Getting in at the ground level of a monster stock is one of the surest ways for investors to get rich. But what makes for a monster stock, and how can investors discern between fast-growing companies on track to become burnouts and those that will genuinely become behemoths? In my view, real monster stocks have two properties. First, young monsters need to be growing their revenues and earnings voraciously, yet also sustainably, without incurring much debt that might slow their momentum.
Second, monster stocks tend to have a unique and difficult-to-replicate approach to exploiting their market that makes it tough for competitors to erode their market share without substantial and protracted effort. In the biotech industry, there are only a small handful of stocks that fit this bill, so let's explore a pair of the most promising contenders and see how they might evolve into something greater.
Supernus Pharmaceuticals (NASDAQ:SUPN) makes products that treat central nervous system (CNS) disorders like epilepsy, Parkinson's disease, and migraines. At present, Supernus has five therapies that are approved for sale and four pipeline programs, two of which are late-stage. The company's pipeline is crucial to its competitive position because it's entirely composed of new medicines that it developed in-house without the help of any outside collaborators. Thus, Supernus has the right to 100% of the proceeds from any future commercialization, unlike many of its similarly sized competitors that are forced to split the pie inequitably with their larger partners.
Right now, Supernus's market cap is around $1.2 billion, but there's reason to believe that it will expand in the short term as well as the long term. In early November, the company expects that its novel non-stimulant attention deficit hyperactivity disorder (ADHD) drug, SPN-812, will be approved by the U.S. Food and Drug Administration (FDA). Management estimates that they can eventually capture as much as 10% of the market for ADHD therapeutics with SPN-812, accounting for about 10 million prescriptions worldwide.
Aside from the launch of SPN-812, Supernus is profitable and in good shape financially. Quarterly revenue is growing at a rate of 21% year over year, while quarterly earnings are also growing by 5.9%. Importantly, it's growing without accumulating more debt than it can pay off. With $409.6 million in debt in the most recent quarter, the company also reported cash holdings of $374.8 million and trailing levered free cash flows of $190.9 million. So Supernus won't have any trouble servicing its current levels of debt with its free cash flow while financing more growth at the same time. Look for Supernus to continue developing novel neurology drugs that have the potential to steal market share from the established competitors in the future.
Corcept Therapeutics (NASDAQ:CORT) is the only biotech company solely devoted to developing drugs that modulate the hormone cortisol, but its niche is actually broader than it may sound at first. Because cortisol is relevant in a plethora of diseases ranging from various cancers to liver diseases and mood disorders, Corcept is positioned to compete in many different markets while leveraging its core scientific competency. In short, Corcept is exciting because its drug development pipeline is already realizing this possibility for the benefit of shareholders and patients alike.
Like Supernus, Corcept is profitable, and its year-over-year quarterly revenues are growing at 22.6%. Impressively, its quarterly earnings growth clocks in at a stunning 40.3%, which will continue to be favorable for its share price for as long as it holds up. Savvy biotech investors will also be pleased to see that Corcept is carrying a mere $3.5 million in debt, a tiny fraction of its $405.4 million in cash and trailing levered free cash flows of $130.3 million.
At the moment, Corcept's only approved product is a drug called Korlym for Cushing syndrome (a disorder in which too much cortisol is present in the blood). But Corcept has plenty of programs in phase 2 clinical trials -- and many of these programs are in canonically difficult disease areas, like alcoholism, treatment-resistant prostate cancer, and post-traumatic stress disorder (PTSD).
Corcept also plans to expand its Cushing syndrome offerings with an additional drug, which it expects to submit for regulatory approval in the second quarter of 2022 after the conclusion of its phase 3 clinical trials. This will potentially open the door for further development efforts to make a combination therapy for Cushing syndrome using both of the company's drugs, thereby consolidating its position in the market. In the long term, expect Corcept's deep expertise with cortisol therapeutics to pay off, especially if other companies start to show interest in the space.