Building a balanced portfolio of healthcare stocks requires investing in safer and more mature companies as well as riskier upstarts to drive long-term growth. Between Gilead Sciences (GILD -1.15%), Illumina (ILMN -1.35%), and Vir Biotechnology (VIR -3.52%), there's something here for every investor.
Image source: YCharts.
Gilead's COVID-19 efforts will round out its profitable roster of therapies
Gilead's stock has posted consistent growth this year as a result of its ambitious antiviral drug development program for COVID-19. With the preliminary publication of favorable clinical trial results for Gilead's remdesivir antiviral, the company cemented its earlier growth for the short term. On Thursday, Roche revealed that it was testing Gilead's remdesivir as part of a combination therapy for COVID-19, a move which will doubtlessly be followed by others in the coming weeks. Even if Gilead's remdesivir program doesn't show that it is effective for COVID-19, there's a good chance that at least one of the combination therapy collaborations will yield fruit, and Gilead will come out of the pandemic stronger as a result.
There's still a long way to go before Gilead's stock recovers to the highs it experienced in 2015 before widespread public anger over the high cost of its curative hepatitis C therapy, Sovaldi. Knowing the intensity of the public's clamor for affordable COVID-19 therapeutics and vaccines, it's unlikely that Gilead will make the same mistake twice with the pricing of its drugs. The company has announced it will donate nearly 1 million doses of the drug. Investing in Gilead now could lead to gains in the ballpark of 10% if it releases a favorable clinical trial update in a couple of months, but holding it for longer could be even better. On the other hand, the losses caused by clinical trial failures will likely be transient, and Gilead has a strong HIV portfolio to hold the company up, so Gilead is a strong buy for most investors today.
Image source: Getty Images.
Illumina sells the tools that the industry relies on
Illumina is a highly innovative company that produces genetic sequencing machines for the pharmaceutical industry, so it's no surprise that demand for its services has grown over time, with quarterly revenues rising 1.5% year over year. What's surprising is that with $3.33 billion in cash and only $1.89 billion in debt, Illumina is more than ready to continue innovating throughout an economic downturn.
Because Illumina develops sequencing hardware, it will benefit from scaling up COVID-19 research efforts in the laboratory as well as in the clinic. But Illumina is a bargain buy specifically because the market for its next-generation sequencing equipment was growing at a moderate pace even before the pandemic. If investors are bullish on the biopharma sector's long-term prospects, buying Illumina is a no-brainer. Investors seeking rapid returns or a large and medium-term exit might find Illumina's growth to be a bit sluggish.
Vir Biotechnology might be poised for success
Unlike Gilead and Illumina, Vir is a newer company, and despite its market cap of $3.72 billion, it doesn't have any products on the market. Nonetheless, Vir is showing remarkable agility by starting promising coronavirus therapeutics programs while pushing its prior hepatitis B project into phase 1 clinical trials. Elsewhere in its pipeline, Vir has programs for HIV as well as several other infectious diseases.
Vir's research and development resources are marshalled with incredible organizational efficiency and well-grounded leadership. Where other biotechs might aim for the moon with drug development programs based on unproven or uncertain science, Vir seems content to turn well-understood scientific concepts into uncontroversial yet highly effective products. Vir's COVID-19 programs are the epitome of this approach, with the company attempting to mass-produce copies of the antibodies created by recovered COVID-19 patients rather than attempting to develop a wholly new therapeutic drug or vaccine.
Vir is by far the riskiest pick of the three companies, however. Where Illumina and Gilead have reliable recurring revenues, Vir is dependent on its collaborations and research grants for the time being. Similarly, Vir only has $355.61 million in cash on hand, so cash flow may be an issue in the next few years. If Vir can continue to meaningfully move its pipeline programs forward without concurrent major mishaps, it will likely post extreme growth over the long term.
