3 Top Biotech Stocks to Add to Your Watchlist

3 Top Biotech Stocks to Add to Your Watchlist

Posted On July 1, 2019 1:26 am

Biotech investing isn’t for the faint of heart. The odds that any particular candidate treatment will be a success are low, and commercializing a drug is hard. However, the returns can be amazing when everything goes according to plan.

We asked a team of Motley Fool contributors to share the names of some biotech stocks that they think are worth the risk. Here’s why they called out Alexion Pharmaceuticals (NASDAQ:ALXN)Regeneron Pharmaceuticals (NASDAQ:REGN), and Ionis Pharmaceuticals (NASDAQ:IONS).

Rare disease treatments can bring big rewards

Sean Williams (Alexion Pharmaceuticals): If you’re looking for a truly out-of-the-ordinary biotech stock to invest in, you should consider ultra-rare-disease drugmaker Alexion Pharmaceuticals.

For more than a decade, Soliris has been Alexion’s breadwinner. Soliris is an orphan drug that’s been approved to treat paroxysmal nocturnal hemoglobinuria (PNH), atypical hemolytic uremic syndrome, and most recently anti-acetylcholine receptor antibody-positive generalized myasthenia gravis. Even if you’ve never heard of these diseases before, the thing to know about Alexion is that there’s virtually no brand-name competition waiting in the wings for these indications. The company will therefore able to maintain an exceptionally high price point on Soliris, and insurers will continue to reimburse for it. Its orphan status, along with label expansion and steady organic volume growth, has been the key to growing Soliris into a more than $3 billion a year treatment.

Now, here’s the best part: Despite persistent concerns that generic-drug developers would attempt to swoop in on Soliris once its patents expired, Alexion has fixed that problem. In late December, the company received Food and Drug Administration approval for Ultomiris, which is a next-generation treatment for PNH that is given six or seven times annually, as opposed to bi-weekly with Soliris. In other words, Alexion will slowly phase out its key drug in favor of Ultomiris in most indications, as well as look to expand its label.

As icing on the cake, Alexion’s Strensiq and Kanuma continue to gain larger audiences. Strensiq, which treats perinatal/infantile, or juvenile-onset hypophosphatasia, and Kanuma, a treatment for lysosomal acid lipase deficiency, are expected to produce between $655 million and $680 million in combined 2019 sales, with longer-term sales growth potential in the high single-digit percentages annually.

With aggregate sales projected to grow by more than 50% between 2018 and 2022, and earnings possibly on track to hit $13 per share by 2022, Alexion’s shares today could be an exceptional bargain in the rare-disease space.

The business is stronger than the stock

Chuck Saletta (Regeneron Pharmaceuticals): Imagine a company trading at less than 13 times its anticipated earnings that has far more cash than debt on its balance sheet.  Now, imagine that the same company is expected to be able to grow its earnings at a decent 8% annualized clip over the next five years.

Investors would normally expect a company with financials and a valuation like that to be an industrial titan or some similarly stable stalwart. In the high-flying world of biotechnology, this sort of fiscal profile is unusual, so when you find one, it’s certainly worth looking at. Regeneron Pharmaceuticals is that rare biotech.

Its relative bargain share price is an artifact of some operational challenges the company has faced over the past few years that took the bloom off its rose. Its anticipated growth rate stalled, shrinking its price-to-earnings ratio accordingly. What matters to today’s investors, however, isn’t where the company’s stock has been, but where it’s going. While nobody can predict that future with any degree of certainty, what is clear is that Regeneron’s shares no longer have tremendously fast growth baked into their price.

That market pessimism provides the seed for potentially strong returns, particularly since Regeneron has a solid pipeline of candidate treatments in various clinical trial stages.. That pipeline — with products intended to address cancer, asthma, allergies, cholesterol, and Ebola — provides reason to believe the company can continue to drive some level of growth over time. Today’s investors have a shot at a decent return even at modest growth levels…

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