October has often been a scary month for stocks. That isn't the case so far this year, though. And it's especially not true for three drug stocks.
Biogen (BIIB 3.28%), Halozyme Therapeutics (HALO 1.09%), and Ionis Pharmaceuticals (IONS 2.81%) stocks have all recently hit 52-week highs. What's driving these drug stocks -- and are they still smart picks for long-term investors?
Biogen is up nearly 30% year to date. It hasn't been just one big event serving as a catalyst for the biotech stock; instead, several factors have contributed to its performance.
The company started the year with a smooth spinoff of its hemophilia business into a stand-alone entity, Bioverativ (BIVV). That spinoff made Biogen's prior-year comparisons in the first two quarters of 2017 look somewhat worse than they really were. However, investors have been pleased by the launch of spinal muscular atrophy drug Spinraza. CEO Michel Vounatsos said in his comments on Biogen's second-quarter results that Spinraza could help shift "the center of gravity" for the company beyond multiple sclerosis (MS).
Another way that Biogen hopes to expand beyond its traditional focus on MS is with its pipeline candidates targeting Alzheimer's disease. Biogen stock received a boost earlier this month when Morgan Stanley upgraded the stock to overweight. Morgan Stanley analyst Matthew Harrison wrote that Biogen's experimental Alzheimer's disease drugs "remains a must-own catalyst."
With shares hitting 52-week highs, is Biogen still a buy? My view is that Biogen will continue to be successful over the long run. Spinraza is a great product. Its Alzheimer's disease candidates are certainly promising, but I'm still concerned about weakness in the company's MS franchise and threats from new competitors. I think there are better picks that don't have the baggage Biogen has with its MS lineup.
2. Halozyme Therapeutics
Halozyme Therapeutics stock has soared close to 80% in 2017 thus far. Shares spiked early this year after Halozyme announced positive results from a phase 2 study of PEGPH20 in combination with Abraxane and gemcitabine in treating late-stage pancreatic cancer.
More than half of Halozyme's sizzling year-to-date performance, though, came from a big deal announced in September. Bristol-Myers Squibb (BMY -0.21%) licensed Halozyme's Enhanze drug-delivery technology for use with its immuno-oncology drugs, including blockbuster PD-1 inhibitor Opdivo. In exchange, Halozyme received $105 million up front and the potential for additional milestone payments and royalties.
Halozyme has become a go-to partner for several big pharma companies with cancer drugs. It's always a good sign when drugmakers with deep pockets vote in favor of a technology with their money. That's exactly what is happening with Halozyme and its PEGPH20 product.
You could argue that Halozyme is priced too high after the big run-up in recent months. However, my view is that there are enough possible catalysts in the works that the stock could go significantly higher over the next few years.
3. Ionis Pharmaceuticals
Spinraza hasn't just helped Biogen enjoy a nice year so far; the drug's original developer is doing well, too. Ionis Pharmaceuticals stock is up close to 30% year to date, just like Biogen. Better-than-expected royalties for Spinraza even led Ionis to raise its full-year 2017 operating income and cash guidance.
There has been more good news for Ionis than just Spinraza, though. Akcea Therapeutics, a spinout of Ionis, completed its IPO in June. Ionis still owns nearly 70% of the new biotech, which filed for U.S. regulatory approval of volanesorsen in treating familial chylomicronemia syndrome (FCS) in late August.
Ionis announced in early August that it would advance experimental TTR amyloidosis drugs inotersen and IONIS-FB-LRx on its own after GlaxoSmithKline chose not to exercise its options on the drugs. Ionis plans to file for approval of inotersen later this year and said that it is considering forming a subsidiary to commercialize the drug.
I like the potential for Ionis and its pipeline. However, Ionis now has a market cap of over $7.5 billion. Much of the growth prospects for the biotech are already baked into the stock price. It won't surprise me at all if the stock moves higher, but I'm hesitant to go all in on Ionis right now.