Biotech stocks, in general, again performed dismally in the first quarter of 2022. However, there are some signs of improvement. The lower valuations could present a great buying opportunity once the inevitable strong rebound materializes.
We asked three Motley Fool contributors which biotech stocks they think are good picks to buy in April. Here's why they chose Amgen (AMGN -0.56%), Jazz Pharmaceuticals (JAZZ 0.18%), and Novocure (NVCR -1.50%).
A potential recovery stock that's cheap
David Jagielski (Amgen): With new COVID-19 cases down significantly from where they were at the start of the year, there's optimism that hospitals and the economy as a whole can return to normal in the near future. That's good news for biotech stocks because more trips to the doctor's office can lead to more prescriptions and revenue for drugmakers.
Amgen falls into the category of a potential recovery stock that could be worth buying right now. Trading at a forward price-to-earnings multiple of less than 14, it's a relatively cheap buy. By comparison, the average stock in the Health Care Select Sector SPDR Fund trades at a multiple of over 16. Amgen typically reports first-quarter earnings in April (toward the end of the month). Buying ahead of then could be a good move for investors.
When Amgen last reported its earnings on Feb. 7, its sales totaled $6.8 billion, up a modest 3% from the same period last year. While that isn't terribly impressive, there were multiple drugs with double-digit volume increases, including osteoporosis drug Prolia, which generated $873 million in revenue for the period ending Dec. 31. Its sales were up 17% year over year.
Amgen also has the up-and-coming lung cancer drug Lumakras, which analysts project could generate annual sales topping $1.4 billion by as early as next year. The drug is already approved in over 35 countries.
Even if this coming quarter proves to be underwhelming for Amgen, investors can just hang on and wait. The big biotech offers a dividend yield of 3.3%, which is a full two points better than the S&P 500 average of 1.3%. There's plenty of incentive to hold on to this solid healthcare stock for the long haul.
This under-the-radar biotech is a steal
Prosper Junior Bakiny (Jazz Pharmaceuticals): With a market cap of $9.7 billion, Jazz Pharmaceuticals does not attract nearly as much attention as some of its larger peers in the biotech industry. But that doesn't make it a poor investment option. In fact, Jazz Pharmaceuticals looks like an excellent stock to buy, especially at current levels.
Jazz currently trades for just 9.5 times forward earnings, while the industry's average price-to-earnings ratio stands at 11.8. That's despite the fact that the stock has defied the market sell-off so far this year and is up by 23.56% year to date. Meanwhile, investors can expect the drugmaker's revenue to grow at a good clip. That's in part due to the company successfully replenishing its lineup.
In recent years, Jazz Pharmaceuticals has relied heavily on its top-selling medicine, narcolepsy treatment Xyrem. But a slew of new approvals has helped diversify its top line. Between 2019 and 2021, Jazz Pharmaceuticals earned regulatory nods for narcolepsy treatments Sunosi (which it's licensing to Axsome Therapeutics) and Xywav, and two cancer medicines called Zepzelca and Rylaze.
Further, Jazz acquired GW Pharmaceuticals, a biotech specializing in developing cannabidiol (CBD)-derived medicines. The $7.2 billion cash and stock transaction closed in May 2021.
Thanks to this deal, Jazz now owns Epidiolex, a therapy for Lennox-Gastaut syndrome (LGS) and Dravet syndrome (both are rare and severe forms of epilepsy). Epidiolex became the first CBD-based drug approved by regulators in the U.S. back in 2018. Jazz also now owns nabiximols, a CBD-based therapy that is being developed as a treatment for spasticity (muscle stiffness) associated with multiple sclerosis.
With its lineup of newer products, Jazz Pharmaceuticals should be more than capable of growing its revenue and profits in the coming year. That will help the biotech deliver excellent returns, too. Investors would do well to purchase shares of this company before they get a lot more expensive.
A monster biotech in the making
Keith Speights (Novocure): There aren't many stocks that I think hold the potential to quadruple or more by 2030. However, Novocure is one of them. I think it's quite possible that Novocure is a monster biotech in the making.
To be sure, Novocure doesn't look like much of a monster right now. Its market cap stands at close to $9 billion after the stock plunged from its peak set last summer. But my view is that this sell-off was way overdone based on the company's long-term growth prospects.
Novocure's Tumor Treating Fields (TTFields) are already approved for treating glioblastoma (an aggressive type of brain cancer) and mesothelioma (a type of cancer caused by exposure to asbestos). These TTFields disrupt the ability of tumor cells to replicate, stopping the spread of cancer in its tracks.
These indications enabled Novocure to rake in $535 million in net revenue last year. However, the company has some critical data on the way.
It expects to report results from a phase 3 study of TTFields in non-small cell lung cancer this year. Results from two other pivotal late-stage studies targeting recurrent ovarian cancer and brain metastases should be available in 2023. Data from another phase 3 study in pancreatic cancer is anticipated in 2024.
Novavax estimates that its market opportunity with these indications is 14 times the size of the market that it currently targets. And the company has achieved a market penetration rate of only 35% in glioblastoma.
There have already been some recommendations from the independent data monitoring committees in a couple of the late-stage studies that seem to bode well for TTFields' chances of success. If the therapy wins approvals in the targeting indications, Novocure truly could become a monster biotech.