Jakafi, has become an investor. This partnership allows INCY to market its drug in China and gives ZLAB access to the U.S. market. At Growth Investor, we invest with an eye on macroeconomic trends, and these are the two markets exhibiting the strongest growth.
Their product lines overlap as well, which has some strategic advantages. Both have products in autoimmune diseases, and ZLAB also is doing work in cancer and infectious diseases.
ZLAB has 16 drugs in Phase 3 trials, with one, Optune, ready for market in Hong Kong. Its massive pipeline is especially attractive for a firm like INCY when looking at marketing some of these in the U.S. market.
The stock is up 73% year-to-date and could be a sleeping giant, if all unfolds according to plan.
Natera (NTRA)
Natera (NASDAQ:NTRA) isn’t a typical biotech in the sense that it develops drugs.
Its niche is genetic testing. While you may think that begins and ends with prenatal testing for hereditary disorders and the like, the fact is, that’s just the beginning.
It can run testing on cancers so that oncologists can get an exact description of the cancer. Today, there are gene therapies and immuno-oncology therapies that can be used to help certain cancer patients. And that list is growing. Also, recurrence monitoring and treatment monitoring are much more targeted and accurate.
Also, genetic testing can help make sure that transplants are more successful. For insurers and hospitals (as well as patients of course), a clean transplant means no issues with tissue rejection, infection or longer hospital stays.
It might not have a sexy silver bullet in this sector, but it does have a great reputation.
The stock is up 155% year-to-date. And given the lack of drama in the stock, its big growth could keep on going as long as the population continues to gray.
All this gives you an idea of why these stocks rate so highly in my Portfolio Grader tool. And I’ve got more where that came from.
There’s a bigger, deeper tech trend going on that I’m even more excited about.
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Source: Investor Place