So far, 2022 has been pretty brutal on the market. Rising interest rates, the invasion of the Ukraine, and COVID-19 caused a bear rampage in the first two months of 2022. But you can always find some winners, even in bad markets. That's particularly true in healthcare, always a strong defensive play.
Here's why we think Inspire Medical Systems (INSP -2.04%), Vertex Pharmaceuticals (VRTX -0.46%), and AstraZeneca (AZN 5.75%) will continue to outperform the market in 2022.
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A new treatment for sleep apnea
Taylor Carmichael (Inspire Medical Systems): A tremendous number of people don't sleep very well. According to Johns Hopkins, 45% of adults snore occasionally and 25% snore all the time. Many times this snoring is indicative of sleep apnea -- you're not breathing right as you sleep. When this happens, your body gives you a shot of adrenaline so that you will start breathing again. And this keeps you from getting a deep and restful sleep.
Traditionally, sleep apnea was treated with a CPAP (continuous positive airway pressure) device. This is a very bulky mask that you wear at night to keep air flowing into your lungs. An estimated 35% to 65% of patients on the CPAP fail to use the device. That high failure rate has led to a new form of therapy from Inspire -- a tiny neurotransmitter that is implanted under the skin and keeps your airways open automatically. According to a study, 91% of users are satisfied with Inspire, and 94% say it's better than CPAP and would recommend it to others.
The dangers of untreated sleep apnea are significant -- it doubles your risk of stroke and of sudden cardiac death. That's probably why Medicare pays for the Inspire device in all 50 states. The company reports that 260 million Americans can access the Inspire procedure through their insurance plans.
The stock has absolutely crushed the market since Inspire went public in 2018. The stock's had a ferocious nine-bagger in less than four years, and it shows no signs of slowing down.
Inspire estimates a $10 billion market opportunity just in the U.S. And the company has just started expanding internationally, with the first implants in the U.K. and Japan earlier this year. With a $6 billion market cap, this young company has plenty of room to grow as it eliminates sleep apnea for more and more people. I'm confident Inspire will continue to trounce the market over the next several years.
This pharma is lining up yet another market-beating year
Patrick Bafuma (Vertex Pharmaceuticals): While the S&P 500 is down more than 10% year to date, biotech investments have performed far worse. With the S&P SPDR Biotech ETF down 18% in the same period, biotech investors should look to lean on stalwart Vertex Pharmaceuticals. Up 3% in 2022, this cystic fibrosis (CF) fighter has a proven track record of beating the market. Over the past five years, Vertex has trounced the S&P 500, up 155% versus 80%, and over the past decade, Vertex is up just under 500%, more than doubling the 214% gains of the S&P 500.
In the realm of CF, Vertex is quite literally in a class by itself. There is no meaningful competition on the horizon, and the company continues to see increased uptake of its CF treatments. Add in recent label expansions, and this lung-saving company is expecting to see continued growth ahead in the CF market. The CF leader is guiding for a 12% to 15% increase in product revenue for fiscal year 2022 to the tune of $8.4 billion to $8.6 billion, and it has a cool $7.5 billion in cash to go shopping in this volatile market.
The future looks bright at Vertex, too. Management is dedicated to advancing the pipeline beyond just the cystic fibrosis market. And it starts with plans to file for regulatory approval for a potentially curative gene therapy for sickle cell disease by the end of 2022. It adds up to a multibillion-dollar market with collaborator CRISPR Therapeutics, in which Vertex claims 60% of profits and costs. If anyone has shown an ability to provide transformative medicine while successfully navigating the approval and marketing process, it's Vertex. With an initial 25,000 patients being candidates for gene therapy in the U.S. and Europe if approved, that is likely an addressable market north of $20 billion. Put it all together, and it is easy to see why Vertex has outpaced the market in 2022, and why it could continue to do so.
Holding steady in a turbulent market
George Budwell (AstraZeneca): U.K. pharma giant AstraZeneca hasn't exactly set the world on fire this year. However, the drugmaker's shares are flat year to date at the time of this writing. And in a raging bear market where several of its big pharma peers are currently down by double digits so far this year, this sideways movement definitely feels like a win. The drugmaker's shares have been able to weather the 2022 bear market for two core reasons.
First up, the company's oncology and rare disease portfolios have been performing extremely well of late. Speaking to this point, Astra's non-COVID-19 product sales rose by a healthy 26% in the fourth quarter of 2021, relative to the same period a year ago. Most of this blistering revenue growth can be attributed to its recent acquisition of the rare disease specialist Alexion, along with the continued upward trajectory of the top-selling cancer medications Calquence, Lynparza, and Tagrisso. Its oncology and rare disease portfolios are also expected to continue to deliver top-notch levels of revenue growth for the remainder of the decade.
Second, Astra's proven commitment to its dividend program has probably calmed more than a few nerves in this tough market. Despite Astra losing exclusivity for multiple star products over the prior decade, its shares still yield a respectable 2.47% on an annualized basis at current levels. That's an impressive feat in light of the fact that the drugmaker's payout ratio eclipsed 300% at one point during this last bout with the patent cliff. In effect, investors probably wouldn't have blamed the company if it suspended dividend payouts outright. Astra's decision to stick with its dividend program during this difficult period is a testament to management's dedication to rewarding loyal shareholders.
All told, Astra's solid fundamentals and rock-solid dividend program should keep its shares on even keel in this bear market.
