If you're looking for biotech stocks that can grow in value over the long term, you shouldn't necessarily pick this year's top-performing biotech player. In fact, some of 2021's laggards could present far better opportunities.
What are the important points to consider? Commercialized products and the strength of the pipeline can tell us a lot about where a biotech company is going -- and whether you want to go along for the ride. These three stocks have underperformed the S&P 500 this year, but better times are likely ahead for them. That's because they're winning when it comes to the products they already have on the market, and look poised to keep winning with those treatments still in their pipelines.
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1. Vertex Pharmaceuticals
Vertex Pharmaceuticals (VRTX -0.27%) is known for its leading cystic fibrosis treatments, which generate billions of dollars in revenue and profit for it annually. But this biotech powerhouse is making game-changing progress in treating other conditions. And if all goes smoothly, today's investors will reap the rewards in the long term.
I'm thinking of two programs in particular. One is Vertex's gene-editing candidate for blood disorders. The company has reported positive follow-up data from a phase 1/2 clinical study in 22 patients. Success here could be big. That's because its therapy might be approved as a one-time treatment for transfusion-dependent beta-thalassemia and severe sickle cell disease. The company says it may be ready to file for regulatory approval in 18 to 24 months.
Data regarding Vertex's stem-cell-derived candidate for the treatment of type 1 diabetes also are encouraging. The first patient in its phase 1/2 clinical trial showed restoration of insulin production. Considering the limited treatment options for type 1 diabetes, this program, too, could be major for Vertex. Of course, we're still talking about early data here. Investors and would-be investors will want to watch how these treatments' clinical studies unfold.
2. Exelixis
Exelixis (EXEL 0.22%) focuses on oncology treatments. But here's what makes the company stand out: It has thrown its energy behind a single development program that has almost countless commercialization opportunities. Exelixis brought cabozantinib to market for the treatment of advanced renal cell carcinoma, hepatocellular carcinoma, and metastatic medullary thyroid cancer.
But it isn't stopping there. It's investigating cabozantinib's effectiveness against about 15 types of cancers. And eight of those studies are in phase 3. This is promising for the revenue picture ahead.
Meanwhile, its commercialized cabozantinib products are driving revenue higher. Lead product Cabometyx's revenue climbed by 59% in the most recent quarter. The Food and Drug Administration earlier this year approved the combination of Cabometyx with Bristol Myers Squibb's blockbuster Opdivo as a preferred treatment for renal cell carcinoma. That offered (and should continue to offer) the drug a significant boost.
Exelixis is profitable and revenue is on the rise. I'm optimistic the company can keep that trend going given the possibility that cabozantinib will be approved for more and more indications in the future.
3. Seagen
Seagen (SGEN) has grown by leaps and bounds over the past few years. Since late 2019, it has won approvals for three oncology drugs. Seagen's drugs treat cervical cancer, breast cancer, and the most common form of bladder cancer. Prior to that, the company was selling a treatment for Hodgkin lymphoma.
In the most recent quarter, the company generated $366 million in product sales. And for 2021 so far, product sales have reached $1 billion. Importantly, Seagen may win approvals for its drugs in additional indications. For example, it's studying bladder cancer drug Padcev in combination with Merck's blockbuster Keytruda. And Seagen's pipeline includes 13 programs. The company is studying each in various types of cancer.
Return on invested capital has soared since Seagen launched its new products.
SGEN Return on Invested Capital data by YCharts
And the company has increased its annual revenue forecasts for these treatments. It may make as much as $1.4 billion from three of its drugs this year. This is a great time to invest in Seagen since most of its drugs are at the start of their revenue stories -- so the best likely is yet to come for this biotech stock.
