Though summer is less than three weeks away, the temperature isn't the only thing heating up around here. Over the trailing month, the iShares Nasdaq Biotechnology ETF has risen by more than 7%. Wall Street and investors are hungry for growth and willing to take on risk, which perfectly describes the often hit-and-miss nature of biotech stocks. Of course, if you manage to find a success story, the returns can be incredible.
So, which biotech stocks should you consider buying in June? That's a question we posed to three of our healthcare-focused investors. Interestingly enough, mid-cap biotech stocks are the clear flavor of the month. If biotech is on your radar in June, our investors suggest you consider Ionis Pharmaceuticals (IONS 1.46%), Spark Therapeutics (ONCE), and Alnylam Pharmaceuticals (ALNY -1.55%).
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Is this biotech's most impressive pipeline?
Sean Williams (Ionis Pharmaceuticals): Make no mistake about it, investing in the biotech industry comes with plenty of inherent risks. But if you'd like to minimize those risks in June, then you should consider an up-and-comer like Ionis Pharmaceuticals.
Ionis is a unique biotech company for a number of reasons. To begin with, there's its antisense technology drug development platform. Essentially, Ionis is able to target troublesome RNA in the body that's causing issues and turns them off. Furthermore, the company is able to use the results from previous studies to pretty accurately predict how newly discovered compounds will perform in preclinical and clinical trials. This has been pivotal in allowing it to bring three to five new clinical-stage compounds into testing each year.
Ionis also hasn't been shy about partnering up or licensing these compounds. It currently has 25 clinical-stage therapies, to go along with two Food and Drug Administration-approved drugs. Just nine of its 27 total drugs (clinical plus approved) are wholly owned by Ionis. The remainder are licensed or partnered, often with a major drug developer. In doing so, Ionis is often able to secure much needed upfront capital to fund its research and development, as well as lean on the marketing expertise of its partners when launching new medicines.
As noted, the ability to take numerous swings for the fence makes Ionis special. It's often a marvel when a mid-cap drugmaker has a half-dozen experimental drugs, let alone one working with 25. Spinal muscular atrophy drug Spinraza, which was licensed to Biogen (BIIB 4.56%), is one such drug that's put Ionis and its antisense technology on the map. Last year, Spinraza netted "just" $882 million in total sales, but delivered $364 million globally in the first quarter of 2018. That extrapolates out to more than $1.4 billion, which means added royalty revenue for Ionis.
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While on the subject of Biogen, it's worth pointing out that the duo recently expanded their working relationship. In return for gaining access to Ionis' technology, Ionis receives $1 billion up front (some of which is to purchase its stock at a 25% premium and some as an up-front payment). This deal with Biogen is expected to push Ionis' cash balance to north of $2 billion, giving the company the flexibility to go shopping or perhaps to hang on to more of its experimental assets, as opposed to licensing them out.
Long story short, Ionis has demonstrated that its technology works, is sporting a huge pile of cash, has perhaps the most impressive pipeline of any mid-cap biotech, and is expected to be profitable on a recurring basis moving forward. Meanwhile, Wall Street projects average revenue growth of roughly 15% to 20% per year through 2021. Yes, folks, Ionis Pharmaceuticals should be on your radar this June.
One recent approval -- and the possibility of more on the way
Chuck Saletta (Spark Therapeutics): Biotechnology is a tough field to invest in, as research costs are heavy and success is anything but guaranteed. Success, however, has a way of breeding more success as biotech companies that find a path to an approved treatment frequently can leverage the winning aspects of that path to find their next product.
Late last year, the FDA approved Spark Therapeutics' Luxturna, a genetic therapy that treats a rare form of inherited vision problems that often leaves its patients blind. The condition it treats is a fairly rare one, affecting only a few thousand people in the United States. The real magic of Luxturna, though, is that the adeno-associated virus delivery mechanism that gets the therapy in place in the affected cells is something that Spark should be able to use in other treatments as well.
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Indeed, Spark is currently in clinical trials with Pfizer for a hemophilia B drug that also uses an adeno-associated virus to deliver the gene therapy into affected cells. The preliminary test results are incredibly encouraging, which indicates that Spark may have a path to another treatment that can radically improve the lives of people who suffer from a devastating condition.
Thanks to the high costs of research and development in the biotechnology industry, Spark Therapeutics is not currently profitable. As its adeno-associated virus delivery method for gene therapy finds more and more uses, however, it provides a feasible path to a financially sustainable future.
Multiple ways to win
Brian Feroldi (Alnylam Pharmaceuticals): The biggest downside to investing in biotechnology stocks is that most companies have bet their future on a single compound. If the drug turns out to be a winner then the gains can be extraordinary. However, if the compound turns out to be a dud (clinically or commercially) then shareholders can get wiped out.
I think the best solution to this conundrum is for biotechnology investors to place their chips on companies that have several products in the pipeline. That way they retain a lot of upside potential if one or two of them work out and won't be wiped out by a single flop. If you agree with this strategy then I'd suggest that you should get to know Alnylam Pharmaceuticals.
Alnylam focuses on using RNAi technology to churn out compounds that treat a range of diseases. The company is furthest along with patisiran, which is currently pending FDA approval as a potential treatment for hereditary ATTR amyloidosis. While the odds of patisiran winning approval look favorable, Alnylam is likely to face healthy competition in this disease state from the likes of Pfizer and a fellow RANi-focused company called Ionis Pharmaceuticals. That might limit its commercial potential.
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However, there's more to Alnylam than just patisiran. The company boasts three other drugs in late-stage trials that could all be sent off for approval within the next year or two. One of them -- givosiran, a potential treatment for a rare disease called acute hepatic porphyrias -- has already won breakthrough therapy designation, which is a great sign for investors. What's more, Alnylam also boasts three other drugs right behind them that are currently in early-stage trials. One of these drugs -- lumasiran, a hopeful treatment for another rare disease called primary hyperoxaluria type 1 -- has also received breakthrough therapy designation and should be entering a phase 3 trial within the next few months.
Alnylam also ended March with more than $1.5 billion in cash on its balance sheet, so the company has plenty of financial firepower to move all of these studies along while investors await a go/no-go decision on patisiran.
Overall, Alnylam's broad pipeline offers investors far more shots on goal over the next couple of years than the average biotech. That makes it a smart bet in my book.
