This year has been a wake-up call for investors that the stock market doesn't only go up in a straight line. Despite a 10% (or greater) correction occurring in the S&P 500 every 1.86 years on average since 1950, Wall Street and investors are seemingly taken by surprise anytime one occurs.
On the bright side, these corrections create opportunities for investors to buy into high-quality companies at potential bargain prices. After all, each correction in the S&P 500 since its inception has eventually been erased by a bull market rally. If investors simply give the businesses they're invested in adequate time, they should, as a whole, come out a winner.
Biotech's fastest-growing stocks in 2019
One such industry exhibiting incredible opportunity right now is biotechnology. Market analytics firm Yardeni Research finds that the forward P/E of S&P 500-listed biotech stocks was just 10.9 as of Dec. 20, 2018. That's well below the average P/E of the broad-based S&P 500, and very near an all-time low over the past two decades for the biotech industry.
But this is also a fast-growing industry. A quick screen of biotech stocks with a market cap north of $300 million yielded four that are on pace to grow their earnings per share (EPS) by more than 100% in the upcoming year. In ascending order -- based on Wall Street's consensus estimates for year-over-year EPS growth -- these could be biotech's fastest growing stocks in 2019.
Vanda Pharmaceuticals: 129% growth
One of the interesting things about significant EPS growth and positive clinical data is that biotech companies capable of delivering on these fronts may be able to buck stock market weakness. Vanda Pharmaceuticals (VNDA 0.92%) is one such company, with its shares up close to 10% since the stock market correction began in early October.
For the time being, Vanda relies on two therapies approved by the Food and Drug Administration (FDA): Hetlioz for the treatment of non-24-hour sleep-wake disorder, and Fanapt to treat schizophrenia. In 2018, Hetlioz is expected to generate the bulk of Vanda's sales growth, as well as $108 million to $118 million of its projected $180 million to $200 million in aggregate sales. Meanwhile, sales of Fanapt are stuck in neutral in a competitive indication.
What looks to lift earnings growth in 2019 is a combination of steady volume and price increases for Hetlioz in non-24-hour, as well as a label expansion opportunity for Hetlioz for the treatment of jet lag disorder. The FDA has set a PDUFA decision date of Aug. 16, 2019 -- which, if approved, broadens the potential patient pool for Vanda's lead drug. Since we're talking about high-margin specialty drugs, something on the order of 25% sales growth in 2019 should translate into a more than doubling in per-share profits for Vanda Pharmaceuticals.
But should investors be buyers here? That I'm not certain of. Positive midstage clinical data from tradipitant in patients with gastroparesis, along with label expansion opportunities for Hetlioz, are promising. But with a market cap that's already at five times projected 2020 sales, Vanda looks to be valued appropriately.
Alkermes: 130% growth
Another specialty drugmaker expected to generate significant EPS growth in 2019 is Ireland-based Alkermes (ALKS -0.31%). The company is primarily focused on treating schizophrenia, multiple sclerosis, depression, and various disorders of the central nervous system.
According to the company's third-quarter operating results, things are moving along nicely. Alkermes reported $248.7 million in sales, a 14.4% increase from the prior-year quarter, with brand-name specialty drugs doing the heavy lifting. Despite a modest $6 million decline in manufacturing and royalty revenue, net product sales climbed to $116 million from $93.7 million year over year.
A good portion of this increase is attributed to Aristada, a long-acting injectable designed to treat schizophrenia. The introduction of Aristada Initio during the third quarter -- a same-day treatment for schizophrenia that helps patients get started with Aristada -- likely helped Aristada's sales climb 48% to $36.1 million. Similar strength was seen from opioid- and alcohol-dependence drug Vivitrol, which delivered a 15% sales increase to $79.9 million.
But like Vanda, this rapid growth may not be enough to attract investors in 2019. Even with full-year EPS catapulting 130% from an estimated $0.23 in 2018 to $0.53 in 2019, Alkermes isn't cheap based on forward P/E and what'll likely be sales growth of around 10% next year.
To boot, in November, the FDA's advisory panel shot down ALKS 5461, an experimental drug for major depressive disorder, by a vote of 21 to 2. The panel, which offers recommendations to the FDA but does not make final decisions, found the risks of the drug outweighed its benefits. Wall Street had been counting on ALKS 5461 to be a notable growth driver. Despite Alkermes' strong profit growth, the sideline looks preferable for now.
Ionis Pharmaceuticals: 215% growth
Ionis Pharmaceuticals (IONS -4.73%), which arguably has one of the most robust pipelines in all of biotech, should see its full-year $0.34 loss per share in 2018 turn into a $0.39 full-year per-share profit in 2019.
Ionis is known best for its antisense technology platform that aids in utilizing RNA-targeted therapeutics to treat specialty, rare, and genetic diseases. This platform helps the company analyze its results to get a better gauge on what treatments are likeliest to succeed at commercial scale in the future. In other words, this antisense drug development platform is the reason Ionis has been able to bring about five new experimental drugs into human clinical trials each year.
Currently, Ionis' flagship medicine is Spinraza, an FDA-approved therapy for spinal muscular atrophy (SMA) that was developed in partnership with Biogen. Prior to its approval, there were no FDA-approved medicines for SMA. In Ionis' third quarter, it reported $70 million in royalty revenue from Spinraza, which was more than double the $33 million generated in Q3 2017. Since Ionis Pharmaceuticals partners with brand-name drug developers on many of its clinical trials, it also tends to generate a lot of up-front and milestone payouts. In Q3 2018, it tacked on $57 million in amortized up-front payments and milestones.
Looking to 2019, the company should see continued expansion in Spinraza sales (and therefore higher royalty revenue), and gain a new sales channel from the launch of Tegsedi, a treatment for polyneuropathy of hereditary transthyretin-mediated amyloidosis in adults. Tegsedi was developed with Akcea Therapeutics, which was spun off from Ionis in 2017.
Although Ionis' forward P/E is unsightly at over 100, its sales growth, pipeline, and partnerships are robust, which makes it an intriguing biotech stock to buy, in my opinion.
Neurocrine Biosciences: 960% growth
However, running with the title of the fastest growing biotech stock in 2019 looks to be Neurocrine Biosciences (NBIX 0.57%), a developer of drugs for neurological and endocrine-related diseases. Assuming Wall Street's EPS estimates are accurate, Neurocrine will vault from full-year EPS of $0.15 in 2018 to $1.59 in 2019 -- a 960% improvement.
How does Neurocrine generate such impressive year-over-year growth? Look no further than the rapid sales climb of tardive dyskinesia drug Ingrezza, which was launched in May 2017. Through the first nine months of 2018, Ingrezza generated $279.3 million in sales, with $111.3 million of that coming in its latest quarter. Ingrezza alone has an opportunity to generate in excess of $500 million in total sales next year.
Joining Neurocrine's lead therapy will be Orilissa, an oral gonadotropin-releasing hormone antagonist for women with moderate to severe endometriosis pain. Orilissa was approved by the FDA in July 2018, and developed with AbbVie. Orilissa has the potential to top $1 billion in peak sales, which means Neurocrine should be a collaborative beneficiary of this sales growth.
Like the other high-growth biotech stocks listed here, Neurocrine isn't going to draw any interest from value investors at close to 50 times its forward earnings. Then again, few biotech companies offer the sales growth potential of Neurocrine between 2017 ($162 million) and 2021 ($1.2 billion). Following a substantial slide in the company's share price since the beginning of October, it's certainly worth a closer inspection.