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2 Under-the-Radar Biotech Picks to Buy For The Long Haul

By Alex Carchidi – Updated Dec 24, 2021 at 12:07PM

Key Points

  • It isn't necessary to have a large market to be a successful biotech.
  • Building a deep pipeline around a central theme is advantageous in multiple dimensions.
  • Guarding against the generic drugs of the future is key to maintaining recurring revenue.

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These quiet biotechs are tightly focused and practically alone in their markets.

It can be hard to find biotechs that are investment-grade, especially when you're not interested in taking home a frothy bubbling cauldron of risk. Many early-stage companies with the highest upside potential also have the highest downside potential, and few are safe from competitors' efforts to make drugs that address the same conditions. And that's why it pays to know about biotechs that have succeeded in staking out a niche where they can flourish for a long time.

Both companies I'll discuss today have profit margins near 30%, and neither has much in the way of debt. The pair are also highly differentiated, targeting uncommon diseases and indications that nobody else is working on. And by the looks of it, they both have staying power, so they could be ripe for a long-term hold. Join me as I analyze why.

A scientist at a laboratory bay looks at a test tube while resting a hand on a clipboard with a pen.

Image source: Getty Images.

1. Catalyst Pharmaceuticals

Catalyst Pharmaceuticals (CPRX 0.79%) makes a drug called Firdapse, which treats Lambert-Eaton myasthenic syndrome (LEMS), a rare autoimmune disease that occurs in perhaps 1 in 100,000 people. With such an uncommon target market and no competitors, Catalyst is positioned to keep helping its small group of patients for years and years to come.

In the last three years alone, Catalyst's quarterly revenue from Firdapse has grown by 188.8%, reaching $35.9 million in the third quarter. To prepare for the drug's eventual loss of exclusivity, the company is already developing a replacement which will be more convenient for patients while also working on an expanded approval in pediatrics. In the meanwhile, new patients are still enrolling to take the drug for the first time, and it's possible that the business might one day be able to offer it to every LEMS patient in the world.

Firdapse was originally licensed by Catalyst as part of a deal with BioMarin Pharmaceutical, which now owns a portion of the company and controls the rights to commercialize the drug outside of the U.S. As part of the terms of the collaboration, Catalyst is now eligible to try to commercialize Firdapse in Japan; it's now pursuing that by starting a small registrational study in early 2022. If it succeeds in Japan, it'll then have the chance to seek approval in other global markets according to the deal, but the process will probably take a few years.

So, people who invest today will have the benefit of capturing the upside from whichever regions Firdapse can be commercialized in outside the U.S. And, assuming Catalyst continues to be the only player in the LEMS therapeutics market, it's hard to see how things could go wrong.

2. Corcept Therapeutics

Corcept Therapeutics (CORT 1.68%) is, to my knowledge, the world's only profitable and publicly traded biotech focused exclusively on developing therapies targeting the hormone known as cortisol. Having such a narrow focus ensures that less-differentiated competitors are unlikely to be as skilled when attempting to develop medicines using the same cortisol-based approach, and it also guarantees that Corcept is the only game in town when specific populations of patients are seeking treatment.

Corcept makes a drug called Korlym that's approved in the U.S. to treat hyperglycemia in people with endogenous Cushing's syndrome. Sales of Korlym are responsible for driving the company's $352.89 million in trailing revenue, not to mention its rising quarterly free cash flow (FCF), which has grown by 107.2% over the last three years.

It's also developing a next-gen therapy for the same purpose called relacorilant, which is currently in phase 3 trials. If it's approved, relacorilant will mitigate the looming risk of generics stealing market share from Korlym, which is important given that several manufacturers are in the process of developing their own versions of the drug.

The company believes that cortisol-based medicines could also be useful in treating a slew of other conditions, including ovarian cancer, prostate cancer, obesity, hypertension, and even alcohol dependence.

In the long term, progress in its therapy projects in these indications could drive colossal returns for people who buy the stock now. Until then, Corcept will be sustained by its profitable sales of Korlym, which in turn massively reduces the risk that investors will be taking on. Even if Corcept will never be a household name, it'll be making money and investing for the future for years to come -- and if competitors ever come knocking, they'll be fighting on its home turf.

Alex Carchidi owns Catalyst Pharmaceuticals. The Motley Fool recommends BioMarin Pharmaceutical. The Motley Fool has a disclosure policy.

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