Given the massive amounts of uncertainty in the market right now, prudent investors should plan ahead to protect their portfolios against the next crash. Of course, finding an affordable safe harbor at the same time as everyone else is easier said than done, especially when the market is loitering near its all-time highs. So it's necessary to get a bit creative by delving into sectors that might not be considered the most stable in normal times, like the biopharma industry.
Unlike many other pharma stocks, the pair of companies that I'll be discussing today have two critical properties for investors seeking safety: sound fundamentals and recent demonstrations of resilience during a crash. Past performance may not predict future results, but both of these stocks have a plethora of diverse opportunities for growth, meaning that even if their prices take an unexpectedly large hit during a crash, a quick recovery could be right around the corner.
The steadfast Emergent BioSolutions (EBS 1.61%) faced the March contraction without wavering, retaining its year-to-date gains and then proceeding to grow even further. It's up now by about 120% compared with the start of the year.
A sizable proportion of this gain is doubtless a result of the company's significant participation in the battle against the coronavirus. In the second quarter, Emergent earned a $628 million government contract for coronavirus-vaccine manufacturing, signed two vaccine-manufacturing contracts worth $480 million and $175 million with Johnson & Johnson (JNJ 0.08%) and AstraZeneca (AZN 0.19%), respectively, and won a $34.6 million government grant to develop its post-coronavirus-exposure prophylaxis therapy. Each of these contracts entails a multi-year commitment, guaranteeing substantial ongoing revenues if the drugs are approved even if the market drops sharply.
High-value pandemic projects aside, Emergent is an attractive company, with a profit margin of 13.5%, 62.3% year-over-year quarterly revenue growth, and several in-demand products, such as its Narcan nasal spray therapy for opioid overdoses. What's more, according to its second-quarter report, Emergent's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) are up 356% so far this year compared to last year. This doesn't mean that Emergent will be immune to a crash, but it does suggest that the company is gaining momentum such that it might bounce back rapidly, as it did in March.
Vertex Pharmaceuticals (VRTX 0.19%) hasn't let market turbulence stop it from having a watershed year thus far. The stock treated the March decline more like a speed bump and continued to grow; it's now up more than 26% from the start of the year.
Unlike Emergent, Vertex isn't involved in pandemic response, so its favorable performance is tied to higher sales of the drugs in its tightly focused roster. The newest addition to Vertex's product offerings is Trikafta, a drug for cystic fibrosis that regulators approved in late 2019. Trikafta is a large contributor to the company's product revenues, which increased by a stunning 62% compared to the same quarter last year.
More importantly, Trikafta is only the latest commercialized Vertex product indicated for cystic fibrosis; the company has four different therapy regimens for the disorder in total. Such a collection of treatments for a rare disease like cystic fibrosis would seem to confer a powerful advantage regarding market penetration, and indeed, less than a year after Trikafta's launch, the company's most recent earnings report claimed that "the majority of eligible patients" in the U.S. were taking the drug.
Aside from its strong position in cystic fibrosis, Vertex is quite profitable, with a profit margin of 38.5% providing yet more proof of the company's robust value. Vertex is also rapidly expanding its earnings, with year-over-year quarterly earnings growth of 213%. Skyrocketing revenues explain how Vertex handily beat the analyst consensus estimates for at least its last four earnings periods amid consistently rising expectations for the company's performance. This stability also makes the stock more attractive to crash-fearing investors.
Finally, in a pinch, the company's $5.5 billion in cash could finance stock buybacks to recover the share price after a deeper-than-expected correction. But the company's current trajectory will likely be hard to dampen even if the market buckles.