Are you hesitant to buy biotech stocks because of their volatility? If so, it's understandable. Many biotech stocks are very volatile, with frequent big swings up and down. However, there are some biotechs that have relatively low volatility. If you're wary of biotechs, here's why you should take a look at Biogen (NASDAQ:BIIB), Neurocrine Biosciences (NASDAQ:NBIX), and Enanta Pharmaceuticals (NASDAQ:ENTA).
Steady multiple sclerosis leader
Beta compares the magnitude of a stock's price movement to that of the overall market or to a particular index. Stocks with beta values lower than one tend to be less volatile than their benchmarks. Biogen's beta right now is 0.33, reflecting relatively low volatility.
Biogen is certainly no fly-by-night biotech. The company reported revenue of over $8.5 billion in the first three quarters this year, with earnings totaling more than $3 billion. Biogen's multiple sclerosis franchise accounts for most of its sales, with Tecfidera and Tysabri combining for roughly 60% of total revenue.
A couple of potential catalysts could be just around the corner for Biogen. The biotech plans to spin off its hemophilia business into a separate entity in early 2017. Biogen also expects to launch spinal muscular atrophy drug Spinraza soon, pending regulatory approval. Spinraza met its primary endpoint in an interim analysis of its latest phase 3 study, with Biogen announcing that "children receiving Spinraza experienced a highly statistically significant improvement in motor function compared to those who did not receive treatment." Analysts think Spinraza could generate peak annual sales of $1.7 billion.
Biogen's stock could become more volatile in the future, though. Its share price has increased in December after it announced encouraging results from an early-stage clinical study of aducanumab in treating Alzheimer's disease. The experimental drug is also in a late-stage study. If problems arise with these studies, then Biogen's stock will likely take a hit. The stock's volatility could also increase in a good way if aducanumab proves to be successful.
Big winners potentially on the way
Neurocrine Biosciences' beta stands at 0.65. What's perhaps surprising about Neurocrine's low volatility is that the company doesn't have a product on the market -- yet.
That could change soon, however. An FDA approval decision on Ingrezza is expected by April 11, 2017. Ingrezza targets treatment of tardive dyskinesia, a nervous disorder that can be a serious side effect of taking antipsychotic drugs. Peak annual sales for this indication could reach $1.6 billion in the U.S. alone if the drug is approved.
Neurocrine and partner AbbVie (NYSE:ABBV) also have high expectations for elagolix. The experimental gonadotropin-releasing hormone (GnRH) antagonist is in two late-stage studies, one for treating endometriosis and the other for treating uterine fibroids. If approved for both indications, elagolix could eventually generate annual royalties of $800 million for Neurocrine.
The obvious risks for Neurocrine that could increase volatility are a negative decision for Ingrezza or issues arising in the elagolix studies. An FDA advisory committee meets to review Ingrezza on Feb. 16, 2017. A thumbs-up from this committee could decrease the likelihood of a big downswing for the stock.
A promising HCV partner
Enanta sports a low beta of 0.67. Like Neurocrine, Enanta has a solid relationship with AbbVie. The bigger biotech uses Enanta's protease inhibitors in its hepatitis C virus (HCV) products, including blockbuster drug Viekira. Thanks primarily to its licensing to AbbVie, Enanta posted revenue of $82.3 million in its fiscal year ending Sept. 30, 2016.
However, AbbVie has encountered the headwinds that all HCV drugs are facing. This has resulted in a steep revenue decline for Enanta compared to the prior year. Despite this challenge, Enanta's pipeline holds significant potential.
Enanta's internal clinical development focuses on liver diseases. The company has a couple of early-stage HCV candidates: NS5A inhibitor EDP-239 and cyclophilin inhibitor EDP-494. The drug candidate with perhaps the most exciting prospects, though, is EDP-305. The farnesoid X receptor (FXR) agonist is in an early-stage study targeting nonalcoholic steatohepatitis (NASH) and primary biliary cholangitis (PBC).
With several companies trying to get an edge in the potentially lucrative NASH indication, Enanta could be on the acquisition radar screen for some bigger biotechs (maybe including AbbVie). However, the stock could soon see higher volatility, given the uncertainty surrounding the HCV market.
These stocks aren't as tame as they look
Biogen, Neurocrine, and Enanta do have low beta values, implying relatively low volatility. However, it's important to note how those beta measurements were calculated. Monthly price changes for the biotech stocks were compared to monthly price changes for the S&P 500 (SNPINDEX: ^GSPC) over a 36-month period.
Here's the catch: These biotech stocks experienced an awful lot of volatility within each month, and that doesn't show up in the beta values. That being said, it's generally best to ignore the daily swings in a stock's price.
I would also caution that low volatility doesn't necessarily mean low risk. All three of these biotechs definitely face significant risks in the months and years ahead. My hunch is that Biogen should be the least volatile of these three stocks over the next few years -- but I could be wrong. Even volatility can be volatile.