Cancer treatment is one of the hottest areas of healthcare investing these days, with personalized medicine like genetic therapies providing new promises of treatment and potential cures. Still, despite the progress that researchers have made, there are still plenty of false starts and treatments that don't end up delivering on the hopes their inventors and investors had for them.
To cut through the clutter, we asked three Motley Fool contributors to pick a cancer treatment stock that looked worthy of investment. They selected Bristol-Myers Squibb (BMY 0.28%), Intuitive Surgical (ISRG 3.19%), and Myriad Genetics (MYGN 5.97%). Read on to find out why and to better inform your decision on whether these companies deserve a place in your portfolio.
A cancer powerhouse
Brian Feroldi (Bristol-Myers Squibb): I've been an investor and fan of Celgene (CELG) for many years, so I was sad to see that it agreed to be acquired by Bristol-Myers Squibb earlier this year. However, I understand the rationale for accepting the buyout, and I believe that the combined company will become a true force in cancer treatment.
Bristol's top-selling drug is Opdivo, a PD-1 inhibitor used for treating numerous types of cancer. Opdivo is a reliable cash cow, but the drug hit a big snag a few years ago that has allowed a rival PD-1 inhibitor called Keytruda to surpass it in terms of sales. Shares have been under pressure for several years in response.
It's a similar story at Celgene, whose workhouse is a blood cancer drug called Revlimid that rings up billions in sales each year. However, generic versions of Revlimid are only a few years away, which is a big problem since two-third of Celgene's sales are tied to the drug. That fear has caused Celgene to trade sideways for several years.
These two companies seem like a solid match, since Revlimid and Opdivo will complement each other so nicely. What's more, combining pipelines will greatly increase the odds that a few more blockbuster drugs will crop up in the future and will offset the eventual weaknesses that these drugs will face in the future.
Bristol has promised its shareholders that the combined business will immediately expand its EPS by 40% in the first year and will be able to wring out more than $2.5 billion in annual savings by 2022. If true, then this new company should have plenty of firepower to reinvest heavily in R&D, pay a growing dividend, pay down debt, make occasional acquisitions, and buy back stock.
Regulators are holding up the merger, but it'1s expected to close at the end of this year or in early 2020. Shares are currently trading for less than 11 times forward earnings and offer a 3.5% dividend yield, so pocking some up now, while they're still cheap, could be a profit-friendly move.
This company is on the "cutting edge" of cancer treatment
Sean Williams (Intuitive Surgical): Generally speaking, when it comes to any sort of cancer treatment, Exelixis (EXEL 1.55%) is my go-to stock because of its low valuation and budding potential for Cabomeytx. But there's another intriguing option in the cancer treatment space, and its name is Intuitive Surgical.
Intuitive Surgical, the company behind the robotic-assisted surgical system known as da Vinci, is probably best known for dominating urology and gynecology surgical market share. By utilizing the da Vinci surgical system, surgeons are able to make smaller and more precise incisions that lead to quicker heal times and short hospital stays. However, Intuitive Surgical has its sights set on something much bigger.
In February, the U.S. Food and Drug Administration approved ION, the company's latest innovation. ION is a robotic endoluminal system that's designed to take minimally invasive biopsies deep within a patient's lungs. The articulating robotic catheter associated with ION is only 3.5 mm wide, with the Flexion Biopsy Needle able to bend as it travels to its desired biopsy source in the lungs. Compared with traditional biopsy methods, ION could provide faster healing time and is designed to integrate with existing imaging and CT scan technology. Considering how deadly and pervasive lung cancer has become, ION has a real opportunity to become a standard-of-care in the diagnostics arena.
Furthermore, before the introduction of ION, Intuitive Surgical also had ambitions of growing its market share in thoracic and colorectal surgeries. In theory, all soft tissues surgeries are opportunities for the da Vinci surgical system, but cancer biopsies, and even colorectal cancer surgeries, could become staple procedures for Intuitive Surgical's da Vinci system.
Investors need to realize that while these systems are pricy ($0.5 million to $2.5 million per machine), it's the need for hospitals to buy instruments for each procedure, as well as pay for regular servicing, which generates the bulk of the company's margins. Thus, as Intuitive Surgical's installed da Vinci base rises, so should the company's operating margins.
It's a non-traditional cancer treatment stock that looks mighty appealing.
Knocked down but not out
Chuck Saletta (Myriad Genetics): Customized medicine is at the core of many modern cancer treatments. If doctors know the patient's genetic makeup and the specific mutations that are allowing the cancer to thrive, they can more quickly figure out which treatments will have the highest chances of success. That heavy reliance on customization means genetic testing companies are likely to play an important role in many treatment plans regardless of what type of cancer and what treatment is chosen.
In that vein, Myriad Genetics is already a leader in genetic screening for cancers -- helping people know what cancers they are at elevated risk for, to enable earlier screening and potential detection. Despite the role that genetic testing can play in screening and treatment plans, Myriad Genetics' shares have been on something of a roller coaster ride lately.
A test Myriad Genetics has for psychiatric illness -- known as GeneSight -- has hit some stumbling blocks with the FDA, putting the company's growth trajectory at risk. On that news, the company's shares gave up all the gains they had recently seen on the hope that the business would return to rapid growth. That decline is what makes Myriad Genetics' shares look like a potentially attractive buy right now.
The company is expected to earn around $2.02 per share in fiscal year 2021. At a recent price of $25.35 per share, Myriad Genetics traded hands at less than 13 times those projected earnings. While not a super bargain-basement price, it could be a reasonable price to pay for the growth that's possible as cancer screening and genetic testing becomes more important. If GeneSight takes off in psychiatric testing as well, today's prices may very well turn out to be a bargain.