When it comes to finding winning investments, it can pay off to travel the road less taken. Stocks that are household names are often priced at a premium; that means to find bargains in healthcare, you need to dig deeper. Here are three healthcare up-and-comers that you're likely not familiar with, and why they might soon be more widely known.
1. A new tool tapping a huge market
Only a couple hundred thousand of Exact Sciences' (NASDAQ:EXAS) Cologuard screening tests for colon cancer will be done this year; that represents a small percentage of the tens of millions of people between age 50 and 75 who should be tested every year.
Cologuard hit the market as an alternative to the better-known colonoscopy last year, but payers have been slow to embrace it, and that's kept a lid on sales. That lid, however, may be about to blow off since key screening guidelines for doctors, recommending Cologuard on the same level as colonoscopy, were released in June.
Cologuard demand could grow significantly because Cologuard test kits are prepared at home and unlike colonoscopies, they aren't invasive. Since 40% of those who should be getting tested for colon cancer aren't doing so, and colon cancer is one of the easiest cancers to cure if caught early, it wouldn't shock me if doctors embrace Cologuard widely for use in patients who might otherwise balk at getting tested.
If I'm right, then Cologuard could become a mainstay used in millions of screenings per year, and an argument could be made that Exact Sciences' $2.3 billion market cap is too low.
Granted, Exact Sciences' launch costs mean it's still losing money, and that makes this stock risky, but the size of this addressable market makes this stock tough to ignore.
2. A must-have antidote
For years, Portola Pharmaceuticals (NASDAQ:PTLA) has been working hand-in-hand with the planet's biggest drugmakers to develop a medicine that can reverse the effects of a new and fast-growing class of anticoagulants called factor Xa inhibitors.
Factor Xa inhibitors like those made by Johnson & Johnson and Bristol-Myers Squibb don't require frequent dose adjustments, and they don't require dietary restrictions, so they've steadily been winning away prescription volume from warfarin, the most widely used anticoagulant.
J&J's Xarelto and Bristol-Myers Squibb's Eliquis are each already racking up sales north of $2 billion per year, and given that the anticoagulant market is worth $10 billion, there could be lots of running room left -- especially if Portola Pharmaceuticals' factor Xa antidote passes muster with regulators on Aug. 17.
The antidote, AndexXa, was developed in collaboration with J&J, Bristol-Myers Squibb, and others, but Portola retained 100% rights to it in the Americas and Europe. It sold Japanese rights to Bristol-Myers Squibb and Pfizer earlier this year.
Assuming that AndexXa's positive trial results lead to a FDA green light, AndexXa could quickly become a must-have at hospitals and surgery centers. Portola hasn't said what it will charge for AndexXa, but it has said that up to 100,000 people who are treated with factor Xa inhibitors could benefit from AndexXa every year.
3. Heart-pumping performance
Most Americans have never heard of Abiomed (NASDAQ:ABMD), but the company's Impella line of heart pumps is pushing up profit and that's led to a major run-up in the company's shares.
Abiomed's pumps help keep hearts thumping after patients suffer heart attacks and during heart surgery. In the most recently reported quarter, Abiomed's sales jumped 40.3% year over year to $103 million. Leveraging that sales growth against fixed costs allowed the company to deliver earnings per share of $0.29 last quarter, up from $0.20 last year.
Management recently upped its sales outlook for this year to at least $435 million, and that has industry watchers targeting EPS of $1.17 this year. Sales and profit could climb even higher next year because the company just notched an important FDA approval for the use of Impella in cardiogenic shock patients. Also, Impella's overseas launch is still in its early stages and that could mean growth, too. For example, international sales increased 61% to $8.2 million last quarter, including a 117% increase in Germany.
Because 735,000 Americans suffer heart attacks every year and the population of older Americans is growing as baby boomers age, it might not be a stretch to think that this company is about to get much better known to investors.
Todd Campbell owns shares of Portola Pharmaceuticals.Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. Like this article? Follow him on Twitter where he goes by the handle @ebcapital to see more articles like this.
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