Don't let the current dismal environment for biotech stocks fool you. There are still plenty of opportunities to make money investing in the biotech industry.
We asked three Motley Fool contributors to identify biotech stocks they think have real prospects for growth in February and beyond. Here's why they chose Adicet Bio (ACET -3.52%), Amgen (AMGN -0.76%), and AstraZeneca (AZN 0.45%).
A potential off-the-shelf winner
Keith Speights (Adicet Bio): Chimeric antigen receptor T cell (CAR-T) therapies have a lot of potential as cancer-fighting treatments. The downsides of the CAR-T therapies currently on the market, though, are that they're expensive and time-consuming to prepare. Each cancer patient's own T cells must be extracted from their blood, sent to an off-site lab for genetic engineering -- a process that generally takes three to six weeks -- returned, and then re-infused back into the patient's bloodstream.
The holy grail of CAR-T is to develop an allogeneic "off-the-shelf" therapy that uses T cells derived from the cells of healthy donors, and can be made in batches for use in multiple patients. And tiny Adicet Bio has a shot at being a big winner in this off-the-shelf CAR-T market.
In December, Adicet announced positive interim data from a phase 1 study evaluating its experimental CAR-T therapy, ADI-001. These early results were so good that CEO Chen Schor described them as "profound."
The stock initially skyrocketed on the phase 1 data news. However, a subsequent follow-on stock offering caused Adicet's shares to give back a large portion of those gains. Another big catalyst could be on the way, though. Adicet expects to report more data from its early-stage study in the first half of this year.
It wouldn't be surprising if a bigger drugmaker decided to acquire Adicet if ADI-001 continues to achieve success in clinical testing. My view is that Gilead Sciences, a current leader in the CAR-T arena, would be a good potential buyer.
Granted, Adicet has plenty of hurdles left to jump with its off-the-shelf CAR-T program, which makes the stock a risky proposition. However, with a little luck, this small biotech could take off in the not-too-distant future.
Staging a comeback
Prosper Junior Bakiny (Amgen): Biotech giant Amgen has faced headwinds recently as sales of some of its key products have been declining, in part due to biosimilar competition. In the third quarter, the drugmaker's revenue increased by an uninspiring 4% year over year to $6.7 billion. Patent expirations are an unavoidable issue in the pharmaceutical industry, but fortunately, Amgen seems to have the means to regain its momentum.
The company is counting on two recently approved treatments to drive top-line growth. First, there is Lumakras, a treatment for advanced or metastatic non-small cell lung cancer (NSCLC). The great thing about Lumakras is that it targets a specific NSCLC mutation found in 13% of this patient population, and it's the only medicine approved by the Food and Drug Administration that does so. Lumakras also earned approval in Europe, and it's probably on its way to blockbuster status.
Then there's Tezspire, a medicine for those with severe asthma. Amgen developed Tezspire in collaboration with AstraZeneca. There are, of course, scores of asthma treatments, but -- as Amgen's management argues -- many of these medicines have proven inadequate to address the needs of a lot of asthma patients. The company hopes that Tezspire will address an unmet need in this market.
Amgen can also count on revenue growth for at least one of its older approved medicines -- psoriatic arthritis therapy Otezla. During the third quarter, sales of Otezla jumped by 13% year over year to $609 million. And thanks to a recent win in court, Amgen won't have to worry about generic competition for that drug until 2028.
Investors should expect Amgen's revenue growth rates to improve in the coming quarters. And with more than two dozen programs in its pipeline in clinical testing, the company should earn some label expansions for its current products -- and approvals for brand new ones -- that will further strengthen its lineup.
Amgen currently trades at a reasonable forward price-to-earnings ratio of 12.8 -- compared to an average of 11 for the biotech industry.
The company also pays a dividend that, at current share prices, offers an above-average yield of 3.1%, with a cash payout ratio of 50.5%. Overall, Amgen is well-positioned to reward patient investors in the long run, both with solid market performance and dividend hikes.
Growth potential and an above-average dividend
David Jagielski (AstraZeneca): Investing in a relatively cheap pharmaceutical company that has a great pipeline and pays a solid dividend can put you on a fairly reliable path to long-term profits. And that's an accurate description of U.K.-based AstraZeneca.
True, the stock is down 7% over the past three months, a period during which the S&P 500 has declined by 2%. But the company reports earnings this month, and a solid performance could help the stock regain some traction.
One reason to expect AstraZeneca to deliver a strong result is that in early December, the Food and Drug Administration granted an Emergency Use Authorization for its COVID-19 antibody cocktail, Evusheld.
When used as a pre-exposure preventive treatment by people with compromised immune systems, Evusheld is effective in reducing the symptoms of those who later contract COVID-19. Early sales could trickle into AstraZeneca's upcoming earnings results, which will cover the last three months of 2021. And those could bump up some already strong growth.
Through the first nine months of 2021, the company's sales grew 32% year over year to $25.4 billion when including COVID-19 vaccine revenue. Even excluding it, growth was still fairly high at 21%. Management has projected revenue growth will be at least 20% for 2021, and possibly reach the high-20s when including revenue from its COVID-19 vaccine. And that forecast was given before the emergence of omicron. In light of the recent steep upsurge in COVID-19 cases, there may have been heightened demand for both Evusheld and AstraZeneca's COVID-19 vaccine, which would help the company outperform its guidance.
In the long run, you can also profit from the growth that will likely come from the company's vast pipeline, which currently includes 175 projects. Plus, AstraZeneca's acquisition of Alexion Pharmaceuticals continues to bear fruit with a recent potential blockbuster indication approved for rare-disease drug Ultomiris. On top of that, there's also the company's dividend, which at current share prices yields 2.4% -- appreciably higher than the S&P 500's average yield of 1.3%.
At a forward price-to-earnings ratio of just 13, AstraZeneca also isn't a terribly expensively valued stock today. By comparison, healthcare giant Johnson & Johnson trades at a forward earnings multiple of 16. AstraZeneca's attractive valuation combined with its solid growth prospects could help this stock make investors richer both in the near term and over the long run.