Volatility comes with the territory when you invest in biotech stocks. But sometimes the pullbacks with these stocks present fantastic buying opportunities for long-term investors.
We asked three Motley Fool contributors which beaten-down biotech stocks they thought were great picks to buy right now. Here's why they chose Bluebird Bio (BLUE 7.03%), Lucira Health (LHDX), and Vertex Pharmaceuticals (VRTX 0.20%).
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Don't count this gene therapy company out just yet
Prosper Junior Bakiny (Bluebird Bio): Shares of Bluebird Bio have been hammered in recent years. In the past 12 months, the company's stock price dropped by nearly 70%. That's a bad performance any way you look at it. And given all the troubles the biotech has encountered, it isn't too surprising.
In November 2020, Bluebird announced that its regulatory submission for bb111 -- a potential treatment for a blood disorder called sickle cell disease (SCD) that's also known as LentiGlobin -- had been postponed to late 2022 because of manufacturing issues. Bluebird originally intended to submit bb111 to the U.S. Food and Drug Administration in the second half of 2021.
In February, the company temporarily halted a couple of clinical studies for bb111. The reason? A patient treated with this therapy more than five years ago was diagnosed with leukemia. Bluebird set out to investigate whether the patient's diagnosis had anything to do with bb111. The company has since announced that the investigational SCD therapy is unlikely to have caused the disease.
Then, in its latest quarterly update, the biotech announced it was withdrawing from the European market because of pricing-related challenges it faced with Zynteglo, a treatment for transfusion-dependent beta-thalassemia. The company will focus exclusively on the U.S. market moving forward.
Given these issues (and others), why should investors even consider Bluebird? The biotech is currently a leader in the gene therapy space. Gene therapies could help treat illnesses that have otherwise been difficult to tackle. In fact, Bluebird has already proven as much.
Two of the company's therapies have received regulatory approval in Europe. Although it has decided to withdraw from that market, at the very least, it shows the potential of Bluebird's platform.
The market isn't valuing Bluebird's programs very highly right now. I think that's a huge mistake. The company has demonstrated its ability to earn regulatory (on top of clinical) wins. For investors willing to be patient, I believe Bluebird is worth buying at current levels.
A 180-degree comeback
Zhiyuan Sun (Lucira Health): Lucira Health is a recent IPO stock that I like because of its innovative at-home diagnostic COVID-19 test that can be purchased over the counter. The Lucira Check It is very inexpensive (costing just $55), is highly accurate, can detect all current circulating variants, takes only two minutes to complete, and returns results in less than 30 minutes. Shares initially rallied on investors' enthusiasm but quickly turned south as mass vaccination campaigns took hold across the country.
The rampant spread of the delta variant and the rise of breakthrough cases have once again made testing necessary. Lucira Check It cleared the regulatory hurdle for OTC use back in April. Since then, sales have been skyrocketing even as vaccinations ramped up. During Q2, Lucira's revenue increased 175% sequentially to $12.4 million. That's pretty decent for a company with a market cap of only $339 million, and I expect sales to soar even more as variant cases rise.
In addition, the company saw strong international demand for Lucira Check It in Q2. International markets represent another huge opportunity for growth. Almost every country in the world requires passengers to present a negative COVID-19 test for entry. Some even require follow-up testing during quarantine after clearing their borders. So Lucira provides a sound value proposition to travelers with its easy-to-use and fast-turnaround COVID-19 test.
As the company moves past its early launch stages and prepares to scale, I'd expect it to turn a profit relatively quickly. Its competitors, such as Fulgent Genetics, have already proven that COVID-19 testing is a viable business model. I also expect its sales in Q3 and Q4 to far surpass that of the second quarter as COVID-19 becomes endemic.
A big biotech stock poised to rebound
Keith Speights (Vertex Pharmaceuticals): Vertex's shares haven't fallen nearly as much as Bluebird's and Lucira's have this year. However, the big biotech stock is still down close to 15%. I think Vertex is poised for a rebound. Indeed, I think that it could realistically double your money within the next five years.
Vertex enjoys a monopoly in treating the underlying cause of rare genetic disease cystic fibrosis (CF). It still has plenty of growth opportunities in the CF market, though. The company's approved therapies are currently used to treat only around half of the estimated 83,000 CF patients in the U.S., Europe, Canada, and Australia.
The company should make significant progress in capturing a greater market share over the next few years. Vertex only needs to secure additional reimbursement deals outside the U.S. and pick up regulatory approvals for its newest CF drug, Trikafta/Kaftrio, in younger age groups. My view is that those aren't difficult goals for the company to achieve.
I also think that Vertex will rack up some pipeline wins in the not-too-distant future. The biggest pipeline candidate to watch right now is CTX001, a gene-editing therapy targeting rare genetic blood disorders beta-thalassemia and sickle cell disease. Vertex and its partner, CRISPR Therapeutics, hope to file for regulatory approvals within the next 18 to 24 months.
The biotech's pipeline includes several other candidates that aren't as far along as CTX001. Vertex plans to announce phase 2 results for VX-147 later this year. The experimental therapy targets a genetic kidney disorder called APOL1-mediated focal segmental glomerulosclerosis.
Vertex isn't just limiting its focus to genetic diseases, though. The company should report results early next year from a phase 2 study evaluating VX-548 in treating acute pain following bunionectomy surgery. Vertex is also testing a cell therapy targeting type 1 diabetes in a phase 1/2 clinical study.
Like any other biotech stock, Vertex faces risks that its pipeline candidates won't pan out as it hopes. However, unlike most other biotechs, the company sits atop a cash stockpile of $6.7 billion that continues to grow. I look for Vertex to use this cash to bolster its pipeline. Even if the company experiences a clinical setback or two, Vertex will have multiple opportunities to expand beyond CF.
