October has been a scary month for investors several times in the past. However, history doesn't necessarily repeat itself. And there have been plenty of years when buying stocks in October turned out to be a smart move.
We asked three Motley Fool contributors which biotech stocks could make investors richer in October and beyond. Here's why they picked Biogen (BIIB -0.55%), Moderna (MRNA 3.18%), and Novavax (NVAX 0.82%).
An absolute bargain
Zhiyuan Sun (Biogen): Biogen has become an absolute bargain biotech and is ripe for investors sitting on the sideline to buy the dip. The stock is down nearly 20% in the past three months after disappointment regarding sales of Aduhelm, the company's novel drug for the treatment of Alzheimer's disease.
Back when it was first approved, I warned investors that the drug's efficacy data were questionable, and one shouldn't put all their eggs in one basket to bet on its performance. Unsurprisingly, only about 100 patients have received the medication since its launch in late June.
What's more, exuberant high costs and a questionable approval pathway all cast a dark shadow on Aduhelm's commercialization. But at just four times forward revenue and 15 times forward earnings, it's clear that all the bad news surrounding Biogen has been baked into its stock price and then some.
The most promising drug in its pipeline is tofersen, which is under phase 3 investigation to treat amyotrophic lateral sclerosis (ALS), a progressive neurodegenerative disease. Back in phase 1/2 trials, the experimental drug demonstrated remarkable efficacy compared to placebo.
If approved, it would potentially become one of six ALS treatments approved by the U.S. Food and Drug Administration. ALS drug sales are projected to grow from around $300 million to over $1 billion by the end of the decade. A data readout from tofersen's clinical trial is expected by the end of the year.
In other areas, the situation is stabilizing with Biogen's loss of market exclusivity on its multiple sclerosis drug Tecfidera. Its revenue fell by about $700 million year over year to $488 million in the second quarter.
But the company has 33 clinical programs, mostly targeting neurological conditions, to make up for that shortfall. As a result, Biogen should be able to return to revenue and earnings growth in no time.
Moderna is only getting started
Prosper Junior Bakiny (Moderna): Moderna has become a household name in the past 18 months. It rose from its status as a clinical-stage biotech to become a leader in the coronavirus vaccine market. This year, the company expects to generate $20 billion in sales from its crown jewel, mRNA-1273. In 2022, the company expects at least $12 billion.
Meanwhile, Moderna has received authorization in the U.S. and Europe for a third dose of its vaccine for at-risk individuals. And with the delta variant still wreaking havoc, health authorities could expand the pool of those who are eligible for a third dose. In short, the windfall from mRNA-1273 is far from over for the biotech.
With more than a dozen vaccines in its pipeline, the company could be in store for significant clinical wins in the future. Moreover, thanks to its recent success, Moderna is generating tons of cash. Expect Moderna to go shopping for exciting clinical programs from smaller biotechs or potentially acquire a smaller biotech outright. In particular, Moderna is looking to dip its toes in the promising gene-editing space. There are several companies it could turn to in the pursuit of this goal.
One problem with Moderna is its valuation. It is hard to fully justify the company's current market cap of close to $130 billion. Moderna is trading at a premium to other well-established and highly successful biotechs. For example, Vertex Pharmaceuticals -- which holds a monopoly in the market for drugs that treat the underlying causes of cystic fibrosis -- has a market cap well under half of Moderna's.
I think Moderna's long-term thesis justifies a steep valuation, but the company's stock is likely to be volatile in the short term. All things considered, though, I think there are enough reasons to add this biotech to your portfolio.
Multiple catalysts on the way
Keith Speights (Novavax): Sure, shares of Novavax are down more than 30% over the last month. This big decline came in part because of the company's further delays in filing for Emergency Use Authorizations for its COVID-19 vaccine, NVX-CoV2373. However, those delays also mean that Novavax still has multiple catalysts on the way.
The biotech plans to first file for EUA for NVX-CoV2373 in the United Kingdom. Novavax has a deal in place to supply 60 million doses to the U.K. once EUA is secured. An even more important milestone should come shortly afterward with the company's filing for authorization with the European Union. That authorization will clear the way for Novavax to supply up to 200 million doses to the EU. There are several other countries on the list for EUA filings as well, notably including the U.S.
But Novavax also could have another catalyst that comes even sooner. The company and its partner, Serum Institute of India, await an Emergency Use Listing for NVX-CoV2373 from the World Health Organization. This EUL is a prerequisite for Novavax and SII to begin supplying doses of the vaccine to a large number of developing countries.
I think it's a matter of when and not if Novavax picks up these authorizations and the EUL. NVX-CoV2373 appears to be both safe and effective based on late-stage results that have already been released.
The consensus Wall Street revenue target for Novavax for 2022 is $5.5 billion. With the biotech's market cap currently around $12.5 billion, the stock is trading at only 2.3 times expected sales. That's really low, especially for a biotech stock. All Novavax needs is for a catalyst or two to make investors a lot of money. And those catalysts are coming. We just don't know exactly when.