Biotech stocks are popular with investors because of their drugs' life-saving benefits and strong intellectual property moats. Current patent laws allow drug developers market exclusivity for two decades from the date of filing. This gives them a virtual market monopoly on their products. A portion of their sales is then reinvested into research and development, leading to a sustainable and wildly profitable business model.
Today, let's look at two such biotechs, soon-to-go-public Roivant Sciences and coronavirus juggernaut Pfizer (PFE 2.40%), and what they have to offer in their pipelines.
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1. Roivant Sciences
In Q3 2021, Roivant Sciences will go public at a $7.3 billion valuation via a merger with a special purpose acquisition company (SPAC), Montes Archimedes Acquisition Corp (MAAC). The deal will infuse the firm with $2.3 billion in cash, giving it a runway until mid-2024.
Roivant Sciences is unique in the biotech industry in that it does not invent its own medicine. Instead, the company's team of scientists and analysts identify underdeveloped research candidates in its competitor's pipelines. It then acquires or in-licenses them.
The strategy has had a remarkable degree of success. Roivant Sciences saw positive data readouts during eight out of nine recent phase 3 trials. Two drugs that began their development with Roivant have been approved by the U.S. Food and Drug Administration (FDA). They are Relugolix for treating prostate cancer and Vibegron for treating overactive bladder. Before their approvals, Relugolix had been transferred to the ownership of Myovant Sciences, while Vibegron had been transferred to Urovant Sciences. Much of Roivant's recent success is due to its research alliance with Sumitomo Dainippon Pharma, which began in 2019. In the deal, the Japanese pharma company paid $3 billion to Roivant for drugs in development and took a 10% equity stake in the business.
Roivant Sciences currently has over 40 medicines in development, ranging from gene therapies to dermatological treatments and immuno-oncology drugs. What's more, it also has an AI-based combinatorial chemistry engine for the discovery of new drugs based on repeated design-trials of promising chemicals, similar to that of Schrodinger (SDGR -0.20%). Overall, the firm's pipeline is highly promising, and I would definitely check it out while the company only has an enterprise valuation of $5 billion.
2. Pfizer
During Q1 2021, Pfizer recorded $3.462 billion in coronavirus vaccine sales and plans to ramp that number up to $26 billion by the end of the year. The vaccine has been wildly profitable; each dose has a pre-tax of nearly 30%.
The firm is on track to manufacture 2.5 billion doses this year while producing another 3 billion for 2022. Recently, a study conducted by Moderna (MRNA -0.58%) showed that patients who received messenger RNA (mRNA) vaccine developed better immunity against mutant coronavirus strains after a third dose. That's great news for Pfizer's mRNA vaccine too, as it opens up the possibility for recurring annual revenue via its vaccine program.
What's more, the company also has antivirals (including one in the form of an oral tablet) in phase 2/3 clinical trials to combat COVID-19, with results due by the end of Q3 2021. Pfizer is expanding its mRNA capabilities to develop a novel flu vaccine that could pass regulatory hurdles by early next year. The firm spends over $2 billion in research and development each quarter to enhance its pipeline, with most of it going to its promising oncology segment.
It should be no surprise that in Q1 2021, Pfizer's revenue and earnings per share (EPS) grew by 42% and 47% year over year, respectively, to $14.6 billion and $0.93. The biopharma also revised its guidance of $60.4 billion in full-year revenue and $3.15 in EPS to $71.5 billion and $3.60.
Despite the tremendous growth, the stock is still a bargain, trading at only 10.6 times forward earnings compared to the industry average of 123 times profits. On top of that, Pfizer stock also has an annual dividend yield of 4%. I'd highly recommend adding the stock to one's portfolios for interested biotech investors.
