As the coronavirus pandemic creates opportunities for treatments and vaccines -- and stimulates demand for existing drugs -- many investors are turning to the biotech sector for stocks that can outperform. Over the past year, the iShares NASDAQ Biotechnology ETF (IBB -1.34%) is up 31.6%, handily beating the S&P 500's 10.5% return.
With the number of new drugs and biologics going up day by day, there has never been a better time to invest in biotech stocks. Here are three companies that can make investors rich, and why they are a solid buy right now.
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1. BioNTech
BioNTech's (BNTX 1.63%) partnership with Pfizer (PFE 0.19%) is receiving a lot of attention. The two companies are currently leading the race for a COVID-19 vaccine with their messenger RNA candidate BNT162b2. The candidate is now in phase 3 clinical testing after delivering a robust immune response against SARS-CoV-2 to nearly all participants in phase 1.
If the vaccine is successful in these studies, the U.S. government plans to order at least 100 million doses in a deal worth up to $1.95 billion. The two companies are also in talks with the E.U. to supply the supranational organization with 200 million doses of the experimental vaccine.
Next year, BioNTech expects it will have the capacity to produce 250 million doses of BNT162b2 every six months (enough for 125 million people). At a price of $19.50 per dose, that's the potential for $9.75 billion in annual revenue, not bad for a company with a market cap of $15 billion.
As of June 30, BioNTech has 1.4 billion in cash and equivalents on its balance sheet to fund its development efforts. And that's not all -- on Sept. 15, the company received a 375-million-euro grant from the German Federal Ministry of Education and Research for its COVID-19 vaccine program. Data from Pfizer and BioNTech's experimental vaccine is coming out the next month. Shares of BioNTech are up more than 300% since the company's IPO last October.
2. Alexion Pharmaceuticals
For years, Alexion Pharmaceuticals (ALXN) has been the leader in the treatment of paroxysmal nocturnal hemoglobinuria (PNH), a rare blood disorder that causes red blood cells to break apart. Based on continued demand for its anti-PNH drug Soliris, the company expects to bring in $5.6 billion in revenue and $10.92 in earnings per share this year, a substantial increase over the $5 billion in revenue and $10.53 in EPS it achieved in 2019.
Currently, Alexion trades for just 4.5 times price-to-sales and 30 times price-to-earnings, which may seem a bit cheap for a high-quality growth company. The stock is trading at a discount because Soliris will lose its patent coverage starting next year, paving the way for generic competitors to enter the market.
Fortunately for shareholders, Alexion's diversification efforts are well under way with over 20 clinical programs in its pipeline, up from just four in 2017. Also, the company's Ultomiris, a drug that can treat both PNH and an autoimmune neuromuscular disease, launched in the second quarter of last year. Ultomiris now brings in $251 million per quarter in revenue, and its patent won't expire until well into the 2030s.
Now may be the best time for those interested in biotech to invest in Alexion's future, as the company expects to launch at least 10 products by the end of 2023. Since last September, Alexion stock is up over 15%.
3. BeiGene
Chinese biotech BeiGene (BGNE -2.05%) is getting a lot of attention in investment circles due to its robust oncology pipeline. The company now has six approved drugs, eight new drug applications pending in China, and over 30 clinical and commercial-stage assets. BeiGene expects 10 data readouts from phase 3 clinical trials and exploratory studies with the next two years.
Last November, the company received approval from the U.S. Food and Drug Administration (FDA) for zanubrutinib, which is between 84% to 93% effective in treating a specific type of lymphoma. In April, BeiGene's tislelizumab, for the treatment of solid tumors, was approved in China. The drug has an effectiveness of up to 73% in clinical studies against tumors.
Thanks to its new launches, BeiGene's revenue is growing by about 15% quarter over quarter. The biotech now generates up to $66 million in quarterly revenue, with operating cash use amounting to $263 million in Q2 2020, primarily due to research and development expenses.
With all of its innovation and catalysts, it's easy to see how BeiGene has a $25 billion market cap and may get even bigger from there. The company currently has over $3.1 billion in cash and equivalents on its balance sheet, which should more than cover expenses as it turns its attention to posting a profit. Shares are up about 130% over the past year.
