The mini-crash of January has given investors the opportunity to buy some amazing healthcare companies at a discount. First we're going to take a look at Doximity (DOCS -1.34%), a telehealth powerhouse that is almost 60% off its highs. Next up is Novocure (NVCR -0.89%), a cancer specialist that has dropped 70% from its high point last year. And finally we're going across the pond to visit Affimed (AFMD), a cancer drugmaker whose stock has dropped 65% from 2021.
These three biotech stocks have been slammed hard. But the biotech industry is often volatile, and you can find some exciting (and sometimes highly rewarding) opportunities when the market turns negative. Here is why we recommend Doximity, Novocure, and Affimed.
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This telehealth stock is a no-brainer
Taylor Carmichael (Doximity): It's no secret that virtual internet stocks like Doximity, Teladoc Health, and Zoom Video all zoomed higher when the pandemic caused a massive quarantine, only to crash when the market decided the lockdown might be over soon. This is a mistake, however. While Zoom's revenue growth has slowed dramatically, Doximity and Teladoc are still seeing a remarkable jump in sales. That's because the telehealth revolution is just getting started, and these two companies are leading the way.
In my opinion, Doximity is a stronger buy, because it's already achieved profitability (and then some). The telehealth giant has 36% profit margins and 76% revenue growth. The business is fantastic right now. And I see Doximity as a safer pick, because it's got a diversified business across the telehealth spectrum.
Doximity is a networking portal for the healthcare industry -- it's social networking for doctors. Eighty percent of U.S. physicians are on the platform, and 90% of medical students. Thanks to the network effect, nobody can compete with Doximity. All the doctors go to Doximity because that's where all the doctors already are. And this powerful advantage gives the company multiple ways to make money.
One major part of Doximity's business is its status as the major internet marketing platform for drug companies that want to target doctors. Another one is a job-seeking site for healthcare professionals looking to find a new job. And finally, Doximity rolled out a telehealth solution at the beginning of the pandemic, so that doctors and their patients could visit remotely.
This is a fantastic business. Why is the stock down so much? Mr. Market has just shredded the multiple, that's all. Take a look at this company, the price is right.
New data may launch this company to new highs
Patrick Bafuma (Novocure): While projecting anemic sales growth of just 8% for the full year of 2021, Novocure has taken a much-needed breather, pulling back 70% from its all-time highs in June 2021. Despite the sell-off, the maker of cancer-fighting wearable Optune has still returned over 900% in the last five years. This absolutely smashes the S&P 500, which has just about doubled during the same timeframe.
Continued prosperity may be ahead too. This $7.7 billion oncology company is expecting final data from its phase 3 pivotal LUNAR trial looking at Optune in non-small cell lung cancer (NSCLC). Novocure believes there are approximately 46,000 NSCLC patients in the U.S. who could benefit from its therapy. That number is more than four times its current lone addressable market for glioblastoma, a certain type of brain cancer. It was just back in April that the company reported it would wrap up the LUNAR trial earlier than expected. Not to mention an independent data-monitoring committee suggested it was possibly unethical for patients to continue to be randomized to the control arm. With many believing positive data were ahead for such a large addressable market, the stock surged 40% in a single trading session on the news.
Novocure is inching toward profitability, losing just under $32 million through the first three quarters of 2021 while accumulating $401.8 million in revenue. Likewise, it has impressive 79% gross margins and $938 million in cash as of the end of 2021. With positive NSCLC news seemingly inevitable this year, it seems likely the company may be profitable within the next few years. And with multiple other late-stage clinical trials for Optune underway, the market has unfairly discounted this emerging oncology company.
A deeply discounted cancer stock
George Budwell (Affimed): Shares of the German cancer immunotherapy company Affimed are currently off of their 52-week high by a whopping 65%. Normally, that kind of sharp drop in a developmental-stage biotech's share price would be accompanied by a major clinical or regulatory setback. Oddly, though, the exact opposite is true in regards to Affimed's novel anti-cancer platform. Late last year, the German biotech actually reported stellar early/mid-stage trial results for its lead product candidate AFM13, when used in combination with natural killer cells. This potent combo therapy produced a 100% objective response rate in a small cohort of heavily pre-treated patients with recurrent or refractory CD30-positive lymphomas.
This first indication, if approved, is thought to be worth upwards of $600 million in sales at its peak. Even so, Affimed's market cap is a mere $442 million at the time of this writing -- implying that this steep drawdown in the company's share price over the past few weeks is way overdone at this point. Keeping with this theme, Affimed also has trials underway for a host of other high-value indications, including Hodgkin lymphoma and a basket of solid tumors. Some of these indications, in fact, have blockbuster sales potential (greater than $1 billion in sales). Viewed in this light, Affimed's stock appears to be grossly undervalued right now.
Apart from its enormous organic growth prospects, Affimed also stands out as a potential buyout target. After all, Affimed already has a close working relationship with cancer behemoth Roche. For those who don't follow biotechs all that closely, Roche is one of the most aggressive big pharmas when it comes to buying novel therapeutic platforms. So, if Affimed's anti-cancer platform continues to hit the mark in the clinic, it wouldn't be particularly surprising if Roche eventually made an offer to buy its partner.
